REG - IG Design Group PLC - Preliminary Results <Origin Href="QuoteRef">INGR.L</Origin> - Part 2
27/06/2017 07:06
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twice a year.
The Remuneration Committee determines appropriate levels of remuneration and
compensation for Executive Directors. The Committee meets as required during
the year and is closely involved in agreeing the positions within our senior
management team that should participate in our Long Term Incentive Plan
("LTIP"), together with the level of awards. The Remuneration Committee is
also responsible for agreeing the performance criteria for annual bonuses and
LTIP for Executive Directors and senior management.
Anders Hedlund, who founded our Group, is a Nominee Director. Anders Hedlund
is presumed not independent, because as founder, he has served on the Board
since the Company's inception, his family hold significant interests in the
shareholding of the Company and he also fulfils a consultancy role within one
of the Group's businesses. As reported in the financial statements, there are
also some related party transactions between certain of the subsidiaries
within our Group and companies under the ultimate control of the Hedlund
family.
As at the date of this report, all of the other Non-Executive Directors are
considered independent under the UK Corporate Governance Code.
Board process and information
The Board met seven times during the year, including an in-depth review of
2017/18 budgets, annual operating plans and strategic objectives with the
Executive Directors and some members of the senior management teams of our
businesses. This took place over two days during March 2017. The Board aims to
meet at least six times a year for formal Board meetings and up to six further
times in between for informal business reviews, to review budgets and to focus
on strategy. As previously advised, where possible and cost effective, the
Board tries to meet on the premises of various of its subsidiaries during the
year, which provides an opportunity for the Directors to visit our businesses,
meet with the senior management and be seen by our associates as a Board that
genuinely wishes to be involved.
Dialogue occurs regularly between Directors outside of scheduled meetings.
Meeting agendas include review and approval of minutes recorded, matters
arising, a review of material operational matters relating to our businesses
and other special items for discussion or consideration. Board papers are
usually circulated at least three business days in advance to allow Directors
adequate time to prepare.
Our Non-Executive Directors also meet as a team outside of Board meetings to
discuss the performance of our Board as a whole and various topics and matters
that require their specific input and attention.
The Board receives operational and financial information and reports from the
CEO/CFO to assist in monitoring and assessing the ongoing performance of the
businesses on a monthly basis.
Accountability and audit
All Directors have accepted a duty of care and accountability to act in the
interests of the Company.
As stated, the Audit Committee oversees how the Board monitors risk and
reviews the adequacy of the risk management framework.
Risk management
The Board of Directors has overall responsibility for the establishment and
oversight of the Group's risk management framework. The Group's risk
management systems, policies and procedures are established to identify and
analyse the risks faced by the Group, to set appropriate risk limits and
controls, and to monitor the risks and adherence to limits. Such a system is
designed to manage, rather than eliminate, the risk of failure to achieve
business objectives and can only provide a reasonable and not absolute
assurance against material misstatement or loss.
Risk management processes are reviewed regularly by the Audit Committee to
reflect changes in market conditions and the Group's activities. The Board's
oversight covers all controls, including financial, operational and compliance
controls and general risk management. It is based principally on reviewing
reports from management to consider whether significant risks are identified,
evaluated, managed and controlled and whether any significant weaknesses are
promptly remedied and indicate the need for more extensive monitoring.
Whilst this report provides an overview of the policies and procedures that we
adopt in following good corporate governance, I wish to take the opportunity
of thanking my fellow Directors for their hard work, commitment, loyalty and
support that they give to our Group. I also wish to place on record once again
our sincere thanks and appreciation to all our employees and associates
throughout the Group. It is through their efforts and support that we are,
once again, able to report another year of very strong progress. We value
greatly their commitment and loyalty. It is also with great pride that I
congratulate Paul Fineman, our Group CEO on being recognised with the award of
Chief Executive Officer of the Year by the Quoted Company Awards 2017.
Finally, I should like to take this opportunity to thank our shareholders,
bankers, customers, suppliers and advisers for their input and contributions
to all our businesses throughout the world. As always, we never take your
support for granted and we are very appreciative of the strong working
relationship and partnership that we continue to enjoy with you.
John Charlton
Chairman
26 June 2017
DIRECTORS' REPORT
The Directors present their annual report and the audited financial statements
for the year ended 31 March 2017.
Likely future developments
See above.
Financial risk
See above.
Dividends
A final dividend for the year ending 31 March 2016 of 1.75p was paid on 21
September 2016 (year ending 31 March 2015: 1p). An interim dividend for the
year ended 31 March 2017 of 1.75p was paid on 17 January 2017 (2016: 0.75p).
The Directors are recommending a final dividend for the year ended 31 March
2017 of 2.75p per share (2016: 1.75p). If approved, it will be paid on 7
September 2017 to shareholders on the register at the close of business on 7
July 2017.
Capital structure
Details of the Company's issued share capital, together with details of
movements in the Company's issued share capital during the year are shown in
note 22. The Company has one class of ordinary shares which carry no right to
fixed income. Each share carries the right to one vote at general meetings of
the Company.
There are no specific restrictions on the size of a holding nor on the
transfer of shares, which are both governed by the general provisions of the
Articles of Association and prevailing legislation.
Details on share-based payments are set out in note 25 to the financial
statements and the Directors' remuneration report. No person has any special
rights or control over the Company's share capital and all issued shares are
fully paid.
Directors and Directors' interests
The Directors who held office during the year were as follows:
Elaine Bond
Lance Burn
John Charlton
Paul Fineman
Anders Hedlund
Anthony Lawrinson
Mark Tentori
In accordance with the Company's Articles of Association, John Charlton and
Paul Fineman will stand for re-election at the forthcoming Annual General
Meeting.
The Directors who held office during the year had the following direct
interests in the ordinary shares of the Company:
Interest at end of year Interest at beginning of year
LTIP LTIP LTIP LTIP
LTIP not yet not yet not yet LTIP LTIP not yet
Ordinary vested vested(d) vested vested Ordinary vested vested vested
shares 2012-2015 2014-2017 2015-2018 2016-2019 shares 2012-2015 2014-2017 2015-2018
Elaine Bond 15,816 - - - - - - - -
Lance Burn - - 268,678 192,191 110,259 - - 262,083 185,871
John Charlton(a) 619,655 - - - - 620,000 - - -
Paul Fineman(b) 4,453,534 - - 207,774 148,999 4,453,534 - - 200,948
Anders Hedlund(c) 448 - - - - 448 - - -
Anthony Lawrinson - 500,000 290,462 166,219 119,199 - 500,000 283,333 160,759
In addition to the above holdings:
(a) 37,500 (2016: 37,500) shares are held by the wife of John Charlton.
(b) Paul Fineman owns a non-beneficial interest in 174,608 (2016: 174,608)
ordinary shares of 5p each.
(c) 17,142,640 (2016: 17,142,640) and 5,275,116 (2016: 5,275,116) ordinary
shares of 5p each are respectively registered in the names of AC Artistic
Limited ("Artistic") and Malios Limited, companies incorporated in the British
Virgin Islands, and under the ultimate control of the Hedlund family. In
addition to the Hedlund family's beneficial interest set out above, the
Hedlund family also holds interests in a further 1,150,790 ordinary shares,
representing a further 1.84% of the current issued share capital of the
Company. These ordinary shares are held by West Coast Trust, a trust for the
benefit of Anders Hedlund's adult children, which holds 900,790 ordinary
shares and Claes Hedlund, Anders Hedlund's brother, who owns 250,000 ordinary
shares. In total the Hedlund family has interests in 23,568,994 ordinary
shares, representing 37.63% of the current issued share capital of the
Company.
(d) All of these shares formally vest on 21 June 2017 following the
Remuneration Committee and Audit Committee approval of the results for the
year ended 31 March 2017.
No shares were purchased by Directors between 31 March 2017 and the date of
this annual report.
Employees
The Group recognises the benefits of keeping employees informed on matters
affecting them as employees and on the various factors affecting the
performance of the Group. This is achieved through employee briefings that are
held in most businesses at least twice a year and regular team briefings.
The Group conforms to current employment laws on the employment of disabled
persons and, where we are informed of any employee disability, management
makes all reasonable efforts to accommodate that employee's requirements.
Donations
Political contributions in the year were nil (2016: nil).
Health and safety
The Group is committed to maintaining high standards of health and safety in
every area of the business.
It is the aim of the Group to exceed the requirements of health and safety
legislation and we have established a health and safety co-ordinator to ensure
continuous improvement of health and safety across the Group.
Going concern
The Group's business activities, together with the factors likely to affect
its future development, its performance and position are set out in the Chief
Executive Officer's review. The financial position of the Group, its cash
flows, liquidity position and its management of both working capital and
capital expenditure are set out in the financial review. Details of bank loans
and borrowings are given in note 17 to the financial statements and liquidity
risks are given in note 26 to the financial statements.
The Group relies on its banks for financial support and is confident that the
facilities in place are sufficient to meet its needs for the foreseeable
future (see note 1 to the financial statements). Accordingly the Directors
continue to adopt the going concern basis in preparing the financial
statements.
Purchase of own shares
The Directors are authorised to make market purchases of the Company's own
shares under an authority granted at the last Annual General Meeting. During
the year the Company did not buy back any of its shares. The Directors will
seek renewal of this authority at the forthcoming Annual General Meeting and
at each succeeding Annual General Meeting.
Any shares purchased under this authority would either be treated as cancelled
(and the number of shares in issue reduced accordingly) or held in treasury,
available for re-sale by the Company or transferred to an employee share
scheme.
Auditor
The Directors who held office at the date of approval of this annual report
confirm that, so far as they are each aware, there is no relevant audit
information of which the Company's auditor is unaware and, each Director has
taken all the steps that ought to have been taken as a Director to make
himself aware of any relevant audit information and to establish that the
Company's auditor is aware of that information. This confirmation is given and
should be interpreted in accordance with the provisions of Section 418 of the
Companies Act 2006.
By order of the Board
Anthony Lawrinson
Director
26 June 2017
FINANCIALS - GROUP
CONSOLIDATED INCOME STATEMENT
year ended 31 March 2017
2017
Before Exceptional
exceptional items 2016
items (note 10) Total Total
Note £000 £000 £000 £000
Revenue 4 310,992 - 310,992 236,950
Cost of sales (247,058) (1,532) (248,590) (193,552)
Gross profit 63,934 (1,532) 62,402 43,398
20.6% 20.1% 18.3%
Selling expenses (19,019) - (19,019) (12,609)
Administration expenses (29,832) 495 (29,337) (18,923)
Other operating income 7 210 - 210 758
Operating profit/(loss) 5 15,293 (1,037) 14,256 12,624
Finance expenses 8 (1,229) - (1,229) (2,763)
Profit/(loss) before tax 14,064 (1,037) 13,027 9,861
Income tax (charge)/credit 9 (3,480) 761 (2,719) (2,219)
Profit/(loss) for the year 10,584 (276) 10,308 7,642
Attributable to:
Owners of the Parent Company 9,650 7,261
Non-controlling interests 658 381
Earnings per ordinary share
2017 2016
Note Diluted Basic Diluted Basic
Earnings per share 23 15.0p 15.7p 12.0p 12.3p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
year ended 31 March 2017
2017 2016
£000 £000
Profit for the year 10,308 7,642
Other comprehensive income:
Exchange difference on translation of foreign operations (net of tax) 3,213 1,794
Transfer to profit and loss on maturing cash flow hedges (net of tax) 223 (572)
Net gain/(loss) on cash flow hedges (net of tax) 271 (223)
Other comprehensive income for period, net of tax items which may be reclassified to profit and loss in subsequent periods 3,707 999
Total comprehensive income for the year, net of tax 14,015 8,641
Attributable to:
Owners of the Parent Company 12,795 8,191
Non-controlling interests 1,220 450
14,015 8,641
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
year ended 31 March 2017
Share
premium
and capital Non-
Share redemption Merger Hedging Translation Retained Shareholder controlling
capital reserve reserves reserves reserve earnings equity interest Total
£000 £000 £000 £000 £000 £000 £000 £000 £000
At 31 March 2015 2,910 4,801 17,164 572 (1,825) 36,042 59,664 2,920 62,584
Profit for the year - - - - - 7,261 7,261 381 7,642
Other comprehensive income - - - (795) 1,725 - 930 69 999
Total comprehensive income for the year - - - (795) 1,725 7,261 8,191 450 8,641
Equity-settled share-based payment (note 25) - - - - - 596 596 - 596
Tax on equity-settled share-based payments - - - - - 509 509 - 509
Options exercised (note 22) 53 51 - - - (30) 74 - 74
Equity dividends paid - - - - - (1,032) (1,032) - (1,032)
At 31 March 2016 2,963 4,852 17,164 (223) (100) 43,346 68,002 3,370 71,372
Profit for the year - - - - - 9,650 9,650 658 10,308
Other comprehensive income - - - 494 2,651 - 3,145 562 3,707
Total comprehensive income for the year - - - 494 2,651 9,650 12,795 1,220 14,015
Equity-settled share-based payment (note 25) - - - - - 1,555 1,555 - 1,555
Tax on equity-settled share-based payments - - - - - 913 913 - 913
Shares issued 150 4,883 - - - - 5,033 - 5,033
Options exercised (note 22) 19 34 - - - - 53 - 53
Capital contribution from non-controlling investor - - - - - - - 110 110
Equity dividends paid - - - - - (2,134) (2,134) (867) (3,001)
At 31 March 2017 3,132 9,769 17,164 271 2,551 53,330 86,217 3,833 90,050
Merger reserve
The merger reserve comprises premium on shares issued in relation to business
combinations.
Capital redemption reserve
The capital redemption reserve comprises amounts transferred from retained
earnings in relation to the redemption of preference shares. For ease of
presentation, the amount of £1.34 million relating to the capital redemption
reserve has been included within the column of share premium and capital
redemption reserve in the balances at both the beginning and end of each year,
with no movements.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net
change in the fair value of cash flow hedging instruments related to hedged
transactions that qualify for hedge accounting and have not yet matured.
Translation reserve
The translation reserve comprises all foreign currency differences arising
from the translation of the financial statements of foreign operations.
Shareholders' equity
Shareholders' equity represents total equity attributable to owners of the
Parent Company.
CONSOLIDATED BALANCE SHEET
as at 31 March 2017
2017 2016
Notes £000 £000
Non-current assets
Property, plant and equipment 11 32,607 30,190
Intangible assets 12 33,681 32,236
Deferred tax assets 13 5,398 4,296
Total non-current assets 71,686 66,722
Current assets
Inventory 14 49,475 46,006
Trade and other receivables 15 29,622 21,187
Derivative financial assets 26 307 218
Cash and cash equivalents 16 3,659 8,380
Total current assets 83,063 75,791
Total assets 154,749 142,513
Equity
Share capital 22 3,132 2,963
Share premium 8,429 3,512
Reserves 21,326 18,181
Retained earnings 53,330 43,346
Equity attributable to owners of the Parent Company 86,217 68,002
Non-controlling interests 3,833 3,370
Total equity 90,050 71,372
Non-current liabilities
Loans and borrowings 17 (39) 18,349
Deferred income 18 1,083 1,145
Provisions 19 881 869
Other financial liabilities 20 1,911 2,095
Deferred tax liability 13 525 352
Total non-current liabilities 4,361 22,810
Current liabilities
Bank overdraft 16 916 1,508
Loans and borrowings 17 (232) 3,584
Deferred income 18 111 118
Provisions 19 441 212
Income tax payable 3,153 1,945
Trade and other payables 21 37,450 27,221
Other financial liabilities 20 18,499 13,743
Total current liabilities 60,338 48,331
Total liabilities 4 64,699 71,141
Total equity and liabilities 4 154,749 142,513
These financial statements were approved by the Board of Directors on 26 June
2017 and were signed on its behalf by:
Paul Fineman Anthony Lawrinson
Director Director
The notes following form part of the financial statements.
CONSOLIDATED CASH FLOW STATEMENT
year ended 31 March 2017
2017 2016
Notes £000 £000
Cash flows from operating activities
Profit for the year 10,308 7,642
Adjustments for:
Depreciation 11 4,571 3,596
Amortisation of intangible assets 12 798 285
Finance expenses 1,229 2,763
Negative goodwill release to income 10 (1,271) -
Income tax charge 9 2,719 2,219
Loss/(profit) on sales of property, plant and equipment 5 24 (186)
Loss on external sale of intangible fixed assets 5 51 1
Equity-settled share-based payment 25 2,216 908
Operating profit after adjustments for non-cash items 20,645 17,228
Change in trade and other receivables (772) 1,041
Change in inventory 2,670 1,219
Change in trade and other payables 8,940 1,863
Change in provisions and deferred income 44 (607)
Cash generated from operations 31,527 20,744
Tax paid (2,003) (1,797)
Interest and similar charges paid (1,867) (1,961)
Net cash inflow from operating activities 27,657 16,986
Cash flow from investing activities
Proceeds from sale of property, plant and equipment 58 1,568
Acquisition of businesses 31 (2,669) -
Capital contribution from non-controlling investor 110 -
Acquisition of intangible assets 12 (534) (382)
Acquisition of property, plant and equipment 11 (4,633) (4,377)
Receipt of government grants 40 -
Net cash outflow from investing activities (7,628) (3,191)
Cash flows from financing activities
Net proceeds from issue of share capital 22 5,086 74
Repayment of secured borrowings (21,774) (5,708)
Net movement in credit facilities (795) 184
Payment of finance lease liabilities (2,383) (1,712)
Loan arrangement fees (319) -
Equity dividends paid 24 (2,134) (1,032)
Dividends paid to non-controlling interests (867) -
Net cash outflow from financing activities (23,186) (8,194)
Net (decrease)/increase in cash and cash equivalents (3,157) 5,601
Cash and cash equivalents at beginning of period 6,872 1,278
Effect of exchange rate fluctuations on cash held (972) (7)
Cash and cash equivalents at end of the period 16 2,743 6,872
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
year ended 31 March 2017
1 Accounting policies
IG Design Group plc is a public limited company, incorporated and domiciled in
England and Wales. The Company's ordinary shares are listed on AIM.
The Group financial statements consolidate those of the Company and its
subsidiaries (together referred to as the "Group").
The Group financial statements have been prepared and approved by the
Directors in accordance with EU adopted International Financial Reporting
Standards.
The accounting policies set out below have, unless otherwise stated, been
applied consistently to all periods presented in these Group financial
statements.
Judgements made by the Directors in the application of these accounting
policies that have significant effect on the financial statements and
estimates with a significant risk of material adjustment in the next year are
discussed in the policies below.
Going concern basis
The financial statements have been prepared on the going concern basis.
In forming their conclusion that the business is and will remain a going
concern, the Directors have reviewed the budgets and forecasts prepared and
sensitivity analysis thereon. The business is highly seasonal and this results
in peak funding demands.
To meet the funding requirements the business has agreed funding in place with
HSBC and this has been renegotiated as part of a new three year deal in place
from 6 June 2016 and extended for a further year on 31 May 2017. As with any
company placing reliance on external entities for financial support, the
Directors acknowledge that there can be no certainty that this support will
continue although, at the date of approval of this report, they have no reason
to believe that it will not do so.
After making enquiries, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in operational
existence for the foreseeable future. Thus, they continue to adopt the going
concern basis of accounting in preparing the financial statements.
Measurement convention
The financial statements are prepared on the historical cost basis except
derivative financial instruments which are stated at their fair value.
Changes in accounting policies
The accounting policies adopted in the preparation of the financial statements
are consistent with those followed in the preparation of the Group's annual
financial statements for the year ended 31 March 2016.
Basis of consolidation
a) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group considers all
facts and circumstances in assessing whether it has the power to control the
relevant activities of investee and to benefit from the results thereof,
including rights arising from shareholder agreements, contractual arrangements
and potential voting rights held by the Group. The financial statements of
subsidiaries are included in the consolidated financial statements from the
date that control commences to the date that control ceased.
Business combinations are accounted for using the acquisition method as at the
date on which control is transferred to the Group.
For acquisitions on or after 1 January 2010, the Group measures goodwill at
the acquisition date as:
· the fair value of the consideration transferred; plus
· the recognised amount of any non-controlling interests in the acquiree;
plus
· if the business combination is achieved in stages, the fair value of the
existing equity interest in the acquiree; less
· the net recognised amount (generally fair value) of the identifiable
assets acquired and liabilities assumed.
When the result is negative, a 'bargain purchase' gain is recognised
immediately in the income statement.
Provisional fair values allocated at a reporting date are finalised within
twelve months of the acquisition date.
b) Joint arrangements
A joint venture is a contractual arrangement whereby the Group undertakes an
economic activity that is subject to joint control with third parties.
The Group's interests in joint ventures are accounted for using the equity
method. Under this method the Group's share of the profits less losses of
jointly controlled entities is included in the consolidated income statement
and its interest in their net assets is included in 'investments' in the
consolidated balance sheet.
Foreign currency translation
The consolidated financial statements are presented in pounds sterling, which
is the Company's functional currency and the Group's presentational currency.
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated at
the foreign exchange rate ruling at that date. Foreign exchange differences
arising on translation are recognised in the income statement.
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on consolidation, are translated at foreign exchange
rates ruling at the balance sheet date. The revenues and expenses of foreign
operations are translated at an average rate for the period where this rate
approximates to the foreign exchange rates ruling at the dates of the
transactions. Exchange differences arising from this translation of foreign
operations, and of related qualifying hedges, are taken directly to the
translation reserve. They are released into the income statement upon disposal
or loss of control and on maturity or disposal of the hedge, respectively.
Exchange differences arising from a monetary item receivable from or payable
to a foreign operation, the settlement of which is neither planned nor likely
in the foreseeable future, are considered to form part of a net investment in
a foreign operation and are recognised in other comprehensive income in the
translation reserve. The cumulative translation differences previously
recognised in other comprehensive income (or where the foreign operation is
part of a subsidiary, the parent's interest in the cumulative translation
differences) are released into the income statement upon disposal of the
foreign operation or on loss of control of the subsidiary that includes the
foreign operation.
Classification of financial instruments issued by the Group
Financial instruments issued by the Group are treated as equity (i.e. forming
part of shareholders' funds) only to the extent that they meet the following
two conditions:
a) they include no contractual obligations upon the Group to deliver cash or
other financial assets or to exchange financial assets or financial
liabilities with another party under conditions that are potentially
unfavourable to the Group; and
b) where the instrument will or may be settled in the Company's own equity
instruments, it is either a non-derivative that includes no obligation to
deliver a variable number of the Company's own equity instruments or is a
derivative that will be settled by the Company's exchanging a fixed amount of
cash or other financial assets for a fixed number of its own equity
instruments.
To the extent that this definition is not met, the proceeds of issue are
classified as a financial liability. Where the instrument so classified takes
the legal form of the Company's own shares, the amounts presented in these
financial statements for called up share capital and share premium exclude
amounts in relation to those shares.
Trade and other receivables
Trade and other debtors are recognised initially at transaction price less
attributable transaction costs. Trade and other debtors are subsequently
reviewed for recoverability and impairment with any losses taken to profit and
loss immediately. If the arrangement constitutes a financing transaction, for
example if payment is deferred beyond normal business terms, then it is
measured at the present value of future payments discounted at a market rate
of instrument for a similar debt instrument.
Trade and other payables
Where it is likely to be materially different from the nominal value, trade
and other payables are recognised initially at fair value. Subsequent to
initial recognition they are measured at amortised cost using the effective
interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank
overdrafts that are repayable on demand and form an integral part of the
Group's cash management are included as a component of cash and cash
equivalents for the purposes of the cash flow statement.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost using the effective
interest method.
Derivative financial instruments and hedging
Derivative financial instruments
Derivative financial instruments are recognised at fair value. The gain or
loss on remeasurement to fair value is recognised immediately in the income
statement. However, where derivatives qualify for hedge accounting,
recognition of any resultant gain or loss depends on the nature of the item
being hedged.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the
variability in cash flows of a recognised asset or liability, or a highly
probable forecast transaction, the effective part of any gain or loss on the
derivative financial instrument is recognised as other comprehensive income in
the hedging reserve. Any ineffective portion of the hedge is recognised
immediately in the income statement.
Amounts previously recognised in other comprehensive income are transferred to
the income statement in the periods when the hedged item affects profit or
loss (for instance when the forecast sale that is hedged takes place). The
gain or loss relating to the effective portion of forward foreign exchange
contract hedging export sales is recognised in the income statement within
'sales'. However, when the forecast transaction that is hedged results in the
recognition of a non-financial asset (for example, inventory), the gains or
losses previously recognised in other comprehensive income are transferred
from other comprehensive income and included in the initial measurement of the
cost of the asset. The deferred amounts are ultimately recognised in cost of
goods sold (in the case of inventory).
When a hedging instrument expires or is sold, terminated or exercised, or the
entity revokes designation of the hedge relationship but the hedged forecast
transaction is still expected to occur, the cumulative gain or loss at that
point remains in other comprehensive income and is recognised in accordance
with the above policy when the transaction occurs. If the hedged transaction
is no longer expected to take place, the cumulative unrealised gain or loss
recognised in other comprehensive income is recognised in the income statement
immediately.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation
and impairment losses.
Where parts of an item of property, plant and equipment have different useful
lives, they are accounted for as separate items of property, plant and
equipment.
Leases in which the Group assumes substantially all the risks and rewards of
ownership of the leased asset are classified as finance leases. Where land and
buildings are held under finance leases the accounting treatment of the land
is considered separately from that of the buildings. Leased assets acquired by
way of a finance lease are stated at an amount equal to the lower of their
fair value and the present value of the minimum lease payments at inception of
the lease, less accumulated depreciation and impairment losses. Lease payments
are accounted for as described below.
Depreciation is charged to the income statement on a straight-line basis over
the estimated useful lives of each part of an item of property, plant and
equipment. The estimated useful lives are as follows:
freehold buildings 25-30 years
leasehold land and buildings life of lease
plant and equipment four-25 years
fixtures and fittings three-five years
motor vehicles four years
No depreciation is provided on freehold land.
Included within plant and machinery are assets with a range of depreciation
rates. These rates are tailored to the nature of the assets to reflect their
estimated useful lives.
Depreciation methods, useful lives and residual values are reviewed at each
balance sheet date.
Intangible assets and goodwill
Subject to the transitional relief in IFRS 1, all business combinations are
accounted for by applying the purchase method. Goodwill represents amounts
arising on acquisition of subsidiaries. In respect of business acquisitions
that have occurred since 1 April 2006, goodwill represents the difference
between the cost of the acquisition and the fair value of the net identifiable
assets acquired. Identifiable intangibles are those which can be sold
separately or which arise from legal rights regardless of whether those rights
are separable.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is
allocated to cash-generating units and is not amortised but is tested every
half year for impairment.
In respect of acquisitions prior to 1 April 2006, goodwill is included on the
basis of its deemed cost, which represents the amount recorded under UK GAAP
at that time which was broadly comparable save that only separable intangibles
were recognised and goodwill was amortised. Goodwill written off to reserves
under UK GAAP prior to 1998 has not been reinstated.
If the cost of an acquisition is less than the fair value of the Group's share
of the net assets of the subsidiary acquired, the difference is recognised
directly in the income statement.
Other intangible assets
Expenditure on internally generated goodwill and brands is recognised in the
income statement as an expense as incurred.
Other intangible assets that are acquired by the Group are stated at cost less
accumulated amortisation and impairment losses.
The main class of other intangible assets is publishing imprints.
Amortisation
Amortisation is charged to the income statement on a straight-line basis over
the estimated useful lives of intangible assets unless such lives are
indefinite. All other intangible assets are amortised from the date they are
available for use. The estimated useful life of computer software and other
intangibles are three to five years.
Amortisation charges are included under 'administrative expenses' in the
income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
based on a weighted average and includes expenditure incurred in acquiring the
inventories and bringing them to their existing location and condition. In the
case of manufactured inventories and work in progress, cost includes an
appropriate share of overheads based on normal operating capacity.
Impairment
The carrying amounts of the Group's assets other than inventories and deferred
tax assets are reviewed at each balance sheet date to determine whether there
is any indication of impairment. If any such indication exists, the asset's
recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or
its cash-generating unit exceeds its recoverable amount. Impairment losses are
recognised in the income statement.
Impairment losses recognised in respect of cash-generating units are allocated
first to reduce the carrying amount of any goodwill allocated to
cash-generating units and then to reduce the carrying amount of the other
assets in the unit on a pro rata basis. A cash-generating unit is the smallest
identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets.
The recoverable amount of the Group's assets is the greater of their fair
value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time,
value of money and the risks specific to the asset. For an asset that does not
generate largely independent cash inflows, the recoverable amount is
determined for the cash-generating unit to which the asset belongs.
An impairment in respect of goodwill is not reversed. In respect of other
assets, an impairment is reversed when there is an indication that the
impairment may no longer exist and there has been a change in the estimates
used to determine the recoverable amount. An impairment is reversed only to
the extent that the asset's carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation,
if no impairment had been recognised.
Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event and it is
probable that an outflow of economic benefits will be required to settle the
obligation. If the effect is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and, where appropriate,
the risks specific to the liability. Where discounting is used, the increase
in the provision due to the passage of time is recognised as borrowing costs.
Revenue recognition
Revenue represents the amounts, net of discounts, allowances for volume and
promotional rebates and other payments to customers (excluding value added
tax) derived from the provision of goods and services to customers during the
year. Sales of goods are recognised when a Group entity has delivered products
to the customer or transferred legal title and the collectability of the
related receivable is reasonably assured. Provisions are made for volume and
promotional rebates where they have been agreed or are reasonably likely to
arise, based upon actual and forecast sales.
Where goods are sold on a sale or return basis revenue is initially booked net
of an expectation of the proportion that will be returned by the customer,
which is based on historical experience. This is updated for the final value
of returns on payment by the customer.
Where goods are sold on a consignment basis the revenue is booked when the
goods have been sold by the customer.
Exceptional items
Exceptional items are those items of financial performance which, because of
size or incidence, require separate disclosure to enable underlying
performance to be assessed.
Government grants
Capital-based government grants are included within other financial
liabilities in the balance sheet and credited to operating profit over the
estimated useful economic lives of the assets to which they relate.
Supplier income
The Group does not have material retrospective supplier incentive arrangements
but where these do arise, they are recognised within cost of sales on an
accruals basis as earned for each relevant supplier rebate.
Expenses
Operating lease payments
Payments made and lease incentives received under operating leases are
recognised in the income statement on a straight-line basis over the term of
the lease.
Finance lease payments
Minimum lease payments are apportioned between the finance charge and the
reduction of the outstanding liability. The finance charge is allocated to
each period during the lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
Finance income and expenses
Finance expenses comprise interest payable, finance charges on finance leases
and unwinding of the discount on provisions.
Net movements in the fair value of derivatives which have not been designated
as an effective hedge, and any ineffective portion of fair value movement on
derivatives designated as a hedge are also included within finance income or
expense.
Interest income and interest payable is recognised in profit or loss as it
accrues, using the effective interest method.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the income statement except to the extent that it relates to
items recognised in other comprehensive income or directly in equity, in which
case it is recognised in other comprehensive income or equity respectively.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the balance sheet date and
any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The following temporary differences are not
provided for: the initial recognition of goodwill; the initial recognition of
assets or liabilities that affect neither accounting nor taxable profit other
than in a business combination; and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in the
foreseeable future. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the
balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
Dividend distribution
Final dividends to shareholders of IG Design Group plc are recognised as a
liability in the period that they are approved by shareholders.
Employee benefits
Pensions
The Group operates a defined contribution personal pension scheme. The assets
of this scheme are held separately from those of the Group in an independently
administered fund. The pension charge represents contributions payable by the
Group to the fund.
The Netherlands subsidiary operates an industrial defined benefit fund, based
on average wages, that has an agreed maximum contribution. The pension fund is
a multi-employer fund and there is no contractual or constructive obligation
for charging the net defined benefit cost of the plan to participating
entities other than an agreed maximum contribution for the period, that is
shared between employer (4/7) and employees (3/7). The Dutch Government is not
planning to make employers fund any deficits in industrial pension funds;
accordingly the Group treats the scheme as a defined contribution scheme for
disclosure purposes. The Group recognises a cost equal to its contributions
payable for the period.
Share-based payment transactions
The cost of equity-settled transactions with employees is measured by
reference to the fair value of the options at the date on which they are
granted. The fair value is determined by using an appropriate pricing model.
The fair value cost is then recognised over the vesting period, ending on the
date on which the relevant employees become fully entitled to the award.
The quantum of awards expected to vest and the relevant cost charged is
reviewed annually such that at each balance sheet date the cumulative expense
is the relevant share of the expected total cost, pro-rated across the vesting
period.
No expense is recognised for awards that are not expected to ultimately vest,
for example due to an employee leaving or business performance targets not
being met. The annual expense for equity settled transactions is recognised in
the income statement with a corresponding entry in equity.
National Insurance ("NI") on share-based incentives
Employer's NI is accrued, where applicable, at a rate which management expects
to be the prevailing rate when share-based incentives are exercised and is
based on the latest market value of options expected to vest or having already
vested.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or
production of an asset that necessarily takes a substantial period of time to
get ready for its intended use or sale are capitalised as part of the cost of
the respective asset. Costs directly attributable to the arrangement of new
borrowing facilities are included within the fair value of proceeds received
and amortised over the life of the relevant facilities. All other borrowing
costs are expensed in the period they occur. Borrowing costs consist of
interest and other costs that an entity incurs in connection with the
borrowing of funds.
New standards
There are no IFRS or IFRIC interpretations or amendments effective for the
first time this financial year that have any material impact on the Group.
Use of non-GAAP measures
The Directors believe that reporting profits and EPS before exceptional items
and LTIP charges provides useful information for shareholders on underlying
trends and performance. These are the measures used internally and are
considered more useful measures for understanding the true performance of the
business. These measures are not defined by IFRS and therefore may not be
directly comparable to other companies' adjusted profit or EPS measures. They
are not intended to be a substitute for, or superior to IFRS measures.
The adjustments made to profits and EPS are:
· exceptional items - please see note 14; and
· IFRS 2 Share-based Payments - a non-cash charge to the income statement
for share-based payments and related NI costs. IFRS 2 requires the fair value
of equity instruments measured at grant date to be spread over the period
during which the employees become unconditionally entitled to the options.
Other than the NI element, this is a non-cash charge and has been excluded as
it does not reflect the underlying core trading performance of the Group.
New standards and interpretations not applied
Management continually reviews the impact of newly published standards and
amendments and considers, where applicable, disclosure of their impact on the
Group.
The following standards, interpretations and amendments issued by the IASB
have an effective date after the date of these financial statements and are
considered by management to be relevant to the Group:
· IFRS 9 Financial Instruments replaces the existing requirements in IAS
39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised
guidance on the classification and measurement of financial instruments,
including the new expected credit loss model for calculating impairment of
financial assets, and the new general hedge accounting requirements. IFRS 9 is
effective for annual periods beginning on or after 1 January 2018. This is not
expected to have a significant impact on the Group;
· IFRS 15: IFRS 15 replaces existing IFRS revenue recognition requirements
in IAS 18 Revenue. The standard applies to all revenue contracts and provides
a model for the recognition and measurement of sales of some non-financial
assets (e.g. disposals of property, plant and equipment). The core principle
of IFRS 15 is that revenue is recognised to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or
services. Application is required for annual periods beginning on or after 1
January 2017. The Group are currently assessing the impact of IFRS 15, we do
not currently anticipate that it will have a significant impact on our
results; and
· IFRS 16 Leases: will bring all leases onto the balance sheet. The Group
are currently assessing the impact of IFRS 16.
No other standards, interpretations or amendments which have been issued but
are not yet effective are expected to significantly impact the Group's results
or assets and liabilities and are not expected to require significant
disclosure.
To be
Effective adopted by
New pronouncement date the Group
Annual Improvements 2012-2014 Cycle 1 Jan 2017 1 Apr 2017
IFRS 15 Revenue from Contracts with Customers(a) 1 Jan 2018 1 Apr 2018
IFRS 9 Financial Instruments(a) 1 Jan 2018 1 Apr 2018
IFRS 16 Leases(a) 1 Jan 2019 1 Apr 2019
(a) Not yet endorsed by European Financial Reporting Advisory Group.
2 Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described in
note 1, the Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances.
Actual results may differ from these 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 if the revision only affects that period or in the period
of revision and future periods if the revision affects both current and future
periods.
The estimates and assumptions that have had a significant bearing on the
financial statements in the current year or could have a significant risk of
causing a material
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