TIDMIGR
RNS Number : 9977H
IG Design Group PLC
30 November 2022
EMBARGOED UNTIL 30(th) November at 7.00am
IG Design Group PLC
(the "Company", the "Group" or "Design Group")
Results for the six months ended 30 September 2022
IG Design Group plc, one of the world's leading designers,
innovators and manufacturers of Gift Packaging, Celebrations, Craft
& Creative Play, Stationery, Gifting and related product
categories announces its results for the six months ended 30
September 2022.
Highlights for the six months ended 30 September 2022
Financial Highlights HY2023 HY2022(b)
======== ==========
Revenue $521.2m $483.9m
======== ==========
Adjusted(a)
==========
- Operating profit $30.5m $22.6m
==========
- Profit before tax $27.4m $20.3m
=============================== ======== ==========
- Diluted earnings per share 19.6c 14.2c
------------------------------- ======== ==========
Reported
==========
- Operating profit $35.1m $21.4m
==========
- Profit before tax $32.0m $18.9m
=============================== ======== ==========
- Diluted earnings per share 23.1c 12.3c
=============================== ==========
Net debt as at the period end $73.7m $58.8m
=============================== ==========
Half year dividend 0.0c 1.7c
------------------------------- -------- ----------
(a) Adjusted results exclude the impact of adjusting items - for
further detail see alternative performance measures reconciliation
within the detailed financial review
(b) All prior year adjusted results have been represented to
exclude share-based payment credits/charges from adjusting
items
-- Group revenue increased 8% to $521.2 million, with both of
the Group's divisions, DG Americas and DG International, performing
ahead of last year reflecting an acceleration of orders as
customers seek to de-risk supply chains as well as catch-up
pricing.
-- Improved profits and margin recovery across both of the
Group's divisions, with Group adjusted operating profit up 35%, and
margin up 120 bps to 5.9%, reflecting cost-savings achieved.
-- The Group has operated well within its banking covenants,
with working capital requirements tightly managed and net debt
lower than expected throughout the period.
-- The Group appointed Paul Bal as Chief Executive Officer effective from 1 April 2023.
-- Good progress with the DG Americas turnaround and recruiting a new DG Americas CEO.
-- In line with the Board's previous guidance, no dividend is being declared.
Outlook
-- A strong orderbook for FY2023, which at the end of October
2022 was at 93% of budgeted revenues (end October 2021: 91%),
indicating customer relationships have been sustained and there is
strong ongoing demand for the Group's products.
-- The cost environment remains challenging, but where possible
cost inflation is being mitigated, resulting in an operating margin
improvement expected in FY2023.
-- Improved working capital and cash performance is expected to
mitigate the impact of higher interest base rates.
-- The Group aims to complete a full refinancing in the second
half of FY2023, and work on this has started.
-- The Group saw an acceleration of customer orders related to
Christmas trade, during the first half of the financial year,
leading the Board to conclude that there will be a strong first
half weighting to the financial results for the full year to 31
March 2023.
-- The Group has also seen stronger trading in certain Everyday
categories than previously had been anticipated. Due to this, the
Board believes that the financial results for the full year to 31
March 2023 will be ahead of expectations, delivering a small full
year adjusted profit before tax. As previously communicated the
Board remains cautious on its outlook due to uncertainties relating
to the current macroeconomic environment.
-- With the senior team being reassembled and a turnaround
commenced, the Board will shortly initiate the development of a
growth-focused strategy.
-- Risk around deteriorating consumer sentiment in some markets
causes the Board to remain cautious as to the outlook beyond
FY2023.
Stewart Gilliland, Interim Executive Chair, commented:
" Our strong performance during this period has undoubtedly
benefitted from customers seeking to avoid last year's supply chain
issues by ordering earlier, but also from recognising our high
level of service and commitment to them. Pleasingly, the
restructuring and simplification of the DG Americas business is
progressing well. The turnaround of the Group has commenced and is
expected to now gather momentum following the recently announced
senior leadership appointments. Looking forward, the development of
a growth-focused strategy alongside the establishment of a more
resilient business model will benefit shareholders.
While the challenging external backdrop and the uncertain impact
of sustained cost inflation on consumer sentiment in some markets
does temper our optimism notwithstanding the strong start to this
year, the Group has once again proved that it has extremely strong
relationships with its customers and there is ongoing demand for
our products."
For further information:
IG Design Group plc 01525 887310
Stewart Gilliland, Interim
Executive Chair
Paul Bal, Chief Financial
Officer
Lance Burn, Interim Chief
Operating Officer
Canaccord Genuity Limited
Bobbie Hilliam, NOMAD
Alex Aylen, Sales 020 7523 8000
Alma PR
Josh Royston 020 3405 0205
Sam Modlin designgroup@almapr.co.uk
Pippa Crabtree
OVERVIEW
The Group has had a strong start in FY2023, contrasting with the
challenges faced through much of FY2022. Revenue increased across
both the DG Americas and DG International divisions. Wishing to
de-risk their supply chains and ensure product availability, many
of our customers accelerated their seasonal ordering. Through our
'catch-up' pricing they also recognised our consistent, high
service-levels in the face of significant inflation and supply
chain uncertainties. As a consequence of this, as well as product
redevelopments, we have delivered increased revenue of 8% over the
equivalent period last year. The Group's adjusted operating margin
recovered from 4.7% to 5.9% year-on-year. It is further pleasing to
deliver Group results that are now ahead of HY2020 and before the
disruption of the Covid-19 pandemic. Furthermore, good progress has
been made in the turnaround of the DG Americas division.
Currency exchange rates have not been favourable during this
period, especially with the strength of the US dollar versus most
other currencies. This has impacted reported sales levels and
profitability versus underlying results.
Since the summer of 2021, the Group has experienced significant
cost increases, particularly in relation to freight, raw materials
and labour. Freight presented the most significant challenge across
the Group with the scarce availability of sea containers
significantly increasing the freight rates paid. Freight rates in
FY2023 so far, though stabilising, have remained higher than the
prior period on a number of our key shipping routes. Raw material
costs have increased significantly during this year, especially
where higher energy costs are a factor. The average prices paid for
paper, the Group's major category of material purchases, increased
around 50% compared to the prior period.
On 1 June 2022, the Company signed an amendment to the existing
banking facilities to extend the agreement to March 2024 and
replace the existing covenants with two new covenants which run to
March 2023, and as a result the Directors believe the Group has
sufficient facilities to support the working capital requirements
of the business through the current financial year. During the
current period, the Group has operated comfortably within the
covenants, with overall working capital levels managed to well
below expected levels notwithstanding the accelerated trading.
Consequently, net debt was below expectation throughout the period.
As previously announced, the Group aims to complete a full
refinancing in the second half of FY2023, and work on this has
started.
BOARD CHANGES
On 3 November 2022, the Board announced the appointment of Paul
Bal as CEO Designate, ahead of his appointment as CEO with effect
from 1 April 2023. This followed an extensive search and selection
process involving both external and internal candidates. From that
date Stewart Gilliland will revert to the role of Non-Executive
Chair. The search for a replacement Chief Financial Officer is
underway. Lance Burn has agreed to remain in role as Interim Chief
Operating Officer through to 31 October 2023 to continue to lead
the transformation of the DG Americas business and assist Group
transition.
INCENTIVE SCHEME
A new Long-Term Incentive Plan ("2022-2025 LTIP") was granted on
11 August 2022, following the cancellation of grants made under the
Long-Term Incentive Value Creation Scheme (the "VCS") on 28 June
2022. The 2022-2025 LTIP is subject to certain performance criteria
being achieved during a three year period: relative Total
Shareholder Return ("TSR") versus FTSE SmallCap (excluding
Investment Trusts) constituents; and EPS growth, with an 'underpin'
condition to reduce vesting levels if unwarranted 'windfall gains'
from share price movements arise. The Remuneration Committee
believe the 2022-2025 LTIP is a more appropriate incentive scheme
and aligns to the interests of employees and shareholders.
OUTLOOK
Looking ahead, a high inflationary environment is expected to
continue, with the challenge transferring from freight and labour
to energy and raw materials. This is expected to translate into
depressed consumer sentiment in our main markets to varying
degrees, meaning continued uncertainty. However, the Board are
encouraged by the ongoing strength of the Group's customer
relationships with the resultant 'catch-up' pricing and accelerated
ordering, with a strong orderbook at over 93% at the end of October
2022, compared to 91% at October 2021. The Group's core strategic
pillar of 'working with the winners' continues to resonate as
working with the winning retailers of now and the future is key to
driving revenue growth and delivering profits. Full year operating
margins are expected to improve year-on-year across the Group.
These margins are not expected to be as impacted by higher finance
charges as initially thought, despite increased borrowing rates, as
working capital and average net debt are now expected to remain
below previous expectations. Average net debt across the Group is
expected to be below $40 million for FY2023, which although better
than originally indicated, is higher than the prior year average
net debt of $17.2 million, reflecting a lower opening net cash
position at the start of the year.
Consequently, the Board expects greater profit improvement in
FY2023, mainly reflecting progress being made in DG Americas and
stronger trading in certain Everyday categories, now expecting to
deliver a small adjusted profit before tax versus a loss last year.
The Board aspires to return to paying dividends but based on the
current outlook for the Group, the Board still does not expect to
be in a position to pay a dividend in relation to FY2023. Risk
around deteriorating consumer sentiment in some markets causes the
Board to remain cautious as to the outlook beyond FY2023.
The Board's short-term focus remains on building a strong senior
management team, repairing margins lost last year, reducing working
capital levels, securing longer-term financing, and simplifying the
business, particularly in DG Americas. Following the appointment of
a CEO, the Board will now also initiate the development of a
growth-focused strategy with the objective to explore opportunities
to grow the business in a sustainable manner.
SUMMARY HY2023 FINANCIAL RESULTS
Revenue increased by 8% to $521.2 million (HY2022: $483.9
million) mainly driven by customers bringing seasonal orders
forward compared to last year to mitigate against supply chain risk
experienced in the second half of last year. During the period, the
Group has also benefitted from redeveloping product ranges and
negotiated price increases with our customers reflecting the
significant increase in freight and raw material costs. The Group's
responses to effectively counter the cost headwinds through sales
price increases, in addition to the restructuring of DG Americas,
has resulted in an increased adjusted operating margin of 5.9%
(HY2022: 4.7%). Adjusted profit before tax of $27.4 million is up
on the prior half year profit of $20.3 million resulting in an
adjusted diluted earnings per share of 19.6 cents (HY2022: 14.2
cents) reflecting the strong first six months of trading. Foreign
exchange, particularly the weakening pound versus the strengthening
dollar, is having a significant impact on Group performance versus
prior year. At constant currency, revenue would have increased by
12% ($54.8 million) compared to the 8% ($37.3 million) increase.
Similarly, adjusted operating profit would have increased by 44%
($9.3 million) compared to 35% ($7.9 million).
The Group ended the half year with a net debt balance of $73.7
million (HY2022: $58.8 million), $14.9 million higher than prior
year. The opening net cash position was $46.3 million lower than
prior year and the improvement in cash flow during the period is
reflective of a lower working capital requirement at half year, net
proceeds of $6.7 million from the sale of the property in
Manhattan, Kansas, offset in part by the purchase of the remaining
49% share of Anker Play Products, LLC ("APP").
Adjusting items in the first half of the year are a net credit
of $4.6 million (HY2022: net charge $1.4 million) which includes
insurance income received of $1.5 million from the settlement of
the Impact Innovations, Inc ('Impact') Representations and
Warranties insurance claim due to accounting and tax issues present
at acquisition. As part of the ongoing DG Americas integration and
restructuring, $4.6 million of profit on the sale of the property
in Manhattan, Kansas has also been recognised as an adjusting item.
Alongside these credits, there are also additional integration
costs relating to the restructure of the DG Americas business, as
well as amortisation of acquired intangibles.
The Group ended the half year with a profit before tax of $32.0
million (HY2022: $18.9 million), an improvement of $13.1 million.
Consequently, diluted earnings per share is 23.1 cents (HY2022:
12.3 cents).
Given we are in the early stages of a turnaround, and the
uncertain wider economic backdrop, the Board are not recommending
an interim dividend (HY2022: 1.7 cents).
OUR STRATEGY
The experiences of the prior year highlighted aspects of our
business model that need to be addressed and strengthened. Our
immediate priorities are building a strong senior management team,
repairing margins lost last year, reducing working capital levels,
securing longer-term financing, and simplifying the business,
particularly in DG Americas.
As we are making good progress with the senior appointments, the
Board will shortly initiate the development of a growth-focused
strategy. Whilst the current focus has been on ensuring the Group
emerges more resilient to the types of challenges encountered in
FY2022, some of the impacts of which persist into FY2023, the
objective of that exercise is to look beyond this and will explore
opportunities to grow the business in a sustainable manner.
SUSTAINABILITY
Progressing our environmental, social and governance (ESG)
journey remains a priority. Not only do we have ambition to drive
positive change and act sustainably, we also feel it is a driver of
competitive advantage. As a market leader in our industry, we aim
to leverage our design and innovation skills to create and
manufacture sustainable products and packaging.
We continue to develop and explore new solutions, evidenced by
investment in technology to enable the manufacture of shrink-free
gift wrap in two of our key markets. Shrink-free gift wrap
eliminates the use of plastic from the product and packaging, which
reduces the volume of waste sent to landfills, aiming to reduce the
pollution of our ecosystems. The manufacture of recyclable gift bag
ranges is another sustainable solution, with increasing support
from our customers. The local manufacture of giftwrap and bags
supports local economies and helps to reduce our carbon footprint.
The development of these sustainable product offerings is
facilitated by investment in both capital equipment and our
people.
We recognise our employees are key to the success of the Group
and value both the talent and commitment of our teams, and so
strive for an environment where our employees feel supported.
Whilst the macroeconomic environment is challenging for the Group,
we recognise that it is also challenging for our employees, we are
therefore monitoring, and responding where appropriate to the
impact of the cost-of-living crisis on our employees across the
Group.
Our partnership with our customers also plays a significant role
in progressing our ESG agenda. We aim to promote our sustainability
principles to all our customers and pride ourselves on working with
the winning retailers of now and the future. Many of our customers
are already calling for sustainable solutions and recognise our
achievements as a Group in providing these. Walmart have awarded us
Giga-Guru status this year in their supply chain carbon reduction
strategy project, Project Gigaton 2021.
Our sustainability framework, 'helping design a better future',
launched in FY2021, is helping the Group to monitor, improve and
demonstrate our performance as we continue to drive forward our
approach to ESG.
REGIONAL HIGHLIGHTS
Overall, revenue and adjusted operating profit have increased
across Group segments as the first half results benefit from
earlier shipments and the Group mitigates margin risk seen as a
result of significant cost headwinds.
Segmental revenue Adjusted operating Adjusted operating
profit margin
========= ================ ==== =========================== =========================== =====================
% Group
revenue HY2023 HY2022 % growth HY2023 HY2022 % growth HY2023 HY2022
========= ================ ==== ======= ======= ========= ======= ======= ========= ========== =========
% %
71% DG Americas $m 373.4 347.5 7% 15.2 12.9 18% 4.1% 3.7%
DG
29% International $m 149.4 136.9 9% 18.4 11.7 58% 12.3% 8.5%
Elims /
Central
costs $m (1.6) (0.5) (3.1) (2.0)
100% Total $m 521.2 483.9 8% 30.5 22.6 35% 5.9% 4.7%
========= ================ ==== ======= ======= ========= ======= ======= ========= ========== =========
Design Group Americas
The DG Americas business represents over 70% of revenue and
increased 7% year-on-year to $373.4 million (HY2022: $347.5
million), driven by the acceleration of seasonal sales which are
12% ahead of prior year. It is particularly décor sales, as well as
greeting cards and the 'trim a package' ranges, all within our
Celebrations product category, which are ahead with customers
aiming to ensure product availability ahead of Christmas. Craft and
creative play sales are also recovering. DG Americas delivered an
adjusted operating profit of $15.2 million, a strong rise compared
to the previous period of $12.9 million. This reflects the better
pricing achieved to mitigate the significant cost headwinds in
freight, labour and raw materials experienced, as well as the cost
mitigating actions taken as part of the business restructuring.
The DG Americas leadership team have been focused on the
restructuring and simplification of the DG Americas business. This
is progressing well, with a variety of initiatives beginning to
deliver improved margins and cash from cost-cutting initiatives as
the business is simplified, integrated and consolidated. Examples
include more efficient supply scheduling and sourcing, as well as
headcount optimisation. The journey to becoming more commercially
driven around core product categories continues, and will help to
drive the business forward in pursuit of our strategy. As a notable
example, consolidation of our pattern-printing facilities led to
the closure of the Manhattan, Kansas site. The fully owned site was
sold in April 2022 for net proceeds of $6.7 million, delivering a
profit on disposal of $4.6 million, which is included within
adjusting items. The selection process for recruiting the DG
Americas CEO is also well advanced.
DG Americas' commitment to design and innovation has resulted in
the award this year of Giga-Guru status in 'Project Gigaton 2021',
demonstrating we have been a key supplier and contributor to the
Walmart supply chain carbon reduction strategy. Once again, this is
testament to our strong working relationships with our valued
customers.
On 23 May 2022, the Group purchased the remaining 49% interest
in APP, effective 1 April 2022, bringing its total ownership to
100%. This was completed pursuant to the exercise of a put option
by Maxwell Summers, Inc., the holder of the remaining 49% interest,
which the Group was legally obliged to purchase under the APP
Limited Liability Company agreement dated 30 March 2017. APP
develops and sources crafts, toys and games for the US retail
market. The transaction, made through DG Americas, was satisfied
with a cash payment of $3.0 million. The consideration was
satisfied from existing Group banking facilities.
Design Group International
The DG International business saw an increase in revenue in
HY2023 across all key markets. Strong revenue growth was
experienced across the European markets we serve, as well as in the
UK and Australia as we reflect the success of our customers through
our "working with the winners" approach. Overall revenue is up 9%
on the prior period at $149.4 million (HY2022: $136.9 million) and
up 16% on HY2020 pre-Covid-19 sales. Adjusted operating profit at
$18.4 million (HY2022: $11.7 million) is up $6.7 million, as a
result of accelerated customer orders of higher margin seasonal
products, the re-development of some of our product offers, and a
pricing 'catch-up' to mitigate the inflationary cost headwinds.
Seasonal products which have been particularly affected by this
acceleration are: giftwrap, which makes up over 40% of revenue, and
crackers (8%), which combined have grown 21% year-on-year, and are
both in the celebrations product category.
The design, production and roll-out of sustainable products
remains a key focus for DG International. Following investment over
recent years in updated machinery and technology in the UK and
Europe, we are improving our sustainable product offering. The
success of shrink-free gift wrap is growing in both the UK and
Europe which has minimal packaging and eliminates plastic from the
process, resulting in less waste and pollution. The UK business is
also manufacturing ranges of recyclable gift bags as another
sustainable solution, with the number of units sold up 40%
year-on-year reflecting an increasing number of customers
supporting the sustainable ranges. The growth in these ranges not
only shows innovation, but also demonstrates our ability to work
with our key customers to create successful ranges. This year
Costco has recognised DG UK for our success in reducing the
packaging of the Christmas gift wrap ranges, showing our commitment
to sustainability.
OUR PRODUCTS AND CHANNELS
The Group has a diverse, yet complimentary, product portfolio
which underpins our 'working with the winners' strategy.
Revenue by product HY2023 HY2022
category
==================== ============== ==============
Celebrations 64% $333.4m 64% $311.6m
Craft & creative
play 15% $80.0m 15% $73.2m
Stationery 6% $28.9m 5% $24.4m
Gifting 9% $45.4m 9% $42.3m
'Not-for-resale'
consumables 6% $33.5m 7% $32.4m
Total $521.2m $483.9m
==================== ==== ======== ==== ========
The increased Group revenue is spread across all product
categories demonstrating the strong relationships that have been
sustained with customers and our success in aiming to be our retail
partners' supplier of choice. Celebrations are a core product
category for the Group, of which giftwrap represents a third. Most
of our giftwrap is manufactured locally across a number of our
businesses in the USA, UK and Netherlands, which supports local
economies and helps to reduce our carbon footprint.
Revenue by season HY2023 HY2022
=================== ============== ==============
Christmas 50% $258.8m 46% $222.1m
Minor seasons 5% $26.6m 4% $21.7m
Everyday 45% $235.8m 50% $240.1m
Total $521.2m $483.9m
=================== ==== ======== ==== ========
Our revenue by season at this point in the year is skewed
towards Christmas sales and this year this is exacerbated by our
customers accelerating their seasonal orders to mitigate against
supply chain risks.
Revenue by customer HY2023 HY2022
channel
======================= ============== ==============
Value and mass-market 71% $369.3m 62% $299.8m
Specialist 12% $60.8m 10% $47.6m
Independents 16% $84.2m 27% $129.8m
Online 1% $6.9m 1% $6.7m
Total $521.2m $483.9m
======================= ==== ======== ==== ========
The Group's strategy is underpinned by 'working with the
winners'; a key channel for the Group is value and mass-market,
which includes some of the world's biggest retailers such as
Walmart, Costco and Target. This positions us well for any
potential downturn in consumer sentiment. A lot of our products
carry a low price point which will help to sustain consumer demand
for them, thereby protecting our revenues from the worst of the
current cost-of-living crisis.
DETAILED FINANCIAL REVIEW
The Group's financial results for the first six months of the
year are summarised below. As detailed in the FY2022 results, the
Group results now include the credit/charge associated with
share-based payments within both the adjusted and reported results,
as they are no longer treated as an adjusting Item. The prior year
adjusted results have therefore been represented to include the
impact of this change in accounting presentation.
HY2023 HY2022
================================ ===============================
Reported Adjusting Adjusted Reported Adjusting Adjusted
Items Items
$m $m $m $m $m $m
================== ========= ========== ========= ========= ========== ===========
Revenue 521.2 - 521.2 483.9 - 483.9
Gross profit 86.6 - 86.6 78.6 (0.1) 78.5
Overheads (51.5) (4.6) (56.1) (57.2) 1.3 (55.9)
--------- ---------- --------- --------- ---------- -----------
Operating profit 35.1 (4.6) 30.5 21.4 1.2 22.6
Finance charge (3.1) - (3.1) (2.5) 0.2 (2.3)
--------- ---------- --------- --------- ---------- -----------
Profit before
tax 32.0 (4.6) 27.4 18.9 1.4 20.3
Tax (8.5) 1.2 (7.3) (5.2) 0.4 (4.8)
--------- ---------- -----------
Profit after
tax 23.5 (3.4) 20.1 13.7 1.8 15.5
------------------ --------- ---------- --------- --------- ---------- -----------
Revenue for the period increased by 8% to $521.2 million
(HY2022: $483.9 million) driven by customers bringing forward their
seasonal ordering to avoid the supply chain challenges experienced
from the second half of calendar year 2021. The Group has also
negotiated price increases with customers to adjust for the
increase in supply chain cost headwinds experienced in the last
twelve months. Foreign exchange, notably the weakening pound versus
the strengthening dollar, is also having a significant impact on
the results in the year. The constant currency Group revenues
increased 12% year-on-year. Adjusted operating profit has improved
year-on-year to $30.5 million (HY2022: $22.6 million) reflecting
the strong trading in the period. Adjusted gross margin at 16.6%
(HY2022: 16.2%) is marginally improved on prior year partly due to
the price increases negotiated with customers to mitigate where
possible against the unprecedented cost headwinds. Adjusted
overheads as a percentage of revenue reduced to 10.8% (HY2022:
11.5%) reflecting the ongoing efforts to manage costs across the
Group. Adjusted operating profit growth at constant currency is
44%, implying a $1.5 million foreign exchange drag compared to
prior year.
Overall, the Group finished the half year with adjusted profit
before tax of $27.4 million (HY2022: $20.3 million), and a reported
profit before tax of $32.0 million (HY2022: $18.9 million). Profit
before tax is higher than the adjusted profit before tax,
reflecting the adjusting items net credit. Further details of the
adjusting items are detailed below. Profit after tax is $23.5
million (HY2022: $13.7 million) for the six months to 30 September
2022.
Finance expenses
Finance costs in the year of $3.1 million are higher than prior
year driven by rising interest rates, as well as higher net debt
levels. The IFRS 16 related lease liability interest charge of $1.5
million (HY2022: $1.6 million) is marginally lower than prior year.
In the prior year there was an additional $0.2 million of lease
liability interest recognised within adjusting items relating to
impaired, exited leases as part of the DG Americas restructuring
and integration projects. This has not been treated as an adjusting
item in the current year given the immaterial and recurring nature
of these ongoing costs.
Adjusting items
Adjusting items are material items of an unusual or
non-recurring nature which represent gains or losses which are
separately presented by virtue of their nature, size and/or
incidence. The Group's adjusting items in the period to 30
September 2022 total a net credit of $4.6 million compared to a net
charge of $1.4 million in the prior year. Details of these items
can be seen below. The treatment of share-based payment
credits/charges was changed in the FY2022 results, such that they
no longer form part of adjusting items, with the comparatives
represented.
HY2023 HY2022
=============================================== ======== ========
(Gains)/losses and transaction costs relating
to acquisitions and disposals of businesses ($1.5m) $3.6m
Acquisition integration and restructuring
(income)/costs ($4.4m) ($2.0m)
IT security incident ($0.1m) ($0.7m)
Amortisation of acquired intangibles $1.4m $1.4m
Impairment of assets - ($0.9m)
Total ($4.6m) $1.4m
=============================================== ======== ========
(Gains)/losses and transaction costs relating to acquisitions
and disposals of businesses - credit $1.5 million (HY2022: $3.6
million cost)
In the six months ended 30 September 2022, $1.5 million of
insurance income was received relating to the Impact
Representations and Warranties insurance settlement in connection
with accounting and tax issues present at acquisition.
Acquisition integration and restructuring (income)/costs -
credit $4.4 million (HY2022: credit $2.0 million)
In order to realise synergies from acquisitions, integration
projects are undertaken that aim to deliver future savings and
efficiencies for the Group. These are projects outside of the
normal operations of the business and typically incur one-time
costs to ensure successful implementation. As such it is
appropriate that costs associated with projects of this nature be
included as adjusting items.
The adjusting items in the half year relate to the integration
of CSS Industries, Inc ('CSS') into the enlarged DG Americas
business. As part of this integration, a number of properties have
been exited or sold. In April 2022, the Manhattan, Kansas property
was sold for proceeds of $6.7 million resulting in a profit on
disposal of $4.6 million recognised as an adjusting item. An
additional $0.2 million of costs have been incurred in relation to
the relocation and closure of Manhattan, Kansas and consolidation
of other sites.
IT security incident (income)/costs - credit $0.1 million
(HY2022: credit $0.7 million)
Following the IT security incident which occurred in DG Americas
in October/November 2020, further insurance income of $0.1 million
was received in the half year.
Amortisation of acquired intangibles - $1.4 million (HY2022:
$1.4 million)
Under IFRS, as part of the acquisition of a company, it is
necessary to identify intangible assets such as customer lists and
brands which form part of the intangible value of the acquired
business but which are not part of the acquired balance sheet.
These intangible assets are then amortised to the income statement
over their useful economic lives. These are not considered
operational costs relating to the running of the acquired business
and are directly related to the accounting for the acquisition.
These include tradenames and brands acquired as part of the
acquisitions of Impact and CSS. As such these are included in
adjusting items.
Taxation
The taxation charge for the half year on profit before tax is
$8.5 million (HY2022: $5.2 million) with the effective tax rate at
26.3% (HY2022: 27.5%). The taxation charge on adjusted profit
before tax is $7.3 million (HY2022: $4.8 million) with the
effective tax rate at 26.5% (HY2022: 23.5%).
There is a higher effective tax rate in each jurisdiction than
the relevant statutory rate due to permanently disallowable items.
The effective tax rate in the UK is 0% as deferred tax is not
recognised.
Earnings per share
Adjusted diluted earnings per share of 19.6 cents (HY2022: 14.2
cents) is 38% higher year-on-year driven by the increased profits.
Diluted earnings per share is 23.1 cents (HY2022: 12.3 cents) which
is higher than adjusted diluted earnings per share reflecting the
adjusting items credit in the period. The reconciliation between
reported and adjusted diluted earnings per share is shown
below:
Earnings per share HY2023 HY2022
======================================================== ======== =======
Earnings attributable to equity holders
of the Company $22.8m $12.1m
Adjustments
Adjusting items (net of non-controlling
interest effect) ($4.6m) $1.4m
Tax charge on adjustments (net of non-controlling
interest effect) $1.1m $0.4m
Adjusted earnings $19.3m $13.9m
======================================================== ======== =======
Weighted average number of shares
Basic weighted average number of shares
outstanding 98.3m 98.1m
Dilutive effect of employee share option
plans - 0.1m
Diluted weighted average ordinary shares 98.3m 98.2m
======================================================== ======== =======
Earnings per share
Basic earnings per share 23.1c 12.3c
Adjustment (3.5c) 1.9c
Basic adjusted earnings per share 19.6c 14.2c
Diluted earnings per share 23.1c 12.3c
Adjusted diluted earnings per share 19.6c 14.2c
======================================================== ======== =======
Dividend
The Board are not recommending an interim dividend.
Cash flow and net debt
The Group ended the half year with a net debt balance of $73.7
million (HY2022: $58.8 million). Net debt is $14.9 million higher
than prior year, despite a lower opening net cash position of $30.2
million (HY2022: $76.5 million). This improvement in cash flow
during the period is reflective of a lower working capital
requirement at half year, net proceeds of $6.7 million from the
sale of the property in Manhattan, Kansas, offset partially by the
purchase of the remaining 49% share of subsidiary APP. Adjusted
cash utilised by operations is $23.4 million favourable compared to
prior year due to a combination of a higher adjusted EBITDA and
working capital requirements.
HY2023 HY2022
================================================== ========== ==========
Adjusted EBITDA $46.8m $40.2m
Add back for share-based payment charge/(credit) $0.3m ($0.4m)
Movements in working capital ($136.3m) ($152.4m)
Adjusted cash utilised by operations ($89.2m) ($112.6m)
Adjusting items $7.2m ($4.4m)
Cash utilised by operations ($82.0m) ($117.0m)
Capital expenditure (net of disposals
of property, plant and equipment) ($3.2m) ($3.1m)
Acquisition of non-controlling interest ($3.0m) -
Tax paid ($3.1m) ($3.5m)
Interest paid (including adjusting
items) ($2.3m) ($1.8m)
Lease liabilities principal repayments ($10.8m) ($8.4m)
Dividends paid (including those paid
to non-controlling interests) ($2.6m) ($2.7m)
Purchase of own shares ($0.9m) -
FX and other $4.0m $1.2m
-------------------------------------------------- ---------- ----------
Movement in net debt ($103.9m) ($135.3m)
Opening net cash $30.2m $76.5m
-------------------------------------------------- ---------- ----------
Closing net debt ($73.7m) ($58.8m)
================================================== ========== ==========
Working capital
Working capital levels of the Group increase steadily in the
first half of the year as manufacturing of seasonal product builds
ahead of distribution. The second half of the year then sees the
borrowing of the Group decline and typically move to a net cash
position as Christmas debtors are collected. The working capital
outflow in the period was $136.3 million (HY2022: $152.4 million)
reflecting the settlement of the accelerated seasonal orders by
customers.
Adjusting items
During the period there was a $7.2 million net cash inflow
(HY2022: $4.4 million outflow) in relation to adjusting items, of
which $0.9 million outflow related to costs incurred in previous
years. Further detail on adjusting items can be seen above.
Capital expenditure
Capital expenditure in the year remained in line with the prior
year at $3.2 million (HY2022: $3.1 million), with no significant
capital projects.
Acquisition of non-controlling interest
The Group purchased the remaining 49% share of APP, following
the exercise of a put option by the holder of the 49% interest. The
transaction was settled with a $3.0 million cash payment.
Purchase of own shares
In the year there was an outflow of $0.9 million due to the
trustee of the IG Design Group Plc Employee Benefit Trust (the
"EBT") purchasing 1 million ordinary shares in the Company. These
ordinary shares are to be held in the EBT and are intended to be
used to satisfy the exercise of share options by employees. The
purchase of ordinary shares by the EBT has been funded by a loan
provided by the Company from its existing financing facilities.
Foreign exchange exposure management
Our foreign exchange ('FX') exposure is split into two
areas:
Translational FX exposure - This exposure is the result of the
requirement for the Group to report its results in one currency.
This necessitates the translation of our regional business units'
local currency financial results into the Group's adopted reported
currency. The Group's reporting currency is US dollars in light of
the fact that a significant proportion of the Group's revenues and
profits are in US dollars. There remains a smaller part of the
Group whose functional currency is something other than US dollars.
The constant currency results recalculate the prior year based on
the exchange rates of the current period to enhance the
comparability of information between reporting periods. The revenue
increase would have been $17.6 million higher than prior year if a
consistent currency was applied and the increase in adjusted profit
before tax would have been $1.4 million higher.
Transactional FX exposure - This FX exposure is managed
carefully by the Group as it can result in additional cash outflows
if not managed appropriately. In response to this risk the Group
adopts an active hedging policy to ensure foreign exchange
movements remain mitigated as far as possible. In addition, a
reasonable proportion of this hedging is achieved through natural
hedges whereby our purchases and sales in US dollars are offset.
The balance of our hedging is achieved through forward exchange
contracts and similar derivatives.
Financial position and going concern basis
The Group's net assets at 30 September 2022 were $371.5 million
which is $29.0 million lower than last year (HY2022: $400.5
million) in large part due to foreign exchange revaluations as well
as the distribution of dividends to shareholders in the second half
of FY2022.
As at the 30 September 2022 balance sheet date, the Directors
have assessed going concern in preparation of these financial
statements and the outlook for FY2023 and beyond. The Group has
adequate liquidity at the half year with a net debt position of
$73.7 million ($14.3 million of cash and $88.9 million of bank
overdraft reduced by $0.9 million of loan arrangement fees).
Going concern forecasts have been produced using the Group's
FY2023 and FY2024 forecasts and plans. These forecasts have been
produced and reviewed in detail by the Board and take into account
the seasonal working capital cycle of the business. They have been
sensitised to reflect severe but plausible downturns in the current
assumptions as well as separately considering the impact of any
consumer spending squeeze, beyond those risks already factored into
the forecasts and plans. The base forecasts and additional
sensitivity analysis have been tested against the amended banking
covenants to March 2023, as well as beyond this time when the
covenants revert to the original covenants. The analysis
demonstrates that the Group has sufficient facilities in place to
meet its obligations as they fall due for a forecast period of more
than twelve months beyond the date of signing these accounts and
will also be compliant with all covenants within this time frame
and beyond. The Group's current financing arrangements expire in
March 2024. The Group intends to complete a full refinancing in the
second half of FY2023 which is now underway. As such, after making
appropriate enquiries, the Directors do not see any practical,
regulatory or legal restrictions which would limit their ability to
fund the different regions of the business as required as the Group
has sufficient resources.
Accordingly, the Directors have continued to adopt the going
concern basis of accounting in preparing the financial
statements.
Statement of Directors' responsibilities
The Directors confirm to the best of their knowledge that these
condensed interim financial statements have been prepared in
accordance with UK adopted International Accounting Standard 34,
'Interim Financial Reporting' and that the interim management
report includes a fair review of the information required by DTR
4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
Alternative performance measures
This review includes alternative performance measures (APMs)
that are presented in addition to the standard IFRS metrics. The
Directors believe that these APMs provide important additional
information regarding the underlying performance of the business
including trends, performance and position of the Group. APMs are
used to enhance the comparability of information between reporting
periods and segmental business units by adjusting for exceptional
or uncontrollable factors which affect IFRS measures, to aid the
understanding of the Group's performance. Consequently, APMs are
used by the Directors and management for strategic and performance
analysis, planning, reporting and reward setting. APMs reflect the
results of the business excluding adjusting items, which are items
that are material and of an unusual or non-recurring nature.
The APMs and the definitions used are listed below:
-- Adjusted EBITDA - EBITDA before adjusting items
-- Adjusted operating profit/(loss) - Profit/(loss) before
finance charges, tax and adjusting items
-- Adjusted profit/(loss) before tax - Profit/(loss) before tax and adjusting items
-- Adjusted profit/(loss) after tax - Profit/(loss) after tax
before adjusting items and associated tax effect
-- Adjusted diluted earnings per share - Diluted earnings per
share before adjusting items and associated tax effect
In addition, the Group uses APMs in order to calculate other key
performance metrics including:
-- Adjusted operating margin - Adjusted operating profit divided by revenue
Adjusting items
Further details of the items categorised as adjusting items are
disclosed in more detail in note 3. Note that all prior year
comparatives have been represented to include the share-based
payments credit/charge within adjusted metrics.
A full reconciliation between our adjusted and reported results
is provided below:
APM Reconciliation HY2023 HY2022
============================================= ======= ========
Reported operating profit $35.1m $21.4m
Depreciation and impairment of property,
plant and equipment $6.4m $6.9m
Depreciation and impairment of right-of-use
assets $8.8m $6.8m
Acquisition amortisation $1.4m $1.4m
Amortisation of software $1.1m $1.7m
EBITDA $52.8m $38.2m
============================================= ======= ========
Adjusted EBITDA $46.8m $40.2m
Adjusting items $6.0m ($2.0m)
EBITDA $52.8m $38.2m
============================================= ======= ========
Adjusted operating profit $30.5m $22.6m
Adjusting items $4.6m ($1.2m)
Reported operating profit $35.1m $21.4m
============================================= ======= ========
Adjusted profit before tax $27.4m $20.3m
Adjusting items $4.6m ($1.4m)
Reported profit before tax $32.0m $18.9m
============================================= ======= ========
Adjusted profit after tax $20.1m $15.5m
Adjusting items $3.4m ($1.8m)
Reported profit after tax $23.5m $13.7m
============================================= ======= ========
Adjusted diluted earnings per share 19.6c 14.2c
Adjusting items 3.5c (1.9c)
Reported diluted earnings per share 23.1c 12.3c
============================================= ======= ========
CONDENSED CONSOLIDATED INCOME STATEMENT
SIX MONTHSED 30 SEPTEMBER 2022
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 30 Sep 2021 31 Mar
2022 2022
Note $000 $000 $000
----------------------------------------------------------- ---- ---------- ----------- ---------
Revenue 2 521,184 483,908 965,093
Cost of sales (434,575) (405,287) (842,926)
----------------------------------------------------------- ---- ---------- ----------- ---------
Gross profit 86,609 78,621 122,167
Selling expenses (23,216) (21,792) (48,305)
Administration expenses (35,098) (35,859) (66,604)
Other operating income 5 2,107 427 870
Profit/(loss) on disposal of property, plant and equipment 2 4,721 (17) (436)
Loss on disposal of leases (73) - -
----------------------------------------------------------- ---- ---------- ----------- ---------
Operating profit 3 35,050 21,380 7,692
Finance expenses (3,125) (2,495) (5,491)
----------------------------------------------------------- ---- ---------- ----------- ---------
Profit before tax 31,925 18,885 2,201
Income tax 6 (8,399) (5,191) (2,517)
----------------------------------------------------------- ---- ---------- ----------- ---------
Profit/(loss) for the period 23,526 13,694 (316)
----------------------------------------------------------- ---- ---------- ----------- ---------
Attributable to:
Owners of the Parent Company 22,754 12,063 (3,277)
Non-controlling interests 772 1,631 2,961
----------------------------------------------------------- ---- ---------- ----------- ---------
Earnings/(loss) per ordinary share
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 30 Sep 31 Mar
2022 2021 2022
Note
-------- ---- ---------- ---------- ------
Basic 9 23.1c 12.3c (3.3c)
-------- ---- ---------- ---------- ------
Diluted 9 23.1c 12.3c (3.3c)
-------- ---- ---------- ---------- ------
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
SIX MONTHSED 30 SEPTEMBER 2022
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 30 Sep 31 Mar
2022 2021 2022
$000 $000 $000
---------------------------------------------------------------------- ---------- ---------- ------
Profit/(loss) for the period 23,526 13,694 (316)
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit pension and health benefit schemes - - (715)
Items that may be reclassified subsequently to profit or loss
---------------------------------------------------------------------- ---------- ---------- ------
Exchange difference on translation of foreign operations (net of tax) 24,790 3,799 8,686
Transfer to profit and loss on maturing cash flow hedges (net of tax) (753) 58 (301)
Net unrealised (loss)/gain on cash flow hedges (net of tax) (513) 395 686
---------------------------------------------------------------------- ---------- ---------- ------
23,524 4,252 9,071
---------------------------------------------------------------------- ---------- ---------- ------
Other comprehensive income for the period, net of tax 23,524 4,252 8,356
---------------------------------------------------------------------- ---------- ---------- ------
Total comprehensive income for the period, net of tax 47,050 17,946 8,040
Attributable to:
Owners of the Parent Company 47,136 16,616 5,173
Non-controlling interests (86) 1,330 2,867
---------------------------------------------------------------------- ---------- ---------- ------
47,050 17,946 8,040
---------------------------------------------------------------------- ---------- ---------- ------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
SIX MONTHSED 30 SEPTEMBER 2022
Attributable to the owners of the
Parent Company
-------------------------------------------------------------
Share
premium
and capital Non-
------------- --------
Share redemption Merger Hedging Translation Retained Shareholders' controlling
capital reserve reserve reserve reserve earnings equity interests Total
$000 $000 $000 $000 $000 $000 $000 $000 $000
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
At 1 April 2022 6,373 228,143 42,549 299 (12,459) 96,806 361,711 7,999 369,710
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
Profit for the
period - - - - - 22,754 22,754 772 23,526
Other
comprehensive
income/(expense) - - - (1,295) 25,677 - 24,382 (858) 23,524
Total
comprehensive
income/(expense)
for the period - - - (1,295) 25,677 22,754 47,136 (86) 47,050
------- ----------- ------- ------- -----------
Change in
ownership
interest
Acquisition
of
non-controlling
interest - - - - - (3,558) (3,558) 607 (2,951)
Transactions
with owners
in their capacity
as owners
Equity-settled
share-based
payments - - - - - 283 283 - 283
Purchase of
own shares - - - - - (865) (865) - (865)
Options exercised 51 - - - - (51) - - -
Equity dividends
paid - - - - - - - (2,616) (2,616)
Option over
non-controlling
interest - - - - - 3,069 3,069 - 3,069
Exchange
differences
on opening
balances (969) (34,738) (6,479) - - - (42,186) - (42,186)
At 30 September
2022 5,455 193,405 36,070 (996) 13,218 118,438 365,590 5,904 371,494
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
SIX MONTHSED 30 SEPTEMBER 2021
Attributable to the owners of the
Parent Company
-----------------------------------------------------------------
Share
premium
and Non-
capital
------------- --------
Share redemption Merger Hedging Translation Retained Shareholders' controlling
capital reserve reserve reserve reserve earnings equity interests Total
$000 $000 $000 $000 $000 $000 $000 $000 $000
----------------- ------------ ---------- ------- ------- ----------- -------- ------------- ----------- --------
At 1 April 2021 6,667 239,142 44,600 (86) (21,239) 114,438 383,522 8,497 392,019
----------------- ------------ ---------- ------- ------- ----------- -------- ------------- ----------- --------
Profit for the
period - - - - - 12,063 12,063 1,631 13,694
Other
comprehensive
income/(expense) - - - 453 4,100 - 4,553 (301) 4,252
Total
comprehensive
income for the
period - - - 453 4,100 12,063 16,616 1,330 17,946
------------ ---------- ------- ------- -----------
Transactions
with owners
in their capacity
as owners
Equity-settled
share-based
payments - - - - - (121) (121) - (121)
Tax on
equity-settled
share-based
payments - - - - - (237) (237) - (237)
Options exercised 11 - - - - (11) - - -
Equity dividends
paid - - - - - - - (2,650) (2,650)
Exchange
differences
on opening
balances (149) (5,339) (996) - - - (6,484) - (6,484)
At 30 September
2021 6,529 233,803 43,604 367 (17,139) 126,132 393,296 7,177 400,473
----------------- ------------ ---------- ------- ------- ----------- -------- ------------- ----------- --------
YEARED 31 MARCH 2022
Attributable to the owners of the
Parent Company
-------------------------------------------------------------
Share
premium
and capital Non-
------------- --------
Share redemption Merger Hedging Translation Retained Shareholders' controlling
capital reserve reserve reserve reserve earnings equity interests Total
$000 $000 $000 $000 $000 $000 $000 $000 $000
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
At 1 April 2021 6,667 239,142 44,600 (86) (21,239) 114,438 383,522 8,497 392,019
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
(Loss)/profit
for the year - - - - - (3,277) (3,277) 2,961 (316)
Other
comprehensive
income/(expense) - - - 385 8,780 (715) 8,450 (94) 8,356
Total
comprehensive
income/(expense)
for the year - - - 385 8,780 (3,992) 5,173 2,867 8,040
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
Transactions
with owners
in their capacity
as owners
Equity-settled
share-based
payments - - - - - 241 241 - 241
Derecognition
of deferred
tax asset -
share-based
payments - - - - - (1,179) (1,179) - (1,179)
Derecognition
of deferred
tax asset -
IFRS 16 - - - - - (346) (346) - (346)
Options exercised 13 - - - - (13) - - -
Equity dividends
paid - - - - - (9,274) (9,274) (3,365) (12,639)
Option over
non-controlling
interest - - - - - (3,069) (3,069) - (3,069)
Exchange
differences
on opening
balances (307) (10,999) (2,051) - - - (13,357) - (13,357)
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
At 31 March
2022 6,373 228,143 42,549 299 (12,459) 96,806 361,711 7,999 369,710
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
In line with the Group's accounting policy, share capital, share
premium, capital redemption reserve, merger reserve and hedging
reserve are translated into US dollars at the rates of exchange at
each balance sheet date and the resulting cumulative exchange
differences are included in other reserves.
CONDENSED CONSOLIDATED BALANCE SHEET
AS AT 30 SEPTEMBER 2022
Unaudited Unaudited
as at as at As at
30 Sep 30 Sep 31 Mar
2022 2021 2022
Note $000 $000 $000
---------------------------------------------------- ---- --------- --------- --------
Non-current assets
Property, plant and equipment 71,803 83,098 78,911
Intangible assets 98,460 111,066 107,398
Right-of-use assets 74,025 89,388 86,731
Long-term assets 5,839 6,321 5,105
Deferred tax assets 8,159 16,116 16,317
---------------------------------------------------- ---- --------- --------- --------
Total non-current assets 258,286 305,989 294,462
---------------------------------------------------- ---- --------- --------- --------
Current assets
Asset held for sale - - 2,150
Inventory 264,769 259,893 230,885
Trade and other receivables 265,998 298,009 127,850
Income tax receivable 1,223 1,283 1,234
Derivative financial assets 10 502 375 316
Cash and cash equivalents 7 83,396 96,340 50,179
---------------------------------------------------- ---- --------- --------- --------
Total current assets 615,888 655,900 412,614
---------------------------------------------------- ---- --------- --------- --------
Total assets 2 874,174 961,889 707,076
---------------------------------------------------- ---- --------- --------- --------
Equity
Share capital 5,455 6,529 6,373
Share premium 191,912 231,999 226,382
Capital redemption reserve 1,493 1,804 1,761
Merger reserve 36,070 43,604 42,549
Hedging reserve (996) 367 299
Translation reserve 13,218 (17,139) (12,459)
Retained earnings 118,438 126,132 96,806
---------------------------------------------------- ---- --------- --------- --------
Equity attributable to owners of the Parent Company 365,590 393,296 361,711
---------------------------------------------------- ---- --------- --------- --------
Non-controlling interests 5,904 7,177 7,999
---------------------------------------------------- ---- --------- --------- --------
Total equity 371,494 400,473 369,710
---------------------------------------------------- ---- --------- --------- --------
Unaudited Unaudited
as at as at As at
30 Sep 30 Sep 31 Mar
2022 2021 2022
Note $000 $000 $000
------------------------------ ---- --------- --------- -------
Non-current liabilities
Loans and borrowings 8 (317) (195) (20)
Lease liabilities 66,322 85,647 80,215
Deferred income 463 627 523
Provisions 4,803 5,222 5,016
Other financial liabilities 17,827 19,963 21,557
Deferred tax liabilities 194 2,513 381
------------------------------ ---- --------- --------- -------
Total non-current liabilities 89,292 113,777 107,672
------------------------------ ---- --------- --------- -------
Current liabilities
Bank overdraft 7 69,122 70,511 20,380
Loans and borrowings 8 88,274 84,840 (340)
Lease liabilities 18,234 18,687 19,628
Deferred income 1,681 839 465
Provisions 1,205 1,446 1,342
Income tax payable 4,660 8,444 7,359
Trade and other payables 188,690 223,821 143,318
Other financial liabilities 41,522 39,051 37,542
------------------------------ ---- --------- --------- -------
Total current liabilities 413,388 447,639 229,694
------------------------------ ---- --------- --------- -------
Total liabilities 2 502,680 561,416 337,366
------------------------------ ---- --------- --------- -------
Total equity and liabilities 874,174 961,889 707,076
------------------------------ ---- --------- --------- -------
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
SIX MONTHSED 30 SEPTEMBER 2022
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 30 Sep 31 Mar
2022 2021 2022
Note $000 $000 $000
------------------------------------------- ---- ---------- ---------- --------
Cash flows from operating activities
Profit/(loss) for the period 23,526 13,694 (316)
Adjustments for:
Depreciation and impairment/(reversal
of impairment) of property, plant
and equipment 6,384 6,916 13,378
Depreciation and impairment/(reversal
of impairment) of right-of-use assets 8,862 6,783 15,284
Amortisation of intangible assets 2,477 3,158 5,817
Finance expenses 3,125 2,495 5,491
Income tax charge 8,399 5,191 2,517
(Profit)/loss on disposal of property,
plant and equipment (4,721) 17 436
Loss on disposal of leases 73 - -
Equity-settled share-based payments-
expense/(income) 312 (418) (848)
------------------------------------------- ---- ---------- ---------- --------
Operating profit after adjustments
for non-cash items 48,437 37,836 41,759
Change in trade and other receivables (146,837) (171,325) (994)
Change in inventory (48,061) (85,790) (58,096)
Change in trade and other payables,
provisions and deferred income 57,779 104,669 21,237
------------------------------------------- ---- ---------- ---------- --------
Cash (used by)/generated from operations (88,682) (114,610) 3,906
Tax paid (3,092) (3,464) (5,205)
Interest and similar charges paid (2,326) (1,994) (4,626)
------------------------------------------- ---- ---------- ---------- --------
Net cash outflow from operating activities (94,100) (120,068) (5,925)
------------------------------------------- ---- ---------- ---------- --------
Cash flow from investing activities
Proceeds from sale of property, plant
and equipment 6,839 128 131
Acquisition of intangible assets (16) (236) (381)
Acquisition of property, plant and
equipment (3,286) (2,968) (8,140)
------------------------------------------- ---- ---------- ---------- --------
Net cash inflow/(outflow) from investing
activities 3,537 (3,076) (8,390)
------------------------------------------- ---- ---------- ---------- --------
Cash flows from financing activities
Acquisition of non-controlling interest 13 (2,951) - -
Purchase of own shares 14 (865) - -
Net movement in credit facilities 88,908 85,441 -
Lease liabilities principal repayments (10,848) (10,532) (20,717)
Loan arrangement fees (1,079) (494) (494)
Equity dividends paid - - (9,274)
Dividends paid to non-controlling
interest (2,616) (2,650) (3,365)
------------------------------------------- ---- ---------- ---------- --------
Net cash inflow/(outflow) from financing
activities 70,549 71,765 (33,850)
------------------------------------------- ---- ---------- ---------- --------
Net decrease in cash and cash equivalents (20,014) (51,379) (48,165)
Cash and cash equivalents at beginning
of the period 29,799 75,727 75,727
Effect of exchange rate fluctuations
on cash held 4,489 1,481 2,237
------------------------------------------- ---- ---------- ---------- --------
Cash and cash equivalents at end of
the period 7 14,274 25,829 29,799
------------------------------------------- ---- ---------- ---------- --------
NOTES TO THE INTERIM FINANCIAL STATEMENTS
SIX MONTHSED 30 SEPTEMBER 2022
1. Accounting policies
Basis of preparation
The financial information contained in this interim report does
not constitute statutory accounts as defined in Section 435 of the
Companies Act 2006 and is unaudited.
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into UK law and became UK-adopted
International Accounting Standards (UK IFRS), with future changes
being subject to endorsement by the UK Endorsement Board. The Group
transitioned to UK IFRS in its consolidated financial statements on
1 April 2021. This change constitutes a change in accounting
framework. However, there is no impact on recognition, measurement
or disclosure in the period reported as a result of the change in
framework. This condensed consolidated interim financial report for
the half-year reporting period ended 30 September 2022 has been
prepared in accordance with the UK-adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. The interim report does not include
all of the notes of the type normally included in an annual
financial report. Accordingly, this report is to be read in
conjunction with the annual report for the year ended 31 March
2022, which has been prepared in accordance with UK-adopted
international accounting standards and the requirements of the
Companies Act 2006, and any public announcements made by IG Design
Group plc during the interim reporting period.
The preparation of financial statements that conform with
adopted UK IFRS requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of income and
expense during the reporting period. Although these estimates are
based on management's best knowledge of the amount, event or
actions, actual results may ultimately differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised and future periods if
relevant.
For the purposes of these financial statements, 'Design Group'
or 'the Group' means IG Design Group plc ('the Company') and its
subsidiaries. The Company's ordinary shares are listed on the
Alternative Investment Market (AIM).
Seasonality of the business
The business of the Group is seasonal and although revenues
generally accrue relatively evenly in both halves of the year,
working capital requirements, including inventory levels, increase
steadily in the first half from July and peak in October as
manufacturing of Christmas products builds ahead of distribution.
The second half of the year sees the borrowing of the Group decline
and move to typically a cash positive position as the Group
collects its receivables through January to March.
Re-presentation of adjusting items
The treatment of share-based payment credits/charges was changed
in the year ended 31 March 2022 such that they no longer formed
part of adjusting items in line with best practice guidance. The
comparative figures relating to adjusting items have been restated
to exclude share-based payments where necessary in these financial
statements.
Presentation currency
The presentation currency of the Group is US dollars. The
functional currency of the Parent Company remains as pound sterling
as it is located in the United Kingdom and substantially all of its
cash flows, assets and liabilities are denominated in pound
sterling, as well as its share capital. As such, the Parent
Company's functional currency differs to that of the Group's
reporting currency.
Going concern
Information regarding the financial position of the Group, its
cash flows, liquidity position and borrowing facilities are
described in the detailed financial review above. Cash balances and
borrowings are detailed in notes 7 and 8.
On 5 June 2019, to meet the funding requirements of the Group,
the business refinanced with a banking group comprising HSBC,
NatWest, Citigroup (who replaced BNP Paribas), Truist Bank (as
successor by merger to SunTrust Bank) and PNC Bank as part of a
three-year deal.
This facility was then subsequently amended and extended on 17
January 2020 with the same banking group to accommodate the
acquisition of CSS Industries, Inc. (CSS). The facilities were then
further extended in May 2021.
In June 2022, the facilities were amended and extended through
to March 2024. The amendment to the terms of the banking agreement
comprise of a revolving credit facility (RCF) of $90.0 million
(reduced from $95.0 million) and a further flexible RCF of up to
GBP92.0 million (reduced from a maximum level of GBP130.0 million)
to meet the Group's working capital requirements during the peak
manufacturing and selling season. The financial covenants were also
amended - see note 8 for more details on these. The Group's current
financing arrangements expire in March 2024. The Group aims to
complete a full refinancing in the second half of FY2023 which is
now underway. As such, after making appropriate enquires, the
Directors do not see any practical, regulatory or legal
restrictions which would limit their ability to fund the different
regions of the business as required as the Group has sufficient
resources.
We also have access to supplier financing arrangements from
certain customers which we utilise at certain times of the year.
The largest of these supplier financing arrangements are subject to
the continuing support of the customers' banking partners and
therefore could be withdrawn at short notice.
The Group financial statements have been prepared on a going
concern basis as the Directors have a reasonable expectation that
the Group has adequate resources to continue trading for a period
of at least twelve months from the date of this report based on an
assessment of the overall position and future forecasts for the
going concern period. This assessment has also considered the
overall level of Group borrowings and covenant requirements, the
flexibility of the Group to react to changing market conditions and
ability to appropriately manage any business risks.
The Directors have prepared detailed plans and forecasts up to
31 March 2024. These forecasts reflect the fact that the Group
continues to generate strong sales this year but that cost
pressures continue in the supply chain impacting profitability.
They also reflect the seasonal operating cycle of the business and
a recovery associated with the DG Americas plan.
These forecasts have been sensitised to reflect severe but
plausible adverse downturns in the current assumptions.
Specifically, the severe but plausible downside scenario has taken
account of the following risks:
-- a range of pressures which could affect the attainment of the
DG Americas plan, including inflation in various parts of the
business, sales shortfalls, sales timing and a disruption event
such as a short -- term manufacturing disruption leading to
increased temporary labour costs; and
-- the impact of inflation on disposable incomes and demand for
products in the DG International business, noting that the
potential risks in a severe but plausible downside scenario are not
considered to be as significant as in the DG Americas business.
In the severe but plausible scenario modelled, there remains
significant headroom in our forecast liquidity and sufficient
headroom under the covenant requirements for both the amended
covenants to March 2023 and the reverted covenants from June 2023
onwards.
Based on this assessment, the Directors have formed a judgement
that there is a reasonable expectation the Group will have adequate
resources to continue in operational existence for the foreseeable
future.
Significant accounting policies
The accounting policies adopted in the preparation of the
interim report are consistent with those of the previous financial
year and corresponding interim reporting period, except for the
estimation of income tax (see note 6) and the adoption of new and
amended standards. A number of new or amended standards became
applicate for the current reporting period. The Group did not have
to change its accounting policies or make retrospective adjustments
as a result of adopting these standards.
2. Segmental information
The Group has one material business activity, being the design,
manufacture and distribution of Celebrations, Craft & creative
play, Stationery, Gifting and 'Not-for-resale' consumable
products.
The business operates under two reporting segments which are
reported to, and evaluated by, the Chief Operating Decision Makers
for the Group. The DG Americas segment includes overseas operations
in Asia, Australia, the UK, India and Mexico, being the overseas
entities of US companies. The DG International segment comprises
the consolidation of the separately owned business in the UK, Asia,
Europe and Australia.
Inter -- segment pricing is determined on an arm's length basis.
Segment results include items directly attributable to a segment as
well as those that can be allocated on a reasonable basis.
Financial performance of each segment is measured on adjusted
operating profit before management recharges. Interest and tax are
managed on a Group basis and not split between reportable segments.
However, the related financial liabilities and cash have been
allocated out into the reportable segments as this is how they are
managed by the Group.
Segment assets are all non-current and current assets, excluding
deferred tax and income tax, which are shown in the eliminations
column. Inter -- segment receivables and payables are not included
within segmental assets and liabilities as they eliminate on
consolidation.
DG Central
&
DG Americas(a) International eliminations Group
$000 $000 $000 $000
--------------------------------------- -------------- ------------- ------------ ---------
Six months ended 30 September 2022
Revenue - external 373,417 147,767 - 521,184
- inter-segment - 1,671 (1,671) -
--------------------------------------- -------------- ------------- ------------ ---------
Total segment revenue 373,417 149,438 (1,671) 521,184
--------------------------------------- -------------- ------------- ------------ ---------
Segment profit/(loss) before adjusting
items and management recharges 15,199 18,408 (3,154) 30,453
Adjusting items (note 3) 4,597 - - 4,597
--------------------------------------- -------------- ------------- ------------ ---------
Operating profit/(loss) 19,796 18,408 (3,154) 35,050
Finance expenses (3,125)
Income tax (8,399)
--------------------------------------- -------------- ------------- ------------ ---------
Profit for the six months ended 30
September 2022 23,526
--------------------------------------- -------------- ------------- ------------ ---------
Balances at 30 September 2022
Segment assets 513,678 286,517 73,979 874,174
--------------------------------------- -------------- ------------- ------------ ---------
Segment liabilities (260,029) (158,811) (83,840) (502,680)
--------------------------------------- -------------- ------------- ------------ ---------
Other segment information
Capital expenditure additions
- property, plant and equipment 1,558 1,705 23 3,286
- intangible assets 2 14 - 16
- right-of-use assets 431 46 24 501
Depreciation - property, plant and
equipment 3,689 2,688 7 6,384
Amortisation - intangible assets 2,402 75 - 2,477
Depreciation - right-of-use assets 6,335 2,521 6 8,862
Profit on disposal of property, plant
and equipment(b) 4,641 80 - 4,721
--------------------------------------- -------------- ------------- ------------ ---------
(a) Including overseas entities for the DG Americas operating
segment.
(b) Includes $4.6 million relating to the profit on sale of a
property owned by the Group in Manhattan, Kansas see note 3.
DG Central
&
DG Americas(a) International eliminations Group
$000 $000 $000 $000
----------------------------------------- -------------- ------------- ------------ ---------
Six months ended 30 September 2021
Revenue - external 347,502 136,406 - 483,908
- inter-segment 16 468 (484) -
----------------------------------------- -------------- ------------- ------------ ---------
Total segment revenue 347,518 136,874 (484) 483,908
----------------------------------------- -------------- ------------- ------------ ---------
Segment profit/(loss) before adjusting
items and management recharges 12,917 11,652 (1,979) 22,590
Adjusting items(b) (note 3) 1,464 (42) (2,632) (1,210)
----------------------------------------- -------------- ------------- ------------ ---------
Operating profit/(loss) 14,381 11,610 (4,611) 21,380
Finance expenses (2,297)
Finance expenses treated as an adjusting
item (198)
Income tax (5,191)
----------------------------------------- -------------- ------------- ------------ ---------
Profit for the six months ended 30
September 2021 13,694
----------------------------------------- -------------- ------------- ------------ ---------
Balances at 30 September 2021
Segment assets 586,279 282,985 92,625 961,889
----------------------------------------- -------------- ------------- ------------ ---------
Segment liabilities (321,138) (146,704) (93,574) (561,416)
----------------------------------------- -------------- ------------- ------------ ---------
Other segment information
Capital expenditure additions
- property, plant and equipment 1,866 1,062 40 2,968
- intangible assets 185 51 - 236
- right-of-use assets 2,281 591 - 2,872
Depreciation - property, plant and
equipment 3,877 3,032 7 6,916
Amortisation - intangible assets 3,087 71 - 3,158
Depreciation - right-of-use assets 6,250 2,714 10 8,974
Impairment - right-of-use assets - - 22 22
Reversal of impairment - right-of-use
assets (2,213) - - (2,213)
----------------------------------------- -------------- ------------- ------------ ---------
(a) Including overseas entities for the DG Americas operating
segment.
(b) The prior year amounts above have been re-presented. For
more detail please refer to note 1.
DG Central
&
DG Americas(a) International eliminations Group
$000 $000 $000 $000
----------------------------------------- -------------- ------------- ------------ ---------
Year ended 31 March 2022
Revenue - external 658,953 306,140 - 965,093
- inter-segment 16 1,725 (1,741) -
----------------------------------------- -------------- ------------- ------------ ---------
Total segment revenue 658,969 307,865 (1,741) 965,093
----------------------------------------- -------------- ------------- ------------ ---------
Segment (loss)/profit before adjusting
items and management recharge (11,738) 20,836 (5,290) 3,808
Adjusting items (note 3) 5,667 1,570 (3,353) 3,884
----------------------------------------- -------------- ------------- ------------ ---------
Operating profit/(loss) (6,071) 22,406 (8,643) 7,692
Finance expenses (5,105)
Finance expenses treated as an adjusting
item (386)
Income tax (2,517)
----------------------------------------- -------------- ------------- ------------ ---------
Loss for the year ended 31 March 2022 (316)
----------------------------------------- -------------- ------------- ------------ ---------
Balances at 31 March 2022
Segment assets 451,270 237,625 18,181 707,076
----------------------------------------- -------------- ------------- ------------ ---------
Segment liabilities (212,083) (100,500) (24,783) (337,366)
----------------------------------------- -------------- ------------- ------------ ---------
Other segment information
Capital expenditure additions
- property, plant and equipment 5,237 2,860 43 8,140
- intangible assets 223 158 - 381
- right-of-use assets 4,331 4,850 - 9,181
Depreciation - property, plant and
equipment 7,803 5,891 11 13,705
Reversal of impairment - property,
plant and equipment - (327) - (327)
Amortisation - intangible assets 5,634 183 - 5,817
Depreciation - right-of-use assets 12,406 5,352 18 17,776
Impairment - right-of-use assets - - 22 22
Reversal of impairment - right-of-use
assets (2,514) - - (2,514)
----------------------------------------- -------------- ------------- ------------ ---------
(a) Including overseas entities for the DG Americas operating
segment.
3. Operating profit and adjusting items
Unaudited Unaudited Twelve
six months six months months
ended ended(a) ended
30 Sep 30 Sep 31 Mar
2022 2021 2022
$000 $000 $000
------------------------------ ---------- ---------- ------
Operating profit analysed as:
Adjusted operating profit 30,453 22,590 3,808
Adjusting items 4,597 (1,210) 3,884
------------------------------ ---------- ---------- ------
Operating profit 35,050 21,380 7,692
------------------------------ ---------- ---------- ------
(a) The prior year comparatives above have been re-presented.
For more detail please refer to note 1.
Adjusting items
Other Profit
on
Cost Selling Admin operating disposal Finance
of
Six months ended sales expenses expenses income of plant expenses Total
30 September 2022 $000 $000 $000 $000 $000 $000 $000
------------------------- ----- -------- -------- --------- -------- -------- -------
Losses/(gains)
and transaction
costs relating
to acquisitions
and disposals of
businesses(1) - - - (1,500) - - (1,500)
Acquisition integration
and restructuring
costs/(income)(2) - - 235 - (4,608) - (4,373)
IT security incident
income (3) - - (142) - - - (142)
Amortisation of
acquired intangibles(4) - - 1,418 - - - 1,418
------------------------- ----- -------- -------- --------- -------- -------- -------
Adjusting items - - 1,511 (1,500) (4,608) - (4,597)
------------------------- ----- -------- -------- --------- -------- -------- -------
Other Loss on
Cost Selling Admin operating disposal Finance
of
Six months ended sales expenses expenses income of plant expenses Total
30 September 2021 $000 $000 $000 $000 $000 $000 $000
------------------------- ----- -------- -------- --------- -------- -------- -------
Losses/(gains)
and transaction
costs relating
to acquisitions
and disposals of
businesses(1) - - 3,612 - - (15) 3,597
Acquisition integration
and restructuring
costs/(income)(2) (146) - (2,076) - 31 213 (1,978)
IT security incident
(income)/costs(3) - - (687) - - - (687)
Amortisation of
acquired intangibles(4) - - 1,418 - - - 1,418
Reversal of impairment
of assets(5) - (942) - - - - (942)
------------------------- ----- -------- -------- --------- -------- -------- -------
Adjusting items(a) (146) (942) 2,267 - 31 198 1,408
------------------------- ----- -------- -------- --------- -------- -------- -------
(a) The prior year comparatives above have been re-presented.
For more detail please refer to note 1.
Other Loss on
Cost Selling Admin operating disposal Finance
of
Year ended sales expenses expenses income of plant expenses Total
31 March 2022 $000 $000 $000 $000 $000 $000 $000
------------------------- ------- -------- -------- --------- -------- -------- -------
Losses/(gains)
and transaction
costs relating
to acquisitions
and disposals of
businesses(1) - - 3,710 - - (15) 3,695
Acquisition integration
and restructuring
costs/(income)(2) (980) - (1,336) (124) 348 401 (1,691)
IT security incident
(income)/costs(3) - - (5,683) - - - (5,683)
Amortisation of
acquired intangibles(4) - - 2,837 - - - 2,837
Reversal of impairment
of assets(5) (1,544) (1,112) - - - - (2,656)
------------------------- ------- -------- -------- --------- -------- -------- -------
Adjusting items (2,524) (1,112) (472) (124) 348 386 (3,498)
------------------------- ------- -------- -------- --------- -------- -------- -------
Adjusting items are separately presented by virtue of their
nature, size and/or incidence (per each operating segment). These
items are material items of an unusual or non-recurring nature
which represent gains or losses and are presented to allow for the
review of the performance of the business in a consistent manner
and in line with how the business is managed and measured on a
day-to-day basis and allow the reader to obtain a clearer
understanding of the underlying results of the ongoing Group's
operations. They are typically gains or costs associated with
events that are not considered to form part of the core operations,
or are considered to be a 'non-recurring' event (although they may
span several accounting periods).
These (gains)/losses relating to the period ended 30 September
2022 are broken down as follows:
(1) Losses/(gains) and transaction costs relating to
acquisitions and disposals of businesses
Costs directly associated with acquisitions, including legal and
advisory fees on deals, form part of our reported results on an
IFRS basis. These costs, however, in the Board's view, form part of
the capital transaction, and as they are not attributed to
investment value under IFRS 3, they are included as an adjusting
item. Similarly, where acquisitions have employee related payments
(exclusive of Long Term Incentive Plans) which lock in and
incentivise legacy talent, we also include these costs as adjusting
items. Furthermore, gains or losses on the disposal of businesses,
including any transaction costs associated with the disposal, are
treated as adjusting items.
In the period, $1.5 million of insurance income was received
relating to the Impact Innovations, Inc (Impact) Representations
and Warranties insurance settlement in connection with accounting
and tax issues present at acquisition in August 2018.
In the year to 31 March 2022, the Group incurred expenditure
relating to acquisitions totalling $3.7 million, of which $113,000
related to previous successful acquisitions and the balance related
to aborted acquisitions. In addition, the final tranche of
acquisition related employee payments which lock in and incentivise
legacy talent relating to the Impact acquisition in August 2018 was
incurred ($278,000).
(2) Acquisition integration and restructuring (income)/costs
In order to realise synergies from acquisitions, integration
projects are undertaken that aim to deliver future savings and
efficiencies for the Group. These are projects outside of the
normal operations of the business and typically incur one-time
costs to ensure successful implementation. As such, the Board
considers it is appropriate that costs associated with projects of
this nature are included as adjusting items.
The adjusting items in the period, and in the year to 31 March
2022, relate to the integration of CSS (acquired in 2020) into the
enlarged DG Americas business.
In April 2022, a property in Manhattan, Kansas which was
previously acquired as part of the CSS acquisition, was sold for
net proceeds of $6.7 million resulting in a net profit on disposal
of $4.6 million. An additional $235,000 of costs have been incurred
in relation to the relocation and closure of Manhattan, Kansas and
consolidation of other sites.
In the year to 31 March 2022, two previously impaired properties
were sub-let, resulting in a reversal of the impairment, net of
associated provisions for costs to run the exited sites, of $2.8
million. In the year to 31 March 2022, ongoing net costs relating
to these impaired and sub-leased properties were treated as
adjusting items, however given the immaterial and recurring nature
of these ongoing net costs the Group will no longer include these
as adjusting items.
In the year to 31 March 2022, costs associated with the ongoing
consolidation of operations around the Group were incurred. These
included the enlarged printing and converting business moving from
Memphis to a larger facility in Byhalia, Mississippi that also
houses distribution. In addition, costs associated with the exit of
the owned property in Manhattan, Kansas to consolidate our pattern
printing facilities into one site were incurred. The total costs
associated with this integration were $1.1 million. The remaining
costs incurred in the prior year relate to severance costs
associated with the wider DG Americas restructure programme.
(3) IT security incident (income)/costs
The IT security incident which occurred in DG Americas in
October/November 2020 resulted in one-off costs of $2.2 million
being incurred during the year ended 31 March 2021. This did not
include the lost profits incurred as a result of downtime in the
business for which an insurance claim was made. During the period
ended 30 September 2022, further insurance income was received of
$142,000 (FY2022: $5.7 million) in relation to this incident. The
treatment of this income as adjusting, follows the previous
treatment of the one-off costs as adjusting.
(4) Amortisation of acquired intangibles
Under IFRS, as part of the acquisition of a company, it is
necessary to identify intangible assets such as customer lists and
trade names which form part of the intangible value of the acquired
business but are not part of the acquired balance sheet. These
intangible assets are then amortised to the income statement over
their useful economic lives. These are not operational costs
relating to the running of the acquired business and are directly
related to the accounting for the acquisition. These include trade
names and brands acquired as part of the acquisition of Impact and
CSS in the USA. As such, we include these as adjusting items.
(5) Reversal of impairment of assets
At the onset of the Covid-19 pandemic a review of inventory,
trade receivables and fixed assets was undertaken. Inventories were
assessed at 31 March 2020 for the net realisable value and an
impairment of $7.4 million was recognised. Trade receivables were
assessed for their expected credit loss in line with IFRS 9 and an
impairment of $3.8 million was recognised. The UK's bag line
machines were impaired by $348,000 based on expected future cash
flows associated with the 'Not-for-resale' consumables business.
During the year to 31 March 2022 there was a $2.7 million credit
relating to reversal of impairments no longer required.
The cash flow effect of adjusting items
There was a $7.2 million net inflow in the current period's cash
flow (HY2022: $4.4 million outflow(a) ) relating to adjusting items
which included $919,000 (HY2022: $1.7 million) deferred from prior
years.
(a) The prior year comparatives above have been re-presented.
For more detail please refer to note 1.
4. Share based payments charges
The total expense recognised for the period arising from
equity-settled share-based payments is as follows:
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 2022 30 Sep 31 Mar
2021 2022
$000 $000 $000
---------------------------------------------------- ----------- ---------- -------
Charge in relation to the 2020-2022 LTIP
scheme 166 367 723
Credit in relation to the VCS - (488) (482)
Charge in relation to the 2022-2025 LTIP
scheme 117 - -
---------------------------------------------------- ----------- ---------- -------
Equity-settled share-based payments charge/(credit) 283 (121) 241
Social security charge/(credit) 29 (297) (1,089)
---------------------------------------------------- ----------- ---------- -------
Total equity-settled share-based payments
charge/(credit) 312 (418) (848)
---------------------------------------------------- ----------- ---------- -------
Following a review of the VCS scheme, the Remuneration Committee
of the Company believed that the grants under the VCS no longer
aligned interests of employees and shareholders. Under the VCS
rules, any material changes to the VCS required the consent of
participants holding awards which together represent more than 50
percent of all outstanding award values. Following consultation
with participants, this minimum requirement was achieved allowing
the cancellation of the VCS to occur. The VCS scheme was cancelled
effective 28 June 2022.
The 2022-2025 LTIP was announced on 11 August 2022, following
the cancellation of grants made under the VCS on 28 June 2022. The
2022-2025 LTIP is subject to certain performance criteria being
achieved during a three year period: relative Total Shareholder
Return versus FTSE SmallCap (excluding Investment Trusts)
constituents; and EPS growth, with an 'underpin' condition to
reduce vesting levels if unwarranted 'windfall gains' from share
price movements arise. There is a two year holding period for
certain individuals.
5. Other operating income
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 30 Sep 31 Mar
2022 2021 2022
$000 $000 $000
---------------------------------------------- ---------- ---------- ------
Grant income received 40 - (17)
Sub-lease rental income 567 325 628
Government assistance - 101 125
Other - 1 10
---------------------------------------------- ---------- ---------- ------
Other operating income before adjusting items 607 427 746
Adjusting items (note 3) 1,500 - 124
---------------------------------------------- ---------- ---------- ------
Total other operating income 2,107 427 870
---------------------------------------------- ---------- ---------- ------
6. Taxation
Recognised in the income statement
Unaudited Unaudited Twelve
six months six months months
ended ended(a) ended
30 Sep 30 Sep 31 Mar
2022 2021 2022
$000 $000 $000
-------------------------------------------------- ---------- ---------- -------
Current tax charge
Current income tax charge 648 2,999 3,886
Deferred tax charge/(credit)
Origination and reversal of temporary differences 7,751 2,192 (1,369)
-------------------------------------------------- ---------- ---------- -------
Total tax in the income statement 8,399 5,191 2,517
-------------------------------------------------- ---------- ---------- -------
Total tax charge/(credit) on adjusting items
Total tax on profit before adjusting items 7,250 4,765 3,333
Total tax on adjusting items 1,149 426 (816)
-------------------------------------------------- ---------- ---------- -------
Total tax in the income statement 8,399 5,191 2,517
-------------------------------------------------- ---------- ---------- -------
(a) The prior year comparatives above have been re-presented.
For more detail please refer to note 1.
The tax expense has been calculated by applying the effective
rate of tax which is expected to apply for the year ended 31 March
2023 by jurisdiction, using rates substantively enacted by 30
September 2022. The tax effect of adjusting items is recognised in
the same period as the relevant adjusting item.
As at 31 March 2022, the previously recognised deferred tax
assets in the UK were derecognised. The derecognition occurred
as a result of the assessment of future taxable profits (which
is due to the growing costs in IG Design Group plc) against which
the asset could unwind.
The standard rate of corporation tax in the UK will rise to 25%
effective from 1 April 2023. Given that no deferred tax is
recognised in the UK, this does not impact the deferred tax
measurement at the balance sheet date.
7. Cash and cash equivalents/bank overdrafts
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 30 Sep 31 Mar
2022 2021 2022
$000 $000 $000
---------------------------------------------------------------------- ---------- ---------- --------
Cash and cash equivalents 83,396 96,340 50,179
Bank overdrafts (69,122) (70,511) (20,380)
---------------------------------------------------------------------- ---------- ---------- --------
Cash and cash equivalents and bank overdrafts per cash flow statement 14,274 25,829 29,799
---------------------------------------------------------------------- ---------- ---------- --------
(Net debt)/net cash
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 30 Sep 31 Mar
2022 2021 2022
$000 $000 $000
------------------------------------------------ ---------- ---------- ------
Cash and cash equivalents and bank overdrafts 14,274 25,829 29,799
Bank loans (88,908) (85,441) -
Loan arrangement fees 951 796 360
------------------------------------------------ ---------- ---------- ------
Net (debt)/cash as used in the financial review (73,683) (58,816) 30,159
------------------------------------------------ ---------- ---------- ------
The bank loans and overdrafts are secured by a fixed charge on
certain of the Group's land and buildings, a fixed charge on
certain of the Group's book debts and a floating charge on certain
of the Group's other assets. See note 8 for further details of the
Group's loans and borrowings.
8. Loans and borrowings
This note provides information about the contractual terms of
the Group's interest-bearing loans and borrowings.
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 30 Sep 31 Mar
2022 2021 2022
$000 $000 $000
---------------------------- ---------- ---------- ------
Non-current liabilities
Loan arrangement fees (317) (195) (20)
---------------------------- ---------- ---------- ------
(317) (195) (20)
---------------------------- ---------- ---------- ------
Current liabilities
Asset backed loan 10,579 5,477 -
Revolving credit facilities 78,329 79,964 -
Bank loans and borrowings 88,908 85,441 -
Loan arrangement fees (634) (601) (340)
---------------------------- ---------- ---------- ------
88,274 84,840 (340)
---------------------------- ---------- ---------- ------
Secured bank facilities
The Group maintains its banking facilities through a club of
five banks chosen to reflect and support the geographical spread of
the Group. The banks within the club are HSBC, NatWest, Citigroup
(which replaced BNP Paribas), Truist Bank (as successor by merger
to SunTrust Bank) and PNC.
On 1 June 2022, the Company extended the term of its existing
banking agreement to 31 March 2024. As part of this extension
covenants have been revised for the period to 31 March 2023 and the
amended facilities comprise:
-- a revolving credit facility ('RCF A') which has reduced from
$95.0 million to $90.0 million;
-- a further flexible revolving credit facility ('RCF B') with
availability varying from month to month of up to a maximum level
of GBP92.0 million (reduced from a maximum level of GBP130.0
million). This RCF is flexed to meet Group working capital
requirements during those months when inventory is being built
within our annual business cycle and is GBPnil when not required,
minimising carrying costs; and
-- an invoice financing arrangement in Hong Kong, maximum limit
$18.0 million dependent on level of the eligible receivables.
In total, accessible facilities are considered sufficient to
cover the Group's peak requirements. The facilities do not amortise
with time and being partially denominated in US dollars they also
provide a hedge against currency movements.
Invoice financing arrangements are secured over the trade
receivables that they are drawn on. The RCFs are secured with a
fixed and floating charge over other assets of the Group. Amounts
drawn under RCFs are classified as current liabilities as the Group
expects to settle these amounts within twelve months.
The revised covenants, which operate for a maximum period to 31
March 2023, are as follows:
-- minimum adjusted earnings before interest, depreciation and
amortisation (adjusted EBITDA), as defined by the banking facility,
measured quarterly at the end of June, September, December and
March, which requires the Group to be within $10.0 million of its
adjusted EBITDA budget at each quarter end, based on the last
twelve-month adjusted EBITDA performance at each measurement point;
and
-- minimum liquidity level, which requires the Group to maintain
a minimum of $35.0 million of headroom to the maximum available
facility on a monthly basis.
The amendment also stipulates that any dividends to be paid by
the Group during the remaining term of the agreement will require
majority lender approval. Banking and legal fees associated with
the amendment and extension of the facility totalled c.$1
million.
From April 2023 the Group will revert to the previous covenants
tested quarterly, which are as follows:
-- interest cover, being the ratio of adjusted earnings before
interest, depreciation and amortisation (adjusted EBITDA), as
defined by the banking facility, to interest on a rolling
twelve-month basis; and
-- leverage, being the ratio of debt to adjusted EBITDA, as
defined by the banking facility, on a rolling twelve-month
basis.
There is a further covenant tested monthly in respect of the
working capital RCF by which available asset cover must not fall
below agreed levels relative to amounts drawn.
Both revised and previous covenants are measured on pre-IFRS 16
accounting definitions.
Loan arrangement fees represent the unamortised costs in
arranging the Group facilities. These fees are being amortised on a
straight-line basis over the terms of the facilities.
The Group is party to supplier financing arrangements with a
number of its key customers and the associated balances are
recognised as trade receivables until receipt of the payment from
the bank, at which point the receivable is derecognised.
9. Earnings/(loss) per share
Unaudited Unaudited Twelve
six months six months months
ended ended(a) ended
30 Sep 2022 30 Sep 31 Mar
2021 2022
$000 $000 $000
---------------------------------------------------------------------------- ----------- ---------- -------
Earnings/(loss)
Earnings/(loss) attributable to equity holders of the Company 22,754 12,063 (3,277)
Adjustments
Adjusting items (net of non-controlling interest effect) (4,597) 1,408 (3,498)
Tax charge/(relief) on adjustments (net of non-controlling interest effect) 1,149 426 (816)
---------------------------------------------------------------------------- ----------- ---------- -------
Adjusted earnings/(loss) attributable to equity holders of the Company 19,306 13,897 (7,591)
---------------------------------------------------------------------------- ----------- ---------- -------
Unaudited Unaudited Twelve
six months six months months
ended ended ended
In thousands of shares 30 Sep 30 Sep 31 Mar
2022 2021 2022
-------------------------------------------- ---------- ---------- ------
Issued ordinary shares at 1 April 97,062 96,858 96,858
Shares relating to share options 1,242 1,260 1,260
Less: Shares held by Employee Benefit Trust (12) - -
Weighted average number of shares for the
purposes of calculating basic EPS 98,292 98,118 98,118
Effect of dilutive potential shares - share
awards 10 79 119
-------------------------------------------- ---------- ---------- ------
Weighted average number of shares for the
purposes of calculating diluted EPS 98,302 98,197 98,237
-------------------------------------------- ---------- ---------- ------
30 Sep 2022 30 Sep 31 Mar
2021(a) 2022
Cents Cents Cents
------------------------------------------- ----------- -------- ------
Earnings/(loss) per share
Basic earnings/(loss) per share 23.1 12.3 (3.3)
Impact of adjusting items (net of tax) (3.5) 1.9 (4.4)
------------------------------------------- ----------- -------- ------
Basic adjusted earnings/(loss) per share 19.6 14.2 (7.7)
------------------------------------------- ----------- -------- ------
Diluted earnings/(loss) per share 23.1 12.3 (3.3)
Diluted adjusted earnings/(loss) per share 19.6 14.2 (7.7)
------------------------------------------- ----------- -------- ------
(a) The prior year comparatives above have been re-presented.
For more detail please refer to note 1.
Adjusted earnings per share is provided to reflect the
underlying earnings performance of the Group.
Basic earnings per share
Basic EPS is calculated by dividing the profit for the period
attributable to ordinary shareholders by the weighted average
number of shares outstanding during the period, excluding own
shares held by the Employee Benefit Trust.
Diluted earnings per share
Diluted EPS is calculated by dividing the profits for the period
attributable to ordinary shareholdings by the weighted average
number of shares outstanding during the period, plus the weighted
average number of ordinary shares that would be issued on the
conversion of the potentially dilutive shares.
10. Financial instruments
Derivative financial instruments
The fair value of forward exchange contracts is assessed using
valuation models taking into account market inputs such as foreign
exchange spot and forward rates, yield curves and forward interest
rates.
Fair value hierarchy
Financial instruments which are recognised at fair value
subsequent to initial recognition are grouped into Levels 1 to 3
based on the degree to which the fair value is observable. The
three levels are defined as follows:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
All other financial assets and liabilities are measured at
amortised cost.
The Group held the following financial instruments at 30
September 2022, which were measured at Level 2 fair value
subsequent to initial recognition:
Unaudited Unaudited Twelve
six months six months months
ended ended ended
30 Sep 30 Sep 31 Mar
2022 2021 2022
Forward exchange contracts carrying amount $000 $000 $000
------------------------------------------- ---------- ---------- ------
Derivative financial assets 502 375 316
Derivative financial liabilities (1,467) - (18)
------------------------------------------- ---------- ---------- ------
The Group has forward currency hedging contracts outstanding at
30 September 2022 designated as hedges of expected future purchases
in US dollars, Chinese renminbi and Japanese yen for which the
Group has firm commitments, as the derivatives are based on
forecasts and an economic relationship exists at the time the
derivative contracts are taken out. The terms of the forward
currency hedging contracts have been negotiated to match the terms
of the commitments.
11. Capital commitments
At 30 September 2022, the Group had outstanding authorised
capital commitments to purchase plant and equipment for $2.3
million (HY2022: $553,000).
12. Related parties
As at 30 September 2022, there are no changes to the related
parties or types of transactions as disclosed at 31 March 2022.
13. Acquisitions
On 23 May 2022, the Group purchased the remaining 49% interest
in Anker Play Products LLC ('APP'), bringing its total ownership to
100%. This was completed pursuant to the exercise of a put option
by Maxwell Summers, Inc., the holder of the remaining 49% interest,
which the Group was legally obliged to purchase with the exercise
of the put option under the APP Limited Liability Company agreement
dated 30 March 2017. The transaction was contractually committed on
23 May 2022, with an effective date of 1 April 2022. The
transaction, made through the Group's American subsidiary IG Design
Group Americas, Inc., was satisfied with a cash payment of $3.0
million. The consideration was satisfied from the existing Group
banking facilities.
14. Purchase of own shares
On 29 September 2022, the trustee of the IG Design Group Plc
Employee Benefit Trust (the "EBT"), purchased 1 million ordinary
shares of 5 pence each in the Company ("ordinary shares") at an
average price of 77.50 pence per ordinary share. These ordinary
shares are to be held in the EBT and are intended to be used to
satisfy the exercise of share options by employees. The EBT is a
discretionary trust for the benefit of the Company's employees,
including the Directors of the Company. The purchase of ordinary
shares by the EBT has been funded by a loan provided by the Company
from its existing financing facilities. The EBT has waived its
rights to dividend payments.
15. Non-adjusting post balance sheet events
There were no known material non-adjusting events which occurred
between the end of the reporting period and prior to the
authorisation of this interim report.
REGISTERED OFFICE
Howard House
Howard Way
Interchange Park
Newport Pagnell MK16 9PX
IG Design Group plc
is registered in
England and Wales,
number 1401155
Visit us online at
thedesigngroup.com
ADVISERS
Financial and nominated
adviser and broker
Canaccord Genuity Limited
88 Wood Street
London EC2V 7QR
Independent auditor
PricewaterhouseCoopers LLP
40 Clarendon Road
Watford
Hertfordshire WD17 1JJ
Public relations
Alma PR
71-73 Carter Lane
London EC4V 5EQ
Share registrar
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
By phone:
UK +44 (0)371 664 0300
Calls are charged at the standard geographic rate and will vary
by provider. Calls made outside the United Kingdom will be charged
at the applicable international rate. Lines are open between 9.00am
and 5.30pm, Monday to Friday excluding public holidays in England
and Wales.
By email: enquiries@linkgroup.co.uk
Independent review report to IG Design Group Plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed IG Design Group Plc's condensed consolidated
interim financial statements (the "interim financial statements")
in the Interim Report of IG Design Group Plc for the 6 month period
ended 30 September 2022 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the AIM Rules for Companies.
The interim financial statements comprise:
-- the Condensed consolidated balance sheet as at 30 September 2022;
-- the Condensed consolidated income statement and the Condensed
consolidated statement of comprehensive income for the period then
ended;
-- the Condensed consolidated cash flow statement for the period then ended;
-- the Condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Report
of IG Design Group Plc have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the AIM Rules for Companies.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with this ISRE.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Report, including the interim financial statements,
is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the Interim Report in
accordance with the AIM Rules for Companies which require that the
financial information must be presented and prepared in a form
consistent with that which will be adopted in the company's annual
financial statements. In preparing the Interim Report, including
the interim financial statements, the directors are responsible for
assessing the group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors
either intend to liquidate the group or to cease operations, or
have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Report based on our review. Our
conclusion, including our Conclusions relating to going concern, is
based on procedures that are less extensive than audit procedures,
as described in the Basis for conclusion paragraph of this report.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the AIM
Rules for Companies and for no other purpose. We do not, in giving
this conclusion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
Watford
29 November 2022
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END
IR FLFVALRLAFIF
(END) Dow Jones Newswires
November 30, 2022 02:00 ET (07:00 GMT)
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