REG - St. Ives PLC - Full Year Results <Origin Href="QuoteRef">SIV.L</Origin> - Part 1

SivotaAnnouncement

03/10/2017 07:05

RNS Number : 4904S
St. Ives PLC
03 October 2017
3 October 2017
ST IVES plc
Full Year Results for the 52 weeks ended 28 July 2017
St Ives plc, the international marketing services group, announces preliminary results for the 
52 weeks ended 28 July 2017.
Financial Highlights
52 weeks to
28 July
2017
52 weeks to
29 July
2016
%age
change
Revenue
393.2m
367.5m
+7%
Adjusted* profit before tax
24.1m
30.4m
-21%
Adjusted* basic earnings per share
13.39p
17.61p
-24%
Statutory loss before tax
(44.1)m
(5.7)m
-
Basic loss per share
(30.40)p
(5.93)p
-
Full year dividend
1.95p
7.80p
-
Net debt
54.6m
80.8m
* Adjusted profit before tax and Adjusted basic earnings exclude Adjusting Items. Adjusting Items comprise of redundancies, empty property and restructuring costs; impairments, gain or loss on disposal of properties; costs related to the acquisitions or setting up of new subsidiaries; impairment or amortisation charges related to goodwill tangible and intangible assets; contingent consideration required to be treated as remuneration; movements in deferred consideration and costs related to the St Ives Defined Benefits Pension Scheme. See note 3.
 Further revenue growth of 13% in Strategic Marketing segment, with organic growth contributing 5%.
 Revenue generated from the Group's overseas businesses increased from 53.7 million to 66.5 million, representing 17% of Group revenues (2016: 15%).
 Net debt reduced by one-third to 54.6 million, representing a net debt to Adjusted EBITDA ratio of 1.6x (29 July 2016: 2.0x).
Operational Highlights
 Strategic Marketing now contributing 42% of Group revenue (2016: 39%) and 75% of Adjusted operating profit, with encouraging new project wins.
 Significant progress in key strategic priorities of Collaboration and Internationalisation:
o 209 clients currently working with more than one business across the Group, a 39% increase compared to the previous year.
o Nine Strategic Marketing businesses serving clients on an international basis, representing over 39% of Strategic Marketing revenue (2016: 37%).
 Due to continued decline, decisive action taken to improve performance of the two legacy segments - Marketing Activation and Books.
Matt Armitage, Chief Executive, said:
"Trading across our Strategic Marketing segment has recovered and we have been encouraged by new projects being won from existing and new clients. Our pipeline for the first half of the new financial year is very encouraging and we are excited by the opportunities that the increased collaboration between our businesses is generating.
While trading conditions within our Marketing Activation segment continue to be challenging, we have taken decisive action to increase efficiency and reduce costs, and remain focused on diversifying into other sectors. Similarly, within our Books business we have taken further steps to ensure that the cost base reflects the future level of volumes we now expect.
Overall, we remain confident in the long-term growth strategy currently being pursued in Strategic Marketing, and in the quality of our businesses within that segment, as illustrated by the major international clients and contracts they continue to attract. However, we recognise the need to address, decisively, the effect that legacy businesses are having on the Group's overall performance and on our ability to generate value for shareholders. This, together with further strengthening our balance sheet, remains a top priority for the Board looking forward."
For further information, please contact:
St Ives plc
020 7928 8844
Matt Armitage, Chief Executive
Brad Gray, Chief Financial Officer
MHP Communications
020 3128 8100
Tim Rowntree, Giles Robinson, Luke Briggs
Notes to Editors
St Ives is an international marketing services group, made up of a number of successful and dynamic businesses serving leading brands internationally, with offices in the UK, North America, China and Singapore.
We operate not as a single entity but as a group of market leading businesses, each with its own unique value proposition, offering complementary services and collaborating closely with each other wherever this adds value to clients. We work with a large number of leading, international consumer-facing brands across all major sectors - including retail & FMCG, healthcare & pharma, financial services, media, technology, automotive and charity - helping them determine strategic direction, and designing and delivering world-class solutions to match their specific requirements.
Our industry-leading Strategic Marketing businesses have strong capabilities across three specialist high growth areas: Digital, Data and Insight.
Our Marketing Activation businesses, which deliver marketing communications through a combination of print and in-store marketing services, complement our Strategic Marketing offering and collaborate with them where this adds value to clients.
The Group's strategy for further growth for the marketing services businesses is centred around three key priorities:
 organic growth through collaboration and investment in our existing brands;
 internationalisation, often client-led, into large and high growth markets; combined with
 further acquisitions of complementary, ambitious and growing Strategic Marketing businesses that share our common attributes and ethos.
Our separate long-standing Books production business, which is the UK market leader, represents a source of profit and cash generation as we pursue our overall growth strategy.
St Ives employs more than 3,000 people in the UK, North America and Asia and is listed on the London Stock Exchange (SIV) with a market capitalisation of 110.8m.
Chief Executive's Review
Introduction
Overall, it has been a challenging year for the Group, which is reflected in the reported results for the period, albeit with a much-improved performance during the second half. Our focus has been on addressing the issues of the past while taking decisive action to improve the efficiency of our two legacy segments and further strengthen the Group's balance sheet.
The principal challenges remain in our legacy Marketing Activation and Books segments where, despite their strong market positions, increased competition continues to exert downward pressure on margins. In response, the Board has taken immediate action to reduce the cost base of both segments to reflect the new market realities.
Despite these issues and their impact on the results, we are pleased to report encouraging underlying progress within our core Strategic Marketing segment. This segment lies at the centre of our long-term growth strategy and now represents some 42% of Group revenues and 75% of Adjusted operating profit. In particular, we have seen important progress in our pursuit of organic growth here, through a number of significant new business wins coupled with increasing collaboration between our various businesses and further internationalisation of the business.
Performance Highlights
Group revenue of 393.2 million was 7% higher than the comparable period in the previous year, bolstered by our Strategic Marketing segment, which delivered growth of 13%. Excluding the effects of acquisition and currency movements, organic growth across the Group was 5%. Revenue within our Books segment was 12% ahead of the previous year while revenue within our Marketing Activation segment was broadly in line with the previous year.
The Group's statutory loss before tax of 44.1 million (2016: loss of 5.7 million) includes Adjusting Items of 68.2 million (2016: 36.1 million), of which 66.1 million relates to non-cash items in the current period. The non-cash Adjusting Items include amortisation of acquired intangibles of 10.0 million, an impairment charge of 33.1 million, mainly in the Marketing Activation and Books segment and contingent consideration expense of 23.0 million. Other Adjusting Items include costs related to St Ives Defined Benefit Scheme of 1.9 million and restructuring costs of 3.0 million, offset by gain on disposal of properties of 2.8 million.
The Group's Adjusted profit before tax declined to 24.1 million (2016: 30.4 million) and Adjusted basic earnings per share decreased by 24% to 13.39 pence (2016: 17.61 pence).
The year saw further growth in our Strategic Marketing segment despite a number of project cancellations and deferrals in the last quarter of the previous financial year, which impacted revenue growth and operating margin during the first half of the current financial year. However, we are encouraged by the progress that has been made in the second half of the year to replace the cancelled work and return the segment to its previous levels of organic growth and operating margin.
Balance Sheet
Net debt as at 28 July 2017 was 54.6 million, down from 80.8 million as at 29 July 2016, representing a net debt to Adjusted EBITDA ratio of 1.6x (2016: 2.0x). Further reducing the Group's indebtedness further remains a priority for the Board.
Dividend
The Board has reviewed St Ives' near-term dividend policy to reflect the impact of the issues experienced in the Group's legacy businesses and the costs involved in the ongoing cost-reduction initiatives. In doing so, it has balanced the importance of dividends to shareholders, the importance of investing in the further organic growth of the Group's core Strategic Marketing segment, and the strengthening of the balance sheet. Against that background, the Board has proposed a final dividend of 1.30 pence per share, giving a full year dividend of 1.95 pence per share, a decrease of 75% against last year's full-year dividend of 7.80 pence. The Board will re-evaluate the longer-term dividend policy in due course.
If approved by shareholders, the final dividend of 1.30 pence will be paid on 18 December 2017 to the shareholders on the register at 24 November 2017, with an ex-dividend date of 23 November 2017.
Strategic Priorities
The Board remains confident in its long-term strategy for further growth, which is built around the Group's Strategic Marketing segment and remains centred around three key priorities:
Collaboration
We continue to make good progress with our collaboration agenda with over 200 of our clients currently working with more than one business across the Group; a 39% increase compared with the 150 reported in the last financial year. These include major brands such as Standard Life, Paddy Power and Expedia.
In addition, we continue to see an increase in demand for integrated solutions from clients within our Strategic Marketing segment, which, while aligning to our collaboration agenda, has led us to review and evolve our operating model within the segment. This has also resulted in us bringing a number of our Digital and Data businesses closer together.
Internationalisation
Many of our businesses now deliver international solutions for clients. Most notably, 39% of our Strategic Marketing revenue now comes from clients based outside the UK (2016: 37%), with nine businesses within this segment currently servicing clients on an international basis.
Our strategy for developing our overseas footprint remains client-driven with new office openings only taking place in territories where we can identify lucrative client-led opportunities. We will continue to be disciplined in our implementation of this strategy, targeting opportunities in large markets or in ones with the potential for significant and sustainable growth, where offices are capable of generating appropriate returns within a reasonable period of time.
Acquisitions
Given the recent challenges across the Group, we are currently prioritising organic over acquisitive growth, including leveraging the investments we have made in existing propositions and in new offices.
In the longer term, the acquisition of further complementary marketing services businesses that add value to our existing portfolio and operate in our chosen growth areas of Digital, Data and Insight services will continue to be an important element of the growth strategy of our core Strategic Marketing segment.
Outlook
Trading across our Strategic Marketing segment has recovered and we have been encouraged by the new projects being won from existing and new clients. Our pipeline for the first half of the new financial year is very encouraging and we are excited by the opportunities that the increased collaboration between our businesses is generating.
While trading conditions within our Marketing Activation segment continue to be very challenging, we have taken decisive action to increase efficiency and reduce costs, and remain focused on diversifying into other sectors. Similarly, within our Books business we have taken further steps to ensure that the cost base reflects the future level of volumes we now expect.
Overall, we remain confident in the long-term growth strategy currently being pursued in Strategic Marketing, and in the quality of our businesses within that segment, as illustrated by the major international clients and contracts they continue to attract. However, we recognise the need to address, decisively, the effect that the legacy businesses are having on the Group's overall performance and on our ability to generate value for shareholders. This, together with further strengthening of our balance sheet, remains a top priority for the Board looking forward.
Segment Overview
Strategic Marketing
Our Strategic Marketing segment represents 42% of Group revenue for the year (2016: 39%) and 75% of Group Adjusted operating profit.
2017
'm
2016
'm
Digital Marketing
93.0
71.2
Data Marketing
32.3
36.2
Insight
37.7
36.7
Strategic Marketing revenue
163.0
144.1
Strategic Marketing Adjusted operating profit *
20.2
19.4
* Adjusted Results see note 3
We have seen further, very encouraging progress within the Strategic Marketing segment, which remains core to the Group's long-term growth strategy.
One of our key priorities was to replace the work lost in the last quarter of the previous financial year, which resulted in a challenging first half for the segment. However, following several significant new client wins and contract renewals during the period, including long-term agreements to be the digital partner of Rockwell Automation, SoftBank and DuPont Pioneer, we are pleased to have delivered a significant improvement in the performance of the segment in the second half of the financial year.
As a result of an increase in client demand for more integrated solutions, we have continued to drive our collaboration agenda and to evolve our operating model accordingly. We continue to focus on the disciplines of Digital, Data and Insight, albeit the strict distinctions between these disciplines are becoming less relevant as more integrated solutions are provided to clients.
During the year, we announced a number of senior management changes within our Digital and Data businesses. Our three Digital businesses (Amaze, Realise and Branded3) are now under the management responsibility of a single management team, while we have also announced that our Data businesses (Occam, Response One, Bench and Amaze One) will be managed by a single team. These changes will ensure that we offer a coherent proposition combined with the breadth and scale of services to support our clients' expanding digital and data requirements.
Over the period, our Data businesses have worked more closely together than ever before, both with each other and also with our Digital businesses, where numerous joint propositions have been developed. We see further opportunities for collaboration between our Digital and Data businesses as data continues to be the driving force behind successful digital marketing and transformation activities. The short-term priority within our Data businesses is to ensure that our offering is fully compliant with and able to benefit from the new General Data Protection Regulation ("GDPR") which will apply from May 2018.
Synergies between Solstice, our Chicago-based mobile and emerging technology business, and The App Business ("TAB"), our similar UK business, continue to result in both businesses sharing resources, working practices, growth frameworks and data. The two are working together to develop innovative connected digital experiences using Voice, Virtual Reality and Internet of Things technology for clients. New wins in the financial year have included projects for clients including Bosch and Electrolux.
Within our research consultancy, Incite, we have seen further growth of both our UK and US businesses through a significant number of new client wins in the technology, FMCG, finance and pharma sectors, while client spend and sentiment in Asia also improved in the second half of the financial year. We continue to support our overseas offices in order to provide an international offering to clients - a growing number of Incite's clients are serviced by more than one Incite office - and to drive long-term growth, although this continues to affect short-term profitability.
Our healthcare consultancy, Hive, has gained several major new clients during the period including Roche, Leo Pharma, Lundbeck, Ipsen, and Almirall. The business has also expanded its offering and client base in the US, delivering significant growth (albeit from a low base) through a number of client wins, including Pfizer. We see the US and further international expansion, as a significant contributor to future growth for this business.
Our retail consultancy, Pragma, has undertaken a number of large advisory projects, including strategic reviews and commercial due diligence of multinational consumer businesses. A growing number of such projects involve collaboration with FSP, our specialist property-consulting firm, particularly where catchment analysis or location planning forms a key part of the investment decision.
The progress outlined above underscores the quality of our individual Strategic Marketing businesses and the potential for further profitable growth that they offer, both individually and, more importantly, through collaboration. They offer differentiated, value-added services to clients and we are pleased that the segment's growth and margin have returned to the levels achieved in previous years.
Marketing Activation
Our Marketing Activation segment represents 39% of Group revenue for the year (2016: 42%) and 16% of Group Adjusted operating profit.
2017
'm
2016
'm
Marketing Activation revenue
153.7
154.8
Marketing Activation Adjusted operating profit *
4.3
8.1
* Adjusted Results see note 3
Trading conditions within this segment continue to be very challenging, due in large part to the ongoing pressures within the grocery retail market. While our expertise in grocery retail remains an important strength, diversification of the client base beyond this sector continues to be a priority.
The segment enjoyed new wins and project extensions during the year for clients including Royal Mail, Innocent, Superdry, AkzoNobel, ESPA and OfficeTeam, further supporting the segment's planned diversification. While we have been successful in securing this work, it should be noted that the market remains extremely price competitive in all areas. As a result, over the period the management team has been focused on protecting margins through driving efficiency improvements and cost reductions.
Moving forward our priority is on strategic growth opportunities in markets that value service and innovation and which further reduce the segment's over-reliance on grocery retail. This will include delivering a wider portfolio of goods and services that cover the whole of the marketing operations sphere of brands and retailers. We will also continue to focus on margin protection while differentiating our competitive offering through targeted investment in new service lines and further additional cross sales initiatives. 
Books
Our market-leading Books business represents 19% (2016: 19%) of Group revenue for the year and 9% of Group Adjusted operating profit.
2017
'm
2016
'm
Books revenue
76.5
68.6
Books Adjusted operating profit *
2.6
5.8
* Adjusted Results see note 3
Revenue was 12% higher than the prior year at 76.5 million (2016: 68.6 million).
Trading during the first half of the year was generally positive, particularly during the pre-Christmas period, with sales of printed books in the UK up 5% on 2016 (as reported by Nielsen).
As announced in February 2017, we were informed by HarperCollins that our contract for the production of monochrome books in the UK would not be renewed. The contract ended on 30 June 2017. As a result of the non-renewal, significant restructuring and cost reduction initiatives have been implemented.
We continue to adapt to suit the evolving needs of clients, leveraging our well-invested digital print technology to provide a broader product range, greater capacity to support fast lead times and lower stockholding, with a continued focus on extending supply chain solutions to reduce the overall cost of the books supply chain.
Matt Armitage
Chief Executive
2 October 2017
Financial Overview
Overview
During a challenging year, the Group delivered revenue growth of 7%. Due to continued margin pressures within the legacy Marketing Activation and Books segments, the Group's Adjusted operating profit fell from 33.3 million to 27.1 million. However, over this period the Board has worked to strengthen the Group's balance sheet by cutting the proposed dividend by 75% compared to the prior year, and selling three surplus properties.
The Group's statutory results are set out in the table below:
52 weeks to
28 July
2017
52 weeks to
29 July
2016
Revenue
393.2m
367.5m
Statutory loss before interest and tax
(40.4)m
(1.8)m
Statutory loss before tax
(44.1)m
(5.7)m
Basic loss per share
(30.40)p
(5.93)p
The Group prepares adjusted results, which, in management's view reflect how the business is managed and show the performance in a manner consistent with the previous year. Adjusted results exclude items such as costs related to restructuring activities, acquisitions made in current and prior periods, disposal of sites, impairment charges and St Ives Defined Benefits Pension Scheme charges.
The Group's statutory loss before tax of 44.1 million (2016: 5.7 million) includes Adjusting Items of 68.2 million (2016: 36.1 million), of which 66.1 million relates to non-cash items in the current period.
The analysis of Adjusting Items is set out below:
52 weeks to
28 July
2017
'm
52 weeks to
29 July
2016
'm
Loss before tax
(44.1)
(5.7)
Add back Adjusting Items:
(Profit)/loss on disposal of property, plant and equipment
(2.8)
1.7
Amortisation of acquired intangibles
10.0
9.2
Expenses related to restructuring items
3.0
2.6
Impairment of goodwill and other assets
33.1
12.7
Costs associated with the acquisition and setup of subsidiaries
-
0.8
Contingent consideration required to be treated as remuneration
15.6
8.2
Increase /(decrease) in deferred consideration
7.4
(0.8)
Administrative expenses related to St Ives Defined Benefits Pension Scheme
1.9
1.7
Adjusted profit before tax 
24.1
30.4
A non-cash impairment charge of 2.9 million was recorded in the Books segment against non-current assets and inventories due to the loss of the HarperCollins contract. Impairment charges of 29.9 million were recorded against the goodwill and non-current assets of businesses within the Marketing Activation segment. This reflects the continued decline in operating profits and expected future growth rates resulting from lower promotional activity levels within the grocery retail sector. In addition, an impairment charge of 0.3 million was recorded against intangible assets of the Data businesses for obsolete software. The Group recorded a total non-cash impairment charge of 33.1 million during the period. Further details can be found in note 3 below.
Other non-cash Adjusting items include contingent consideration required to be treated as remuneration of 15.6 million, an increase in deferred consideration of 7.4 million and amortisation of acquired intangibles of 10.0 million.
Revenue
The 7% (25.6 million) increase in revenue included organic constant currency growth of 4%; acquisition growth of 2%; and a 1% positive currency translation impact. Over the course of the full year, revenue grew by 5% in the first half and 9% in the second half. Organic revenue growth at constant currency was 0.2% in the first half and particularly strong growth of 7% in the second half, within the Group's Strategic Marketing segment.
Revenue generated from the Group's overseas business increased from 53.7 million to 66.5 million over the financial year, representing 17% of Group revenues (2016: 15%).
Revenue from our Strategic Marketing segment increased from 144.1 million to 163.0 million with organic growth contributing 5%; acquisition growth of 4%; and currency translation of 4%. Compared to the comparative period last year, first half organic revenue growth was subdued at 3% as the impact of the cancelled work in quarter four of FY16 took longer to replace than anticipated. Conversely, second half organic growth compared to the comparative period was 13% as new clients and projects started to generate additional revenue.
Revenue from the Marketing Activation segment decreased marginally from 154.8 million to 153.7 million; primarily as a result of reduced client spend within the retail grocery market. The revenue impact was mitigated somewhat by the segment's strategy of diversification into new areas such as food and leisure, while the UK general election also provided a one-off boost to revenue.
Revenue from the Books segment, in contrast to recent years, proved to be resilient during the financial year, increasing by 12% from 68.6 million to 76.5 million. However, following the conclusion of our print and distribution contract with HarperCollins in June 2017, we expect the non-renewal to result in a reduction of approximately 11 million in Group revenue, and 3.5 million in Group Adjusted operating profit, in the financial year ending 3 August 2018.
Adjusted gross profit margin and underlying profitability
The Adjusted operating profit decreased from 33.3 million (9% of revenue) to 27.1 million (7% of revenue).
Adjusted operating profit in the Strategic Marketing segment has increased from 19.4 million to 20.2 million with an operating margin of 12% (2016: 13%). This includes a full year contribution from TAB. The first half-contributed 6.2 million with a margin of 8% compared to the second half of 14 million at a margin of 16%. The first half margin was detrimentally impacted by our decision to broadly maintain our skilled workforce, following project cancelations and deferrals in the fourth quarter of the prior year, in anticipation of new client and contract wins. Second half margin improved as these new clients and contracts delivered revenue without the requirement to substantially increase manpower costs.
Adjusted operating profit in the Marketing Activation segment decreased from 8.1 million to 4.3 million with an operating margin of 3% (2016: 5%). Despite the actions taken to consolidate sites to aid further restructuring and client diversification, margin has continued to be adversely impacted as the grocery retailers reduced their print spend.
Adjusted operating profit in the Books segment decreased from 5.8 million to 2.6 million with an operating margin of 3% (2016: 9%). Reduced run lengths and an increase in orders continued to impact margin. The loss of the HarperCollins contract from 1 July 2017 has resulted in a number of headcount reductions and redundancy costs of 2.9 million, which are recorded as Adjusting Items. The restructuring was completed at the end of July 2017.
Acquisitions
Although no acquisitions were made during the year, Solstice and TAB remain within their earn out periods. Solstice's final earn out period is the calendar year ending 31 December 2017 with TAB's final period being 1 May 2017 to 30 April 2018. TAB's second deferred consideration, which was dependent on incremental EBITDA, has been agreed. Subsequent to the year-end, a cash payment of 2.2 million and the issue of a loan note of 1.6 million were made to settle the deferred consideration. The loan note is exercisable six months after issue. The Group exercised its option to pay all of the deferred consideration in cash or loan notes rather than by the issuing of shares.
The Group has reassessed the likely extent of any further deferred consideration payments to the previous shareholders of Solstice and TAB. The amount of deferred consideration payable, based upon their budgets and latest forecasts, is set out below:
Cash
'm
Shares
'm
Total
'm
TAB
13.0
3.1
16.1
Solstice
16.0
3.9
19.9
29.0
7.0
36.0
The expected timings of the cash element of the deferred consideration payments are detailed below:
2018
'm
2019
'm
TAB
8.0
5.0
Solstice
12.5
3.5
20.5
8.5
Tax
The total tax credit was 0.7 million (2016: charge of 2.4 million).A number of Adjusting Items are not deductible for taxation purposes.
The Group's effective tax rate on the Adjusted profit before tax was 20.7% (2016: 20.8%) compared to the standard rate of tax of 24.0% (2016: 22.7%) for the Group. The Adjusted tax charge was  5.0 million (2016: 6.3 million).
A net income tax of 0.6 million (2016: 4.3 million) was paid in the United Kingdom, which included payments of 3.3 million in respect of 2016 and 2017 financial periods, partially offset by refunds of 2.7 million in respect of prior periods.
Dividend
The Board is recommending a final dividend of 1.30 pence per ordinary share (2016: 5.45 pence) giving a total dividend of 1.95 pence (2016: 7.80 pence). The dividend is covered 6.9 times by Adjusted earnings and will be paid on 18 December 2017 to shareholders on the register at 24 November 2017, with an ex-dividend date of 23 November 2017.
Pensions
The Group closed its Defined Benefits Pension Scheme (the "Scheme") to new members in 2002 and ceased future accrual within the Scheme in 2008. The Group accounts for post-retirement benefits in accordance with IAS19 Employee Benefits. The Consolidated Balance Sheet reflects the net deficit on the Scheme at 28 July 2017 based on the market value of the assets at that date and the valuation of liabilities using AA non-gilt bond yields.
On an IAS19 basis, the net deficit on the Scheme reduced to 16.0 million (2016: 26.4 million) before the related deferred tax asset. The value of the plan assets increased to 354.5 million (2016: 344.1 million). Approximately 65% of the plan assets are invested in return seeking assets providing a higher level of return over the longer period. Plan liabilities remained in line with the prior year at 370.5 million (2016: 370.5 million). In calculating the amount of plan liabilities, an increase in the rate of inflation was offset by an increase in the discount rate and a fall in the rate of increase in life expectancy.
The Scheme's actuarial valuation reviews determine any cash deficit payments by the Group. The Scheme's triennial valuation was as at April 2016 and the Group has reached agreement with the Scheme Trustee for future funding levels. The Group will make deficit funding contributions of 2.6 million per annum and a contribution of 0.4 million per annum (2016: 0.4 million) towards the costs of administration. The total increased contribution level to 3.0 million will apply from April 2016 and, as the funding level was maintained at 2.4 million until an agreement was reached, the contribution in the year to 3 August 2018 will be 3.8 million and thereafter will revert to 3.0 million per annum.
The charge for the year for the Group's defined contribution schemes was 3.8 million (2016: 3.9 million).
Cash Flow
Cash generated from operations was 30.7 million (2016: 23.7 million).
Total capital expenditure was as follows:
2017
'm
2016
'm
Strategic Marketing
2.1
3.1
Marketing Activation
0.8
1.5
Books
0.6
3.0
Total
3.5
7.6
The Group disposed of three surplus properties during the year generating cash of 11.9 million (11.7 million, net of all costs). Two of the properties together generated net income of 1.0 million per annum and the third property was previously occupied by part of SP, our point of sale business.
Debt
The Group's revolving credit facility, which expires on 23 March 2019, remains at 95.0 million and was supplemented by a term loan of 30.0 million. Subsequent to the year-end, the Group reduced its term loan by 5.5 million to 24.5 million.
Net debt decreased during the year from 80.8 million to 54.6 million. At 28 July 2017, St Ives had drawn 80.2 million on its bank credit facility, leaving an unutilised commitment of 44.8 million. The Group had cash and cash equivalents of 25.7 million.
At 28 July 2017, the ratio of net debt to EBITDA before Adjusting Items was 1.61 times (2016: 1.96 times) as shown below:
2017
2016
'm
'm
Adjusted operating profit
27.1
33.3
Depreciation and amortisation
6.8
7.9
EBITDA before Adjusting Items
33.9
41.2
Net Debt
54.6
80.8
Net debt to EBITDA before Adjusting Items
 1.61
1.96
Brad Gray
Chief Financial Officer
2 October 2017
Consolidated Income Statement
52 weeks to 28 July 2017
52 weeks to 29 July 2016
Note
Adjusted Results
'000
Adjusting items
(note 3)
'000
Statutory Results
'000
Adjusted Results
(restated
note 11)
'000
Adjusting
items
(note 3)
'000
Statutory Results
(restated
note 11)
'000
Revenue
2
393,154
-
393,154
367,546
-
367,546
Cost of sales
(284,342)
-
(284,342)
(262,468)
-
(262,468)
Gross profit
108,812
-
108,812
105,078
-
105,078
Selling costs
(26,843)
-
(26,843)
(25,011)
-
(25,011)
Administrative expenses
(55,277)
(70,278)
(125,555)
(46,832)
(33,472)
(80,304)
Share of results of joint arrangement
355
-
355
(122)
-
(122)
Other operating income/(expense)
58
2,760
2,818
167
(1,651)
(1,484)
Operating profit/(loss)
27,105
(67,518)
(40,413)
33,280
(35,123)
(1,843)
Net pension finance expense
-
(638)
(638)
-
(972)
(972)
Other finance expense
(3,017)
-
(3,017)
(2,899)
-
(2,899)
Profit/(loss) before tax
2
24,088
(68,156)
(44,068)
30,381
(36,095)
(5,714)
Income tax (charge)/credit
(4,984)
5,694
710
(6,322)
3,931
(2,391)
Net profit/(loss) for the period
19,104
(62,462)
(43,358)
24,059
(32,164)
(8,105)
Attributable to:
Shareholders of the parent company
 19,104
(62,462)
 (43,358)
 24,059
 (32,164)
 (8,105)
Basic earnings/(loss) per share (p)
6
13.39
(43.79)
(30.40)
 17.61 
(23.54)
(5.93)
Diluted earnings/(loss) per share(p)
6
13.39
(43.79)
(30.40)
17.49
(23.38)
(5.89)
Consolidated Statement of Comprehensive Income
52 weeks to
28 July
2017
'000
52 weeks to
29 July
2016
'000
Loss for the period
(43,358)
(8,105)
 Items that will not be reclassified subsequently to profit or loss:
 Actuarial profit on defined benefits pension scheme
8,958
83
 Tax charge on items taken through other comprehensive income
(1,584)
(545)
7,374
(462)
 Items that may be reclassified subsequently to profit or loss:
 Transfers of losses on cash flow hedges
302
127
 Losses on cash flow hedges
(138)
(302)
 Foreign exchange gain
369
409
533
234
 Other comprehensive income/(expense) for the period
7,907
(228)
Total comprehensive expense for the period
(35,451)
(8,333)
Attributable to shareholders of the parent company
(35,451)
(8,333)
Consolidated Statement of Changes in Equity
Share capital
'000
Additional paid-in capital**
'000
ESOP reserve
'000
Treasury shares
'000
Share option reserve
'000
Hedging and translation reserve
'000
Other reserves
'000
Retained earnings
'000
Total
'000
Balance at 
31 July 2015
13,089
55,521
-
(820)
6,773
427
61,901
57,892
132,882
Loss for the period
-
-
-
-
-
-
-
(8,105)
(8,105)
Other comprehensive expense
-
-
-
-
-
234
234
(462)
(228)
Comprehensive income/(expense)
-
-
-
-
-
234
234
(8,567)
(8,333)
Dividends
-
-
-
-
-
-
-
(10,934)
(10,934)
Issue of shares
775
12,716
(135)
-
-
-
12,581
-
13,356
Acquisitions
365
1,334
-
657
-
-
1,991
(528)
1,828
Recognition of share-based contingent consideration deemed as remuneration
-
-
-
-
5,143
-
5,143
-
5,143
Transfer of share-based contingent consideration deemed as remuneration
-
97
-
-
(3,295)
-
(3,198)
3,382
184
Purchase of own shares
-
-
(395)
-
-
-
(395)
-
(395)
Recognition of share-based payments
-
-
-
-
(236)
-
(236)
-
(236)
Settlement of share-based
payments
15
127
530
-
(1,431)
-
(774)
868
109
Tax on share-based payments
-
-
-
-
(231)
-
(231)
255
24
Balance at 
29 July 2016
14,244
69,795
-
(163)
6,723
661
77,016
42,368
133,628
Loss for the period
-
-
-
-
-
-
-
(43,358)
(43,358)
Other comprehensive income
-
-
-
-
-
533
533
7,374
7,907
Comprehensive income/(expense)
-
-
-
-
-
533
533
(35,984)
(35,451)
Dividends
-
-
-
-
-
-
-
(8,705)
(8,705)
Recognition of share-based contingent consideration deemed as remuneration
-
-
-
-
6,969
-
6,969
-
6,969
Transfer of share-based contingent consideration deemed as remuneration
-
225
-
-
(5,676)
-
(5,451)
5,754
303
Recognition of share-based payments
-
-
-
-
70
-
70
-
70
Settlement of share-based
payments
40
398
-
-
(123)
-
275
123
438
Tax on share-based
payments
-
-
-
-
(63)
-
(63)
16
(47)
Balance at 
28 July 2017
14,284
70,418
-
(163)
7,900
1,194
79,349
3,572
97,205
** Additional paid-in capital represents share premium, merger reserve and capital redemption reserve
Consolidated Balance Sheet
Note
28 July
2017
'000
29 July
2016
'000
Assets
Non-current assets
Property, plant and equipment
26,235
35,559
Investment property
-
6,203
Goodwill
108,676
135,633
Other intangible assets
42,792
53,234
Available for sale asset
3
3
Investment in joint arrangement
517
94
Deferred tax assets
375
232
Other non-current assets
13
374
178,611
231,332
Current assets
Inventories
6,253
7,482
Trade and other receivables
91,063
90,761
Derivative financial instruments
45
-
Income tax receivable
124
1,246
Assets held for sale
11
1,481
Cash and cash equivalents
25,651
11,835
123,147
112,805
Total assets
301,758
344,137
Liabilities
Current liabilities
Trade and other payables
79,539
76,486
Derivative financial instruments
17
535
Income tax payable
1,461
-
Deferred consideration payable
15,920
1,772
Deferred income
7,141
6,206
Provisions
388
31
104,466
85,030
Non-current liabilities
Loans
80,245
92,595
Retirement benefits obligations
7
16,041
26,394
Other non-current liabilities
682
814
Provisions
1,823
2,185
Deferred tax liabilities
1,296
3,491
100,087
125,479
Total liabilities
204,553
210,509
Net assets
97,205
133,628
Equity
Capital and reserves
Share capital
14,284
14,244
Other reserves
79,349
77,016
Retained earnings
3,572
42,368
Total equity
97,205
133,628
These financial statements were approved by the Board of Directors on 2 October 2017.
Consolidated Cash Flow Statement
Note
52 weeks to
28 July
2017
'000
52 weeks to
29 July
2016
'000
Operating activities
Cash generated from operations
30,686
23,650
Interest paid
(3,017)
(2,899)
Income taxes paid
(587)
(6,286)
Net cash generated from operating activities
9
27,082
14,465
Investing activities
Purchase of property, plant and equipment
(3,154)
(7,124)
Purchase of other intangibles
(311)
(488)
Proceeds on disposal of property, plant and equipment
11,770
3,315
Acquisition of subsidiaries, net of cash acquired
-
(20,937)
Deferred consideration paid for acquisitions made in prior periods
(663)
(5,790)
Net cash generated from/(used in) investing activities
7,642
(31,024)
Financing activities
Proceeds on issue of shares
438
13,356
Dividends paid
5
(8,705)
(10,934)
Purchase of treasury shares
-
(395)
(Decrease)/Increase in bank loans
(15,000)
10,000
Net cash (used in)/generated from financing activities
(23,267)
12,027
Net increase/(decrease) in cash and cash equivalents
11,457
(4,532)
Cash and cash equivalents at beginning of the period
11,835
16,392
Effect of foreign exchange rate changes
2,359
(25)
Cash and cash equivalents at end of the period
9
25,651
11,835
Notes to the Consolidated Financial Statements
1. Basis of preparation
The preliminary results have been prepared on the basis of the accounting policies as set out in the Group's Annual Report and Accounts 2017. The financial information set out in the preliminary results does not comprise statutory accounts for the purpose of section 434 of the Companies Act 2006 in respect of the period ended 28 July 2017 and 29 July 2016.
The financial information for the period ended 28 July 2017 has been extracted from the Group's 2017 statutory accounts for that period which have been prepared on a going concern basis and in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union ('IFRS') and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The preliminary results have been prepared under the historical cost convention, except for the recognition of derivative financial instruments and available-for-sale investments, and using the accounting policies set out in the Group's 2016 statutory accounts. The accounting policies adopted are consistent with those of the previous financial year, except as detailed in note 11, and there have been no changes in accounting standards during the year that have had a material effect on the Group.
The 2017 statutory accounts will be delivered to the Registrar of Companies following the Company's 2017 Annual General Meeting. The financial information for the period ended 29 July 2016 has been extracted from the Group's statutory accounts for that period, which have been delivered to the Registrar of Companies. The Auditor's report on both the Group's 2017 and 2016 statutory accounts were unqualified and did not contain statements under sections 498(2) or 498(3) of the Companies Act 2006 in respect of the 2017 and 2016 statutory accounts.
2. Segment reporting
The Group manages its business on a market segment basis, based on the Group's internal reporting to the Chief Operating Decision Maker ("CODM"). The CODM has been determined to be the Chief Executive Officer and Chief Financial Officer as they are primarily responsible for the allocation of resources to the segments and the assessment of performance of the segments.
The Strategic Marketing segment comprises of the Group's Digital, Data and Insight businesses. The Marketing Activation segment includes businesses, which deliver marketing communications through a combination of print and in-store marketing services. The Books segment comprises of Clays.
Corporate costs are allocated to revenue-generating segments as this presentation better reflects their profitability.
Business segments
52 weeks to 28 July 2017
Strategic Marketing
'000
Marketing Activation
'000
Books
'000
Total
'000
Revenue
External sales
161,196
154,258
77,700
393,154
Group sales
3,807
11,215
77
15,099
Intercompany eliminations
(2,055)
(11,732)
(1,312)
(15,099)
Total revenue
162,948
153,741
76,465
393,154
Operating profit before Adjusting Items
20,214
4,310
2,581
27,105
Adjusting Items
(33,283)
(28,599)
(5,639)
(67,521)
Statutory loss from operations
(13,069)
(24,289)
(3,058)
(40,416)
Net pension finance expense
(635)
Other finance expense
(3,017)
Statutory loss before tax
(44,068)
Income tax credit
710
Statutory net loss for the period
(43,358)
52 weeks to 29 July 2016
Strategic Marketing
'000
Marketing Activation
'000
Books
'000
Total
'000
Revenue
External sales
138,745
159,694
69,107
367,546
Group sales
6,987
10,411
17
17,415
Intercompany eliminations
(1,577)
(15,298)
(540)
(17,415)
Total revenue
144,155
154,807
68,584
367,546
Operating profit before Adjusting Items
19,354
8,084
5,842
33,280
Adjusting Items
(18,140)
(15,752)
(1,231)
(35,123)
Statutory profit /(loss) from operations
1,214
(7,668)
4,611
(1,843)
Net pension finance expense
(972)
Other finance expense
(2,899)
Statutory loss before tax
(5,714)
Income tax charge
(2,391)
Statutory net loss for the period
(8,105)
Geographical segments
The Strategic Marketing, Marketing Activation and Books segments operate primarily in the UK, deriving more than 83% of the total revenue from customers located in the UK and 13% of the total revenue from customers located in the US.
The largest customer of the Group accounted for 30.0 million (2016: 25.9 million) of revenue in the current period.
3. Adjusting items
Adjusting items disclosed on the face of the Consolidated Income Statement are as follows:
Expense/(income)
2017
'000
2017
'000
2016
'000
2016
'000
Restructuring items
Redundancies and other charges
3,003
1,612
Costs associated with empty properties
-
976
3,003
2,588
St Ives Defined Benefits Pension Scheme costs
Administrative costs
756
582
Curtailment credit
-
(198)
Other
497
327
1,253
711
Costs related to acquisitions made in prior periods
Amortisation of acquired intangibles
9,953
9,237
Impairment of goodwill and other assets
33,058
12,712
Costs associated with prior period acquisitions and setup of subsidiaries
99
785
Contingent consideration required to be treated as remuneration
15,550
8,220
Increase/(decrease) in deferred consideration
7,362
(781)
66,022
30,173
Adjusting Items in administrative expenses
70,278
33,472
(Profit)/loss on disposal of property, plant and equipment
(2,760)
1,651
Adjusting Items before interest and tax
67,518
35,123
Net pension finance charge in respect of defined benefits pension scheme
638
972
Adjusting Items before tax
68,156
36,095
Income tax credit
(5,694)
(3,931)
Adjusting Itemsafter tax
62,462
32,164
Restructuring items
The restructuring items in the current period include redundancy and restructuring costs of 1.5 million relating to the Books segment and 1.3 million relating to the Marketing Activation segment. During the period, redundancy costs of 0.2 million relating to the restructuring of Digital businesses, were incurred in the Strategic Marketing segment.
The profit on disposal of property, plant and equipment of 2.8 million relates to the sale of the Group's properties in Burnley, Peterborough and Roche. These items are recorded in the Marketing Activation segment.
3. Adjusting items (continued)
St Ives Defined Benefits Pension Scheme costs
The Scheme charges include service costs of 0.8 million, a net pension finance charge of 0.6 million and costs in relation to running the scheme of 0.5 million. These items are recorded in the Books segment.
Costs related to acquisitions made in prior periods
Charges relating to the amortisation of acquired customer relationships, proprietary techniques and software of 9.8 million and 0.2 million are recorded in the Strategic Marketing and Marketing Activation segments respectively.
Impairment charges of 23.9 million and 3.5 million are recorded against SP Group's and Tactical Solutions' respective assets due to continued decline in operating profit as a result of lower level of promotional activities in the grocery retail sector. Subsequent to the period end, the Group was informed by Sainsbury's that it would not renew its contract for the provision of marketing materials. As a result an impairment charge of 2.5 million has been recorded against the goodwill of Service Graphics in the 2016/2017 financial period. These charges have been recorded in the Marketing Activation segment.
Following the loss of the HarperCollins contract, an impairment charge of 2.9 million was recorded against non-current assets and inventories in the Books segment.
An impairment charge of 0.3 million relating to obsolete software was recorded within the Strategic Marketing segment.
In the current period, the tax credit of 5.7 million (2016: 3.9 million) relates to the items discussed above. This tax credit includes an adjustment of 0.8 million relating to the disposal of a subsidiary in a prior period.
4. Income tax credit/(charge).
Income tax credit/(charge) as shown in the Consolidated Income Statement is as follows:
2017
'000
2016
'000
Total current tax charge:
Current period
(4,512)
(5,468)
Adjustments in respect of prior periods
682
(27)
Total current tax charge
(3,830)
(5,495)
Deferred tax on origination and reversal of temporary differences:
Deferred tax credit
4,761
3,181
Adjustments in respect of prior periods
(221)
(77)
Total deferred tax credit 
4,540
3,104
Total income tax credit/(charge)
710
(2,391)
The income tax credit/(charge) charge on the loss before and after adjusting items is as follows:
2017
'000
2016
'000
Tax charge on Adjusted profit before tax
(4,984)
(6,322)
Tax credit on Adjusting items
5,694
3,931
Total income tax credit/(charge)
710
(2,391)
4. Income tax charge (continued)
The income tax credit/(charge) can be reconciled to the loss before tax per the Consolidated Income Statement as follows:
2017
'000
2016
'000
Loss before tax
(44,068)
(5,714)
Tax calculated at a rate of 24.02% (2016: 22.66%)
10,585
1,295
Non-deductible charges on impairment of assets
(5,336)
(2,469)
Expenses not deductible for tax purposes
(7,486)
(2,675)
Effect of tax deductible goodwill
634
423
Effect of change in United Kingdom corporate tax rate
(287)
538
Credit on research and development activities
307
214
Other foreign taxes
-
(150)
Movement in deferred tax on industrial buildings
1,824
430
Utilisation of tax losses not previously recognised
9
107
Adjustments in respect of prior periods
460
(104)
Total income tax credit/(charge)
710
(2,391)
Income tax charge as shown in the Consolidated Statement of Comprehensive Income is as follows:
2017
'000
2016
'000
United Kingdom corporation tax credit at 19.67% (2016: 20%)
548
415
Deferred tax on origination and reversal of temporary differences
(2,132)
(960)
Total income tax charge
(1,584)
(545)
Income tax (charge)/credit as shown in the Consolidated Statement of Changes in Equity is as follows:
2017
'000
2016
'000
United Kingdom corporation tax credit at 19.67% (2016: 20%)
(16)
255
Deferred tax on origination and reversal of temporary differences
63
(231)
Total income tax credit
47
24
5. Dividends
per share
2017
'000
2016
'000
Final dividend paid for the 52 weeks ended 31 July 2015
5.55p
7,515
Interim dividend paid for the 26 weeks ended 29 January 2016
2.35p
3,419
Final dividend paid for the 52 weeks ended 29 July 2016
5.45p
7,777
Interim dividend paid for the 26 weeks ended 27 January 2017
0.65p
928
Dividends paid during the period
8,705
10,934
Proposed final dividend at the period end of 1.30p per share
(2016: 5.45p per share)
1.30p
1,857
6. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following:
Number of shares
2017
'000
2016
'000
Weighted average number of ordinary shares for the purposes of basic earnings per share
142,642
136,633
Effectof dilutive potential ordinary shares:
 Share options
930
Weighted average number of ordinary shares for the purposes of adjusted diluted earnings per share
142,642
137,563
Basic and diluted earnings per share
2017
2016
Earnings
'000
Earnings
per share
pence
Earnings
'000
Earnings
per share
pence
Earnings/(loss) and basic earnings/(loss) per share
Adjusted earnings and Adjusted basic earnings per share
19,104
13.39
24,059
17.61
Adjusting items
(62,462)
(43.79)
(32,164)
(23.54)
Loss and basic loss per share
(43,358)
(30.40)
(8,105)
(5.93)
Earnings/(loss) and diluted earnings/(loss) per share
Adjusted earnings and Adjusted diluted earnings per share
19,104
13.39
24,059
17.49
Adjusting Items
(62,462)
(43.79)
(32,164)
(23.38)
Loss and diluted loss per share
(43,358)
(30.40)
(8,105)
(5.89)
Adjusted earnings is calculated by adding back Adjusting Items, as adjusted for tax, to the loss for the period.
7. Retirement benefits
The net obligation in respect of the St Ives Defined Benefits Pension Scheme of 16.0 million at 28 July 2017 has decreased compared to 29 July 2016 (26.4 million) primarily due to an increase in plan assets with plan liabilities remaining broadly unchanged. In calculating the amount of plan liabilities, an increase in the rate of inflation was offset by an increase in the discount rate and a fall in the rate of increase in life expectancy.
8. Acquisition
The total impact on investing cash outflow in the current period relating to acquisitions made in prior period is as follows:
'000
The App Business Limited
469
Health Hive Limited
194
Net cash outflow
663
9. Notes to the condensed consolidated cash flow statement
Reconciliation of cash generated from operations
2017
'000
2016
'000
Loss from continuing operations
(40,413)
(1,843)
Adjustments for:
Depreciation of property, plant and equipment
6,149
7,201
Share of (profit)/loss from joint arrangement
(355)
122
Impairment losses
33,058
12,712
Amortisation of intangible assets
10,624
10,016
(Profit)/loss on disposal of property, plant and equipment
(2,818)
1,484
Share-based payment charge/(credit)
70
(238)
Settlement of share based payments
-
108
Net increase in derivative liabilities
-
(175)
Decrease in defined benefits pension scheme obligations
(2,789)
(2,278)
Re-measurement of deferred consideration
7,362
(781)
Charge for contingent consideration required to be treated as remuneration
15,550
8,220
(Decrease)/increase in provisions
(5)
55
Operating cash inflows before movements in working capital
26,433
34,603
Increase in receivables
(130)
(9,572)
Decrease/(increase) in inventory
583
(880)
Increase in payables
2,855
3,992
Increase/(decrease) in deferred income
948
(912)
Net decrease in provision for deemed remuneration
-
(3,581)
Cash generated from operations
30,689
23,650
Analysis of net debt
29 July
2016
'000
Cash flow
'000
Foreign exchange gains/(losses)
'000
28 July
2017
'000
Cash and cash equivalents
11,835
11,457
2,359
25,651
Bank loans
(92,595)
15,000
(2,650)
(80,245)
(80,760)
26,457
(291)
(54,594)
Cash and cash equivalents (which are presented as a single class of assets on the face of the consolidated balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.
The effective interest rates on cash and cash equivalents are based on current market rates.
10. Related parties
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. No material related party transactions have been entered into during the period, which might reasonably affect the decisions made by the users of these financial statements.
No executive officers of the Company or their associates had material transactions with the Group during the period.
11. Restatement
Previously the Group reported the employee costs of the Insight businesses, part of Strategic Marketing segment, under administrative expenses. The Group's accounting policy is to include these types of costs within cost of sales and, accordingly, the comparatives have been re-stated to ensure consistency.
The impact of the prior period adjustments on the previously reported Consolidated Income Statement are summarised as follows:
52 weeks to 29 July 2016
Before Adjustments
Adjustments
Restated
'000
'000
'000
Adjusted Results:
Cost of sales
249,730
12,738
262,468
Administrative expenses
59,570
(12,738)
46,832
Statutory Results:
Cost of sales
249,730
12,738
262,468
Administrative expenses
93,042
(12,738)
80,304
There is no impact on the Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity, Consolidated Balance Sheet or Consolidated Cashflow for the comparatives.
12. Post balance sheet event
Subsequent to the period end, the Group reduced its term-loan by 5.5 million to 24.5 million.
The foregoing contains forward looking statements made by the directors in good faith based on information available to them up to 2October 2017. Such statements need to be read with caution due to inherent uncertainties, including economic and business risk factors underlying such statement.

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FR EADEAELPXFAF