TIDMFOUR
RNS Number : 3259S
4imprint Group PLC
16 March 2021
16 March 2021
4imprint Group plc
Final results for the period ended 2 January 2021
4imprint Group plc (the "Group"), a direct marketer of
promotional products, today announces its final results for the 53
weeks ended 2 January 2021.
2020 2019
53 weeks 52 weeks
Financial Overview $m $m Change
----------- -----------
Revenue 560.04 860.84 -35%
Underlying* profit before tax 4.37 54.68 -92%
Profit before tax 3.84 53.99 -93%
Cash 39.77 41.14 -3%
-------------------------------------- ----------- ----------- ----------------
Underlying* basic EPS (cents)
Basic EPS (cents) 12.55 154.41
Proposed total dividend per share 11.03 152.42
(cents)
- 84.00 -92%
Proposed total dividend per share
(pence) - 66.68 -93%
-------------------------------------- ----------- ----------- ----------------
* Underlying is before defined benefit pension charges
Operational Overview
* 2020 results significantly impacted by COVID-19
pandemic
* 960,000 total orders processed in 2020 (2019:
1,587,000)
* Business successfully managed through 'lockdown';
safety and retention of team members prioritised
* Marketing successfully recalibrated to resonate
during the pandemic whilst producing material cost
savings
* $9.14m 'lump sum' legacy pension contribution paid in
May 2020
* Strong financial position: cash balance of $39.77m;
no debt
* Well placed to capitalise on the opportunities
arising in recovering markets
Paul Moody, Chairman said:
" The Group has seen an encouraging recovery since the initial
shock of COVID-19 in the first half of the year. We look forward to
the beneficial effect that vaccine programmes may bring to the
economy. The fourth quarter of 2020 was relatively robust, enhanced
by seasonal apparel and year-end gift giving. Order counts in
January and February 2021 were 65% of 2019 levels, reflecting
typically lower order activity at the start of the year combined
with volatility caused by news flow and weather events in our
primary US market. In the past three weeks, there has been a marked
increase in trading momentum, with order intake compared to 2019
approaching the 70% seen in the fourth quarter of 2020.
The Board is proud of the resilience and flexibility
demonstrated by the Group's people and business operations.
Decisions have been made and actions taken consistent with
4imprint's purpose and culture and with a view to the long-term
health of the business. The Group is financially strong and very
well placed to capitalise on the opportunities arising in
recovering markets. "
For further information, please contact:
4imprint Group plc MHP Communications
Tel. + 44 (0) 20 3709 9680 Tel. + 44 (0) 20 3128 8549
hq@4imprint.co.uk 4imprint@mhpc.com
Kevin Lyons-Tarr - CEO Katie Hunt
David Seekings - CFO Rachel Mann
Chairman's Statement
COVID-19 impact
2020 was an unprecedented year. In common with many other
businesses worldwide, 4imprint's operational and financial
performance was dominated by the spread of the COVID-19 pandemic
and its devastating impact on our trading environment. From
mid-March onwards the Group experienced severe operational
disruption alongside significantly decreased demand for promotional
products.
Weekly order counts (the most direct KPI addressing the
immediate health of the business) plunged from around 13% ahead of
2019 for the first two months of the year to a low point in
mid-April of less than 20% against the same comparative. Since that
point, order counts steadily recovered to a fourth quarter run rate
of around 70% of prior year.
This demand profile produced a material negative impact on the
year's financial performance. Group revenue in 2020 was $560.04m, a
decrease of $300.80m, or 35%, from 2019. Profit before tax for the
year was $3.84m (2019: $53.99m), resulting in basic earnings per
share of 11.03c (2019: 152.42c). Given the very difficult trading
environment, the Group's cash performance was strong. The 2020
period end cash position was $39.77m, just below the 2019 balance
of $41.14m, despite the unprecedented trading conditions and the
payment in the year of a 'lump sum' pension contribution of
$9.14m.
Response
Our team's response to the challenges presented by COVID-19 has
been clear and deliberate. We have focused on protecting the
long-term prospects of the business, staying true to our culture
and mitigating adverse consequences for all of our stakeholders.
Some themes in particular stand out:
-- We pursued a people-led approach. The protection and
retention of our team members has been central to our culture for
many years and remains essential to building and protecting our
brand equity. Accordingly, we remain very confident in our
continued ability to provide excellent service to our customers and
to make the most of our opportunities as demand levels recover.
-- We successfully dealt with 'lockdown' restrictions, including
the enforced closure of our offices and distribution operations. As
our facilities re-opened, health and safety was prioritised,
including rigorous social distancing protocols. Many team members
were able to move to remote working, allowing us to continue
providing uninterrupted customer service throughout the year.
-- We worked together with our suppliers more closely than ever
to ensure the availability of product despite a rapidly changing
product mix and a challenging production environment. We are very
grateful for the perseverance, collaboration and support of our
supplier partners, who faced pandemic issues of their own, during
such a difficult year.
-- We regularly and extensively recalibrated our marketing
activities in order to reduce spend materially in the context of
substantially reduced revenue, whilst keeping the 4imprint name in
front of both existing and prospective customers, protecting the
longer-term prospects of the business.
-- We emphasised cost control and cash conservation to preserve
liquidity, including the temporary cancellation of dividend
payments.
Communication and governance
At a time of severe operational disruption and financial stress,
the Board and executive management worked hard to ensure strong and
effective communication and active governance including:
-- Full attendance at all Board meetings and several
supplementary conference/video calls, often convened at relatively
short notice.
-- Uninterrupted internal information flow, including KPIs,
regularly scheduled financial reporting and updates to the Board as
appropriate by the Executive Directors.
-- Clear and timely external information flow, in particular
regular RNS trading updates to the market detailing order counts,
operational adjustments and the Group's liquidity position,
followed by numerous conferences with investors.
-- Regular updates to all team members from the CEO, UK General
Manager and other senior executives throughout the organisation
updating them on the impact of COVID-19, our evolving mitigation
plans, and latest performance objectives.
Financial strength
The Board's well-established balance sheet funding guidelines
meant that the Group was in a strong position to deal with the
significant adverse financial impact of the COVID-19 pandemic.
Management's actions to conserve cash were swift and effective,
leaving the Group with a healthy cash position and ample liquidity
heading into 2021.
In order to maintain maximum liquidity, we continue to take a
prudent view on dividend payments. Consequently, we are not
proposing a final dividend for 2020, although it is important to
note that the Board has not changed its dividend policy and will
reassess the position over coming months as the timing and
trajectory of the recovery becomes clearer.
Board
John Warren will step down as Non-Executive Director, Senior
Independent Director and Audit Committee Chair at the AGM in May
2021. John has given nine years of impeccable service to 4imprint;
his calm approach and wise counsel will be missed. After an
extensive search exercise, we appointed John Gibney as a
Non-Executive Director on 8 March 2021 with the intention that he
will succeed John Warren as Audit Committee Chair after the 2021
AGM. John was a stand-out candidate and has extensive, relevant
experience. We look forward to benefitting from his valued
perspective moving forward.
In addition, we have commissioned a search for an additional
Non-Executive Director with the aim of further strengthening our
Board resource. We are cognisant of the importance and value of
diversity, in the broadest definition, within the Board setting,
and this will be an essential factor in the specification of this
new Board position.
Outlook
The Group has seen an encouraging recovery since the initial
shock of COVID-19 in the first half of the year. We look forward to
the beneficial effect that vaccine programmes may bring to the
economy. The fourth quarter of 2020 was relatively robust, enhanced
by seasonal apparel and year-end gift giving. Order counts in
January and February 2021 were 65% of 2019 levels, reflecting
typically lower order activity at the start of the year combined
with volatility caused by news flow and weather events in our
primary US market. In the past three weeks, there has been a marked
increase in trading momentum, with order intake compared to 2019
approaching the 70% seen in the fourth quarter of 2020.
The Board is proud of the resilience and flexibility
demonstrated by the Group's people and business operations.
Decisions have been made and actions taken consistent with
4imprint's purpose and culture and with a view to the long-term
health of the business. The Group is financially strong and very
well placed to capitalise on the opportunities arising in
recovering markets.
Paul Moody
Chairman
16 March 2021
Chief Executive's Review
2020 2019
53 weeks 52 weeks
Revenue $m $m
------------------------------ ----------- ----------- -----
North America 549.87 839.28 -34%
UK and Ireland 10.17 21.56 -53%
Total 560.04 860.84 -35%
------------------------------ ----------- ----------- -----
2020 2019
53 weeks 52 weeks
Underlying* operating profit $m $m
------------------------------ ----------- ----------- -----
Direct Marketing operations 7.56 57.40 -87%
Head office (3.17) (3.47) -9%
Total 4.39 53.93 -92%
------------------------------ ----------- ----------- -----
Operating profit 3.97 53.62 -93%
------------------------------ ----------- ----------- -----
Underlying profit is included because the Directors consider
this gives a measure of the underlying performance of the
business.
* Underlying is before defined benefit pension charges.
Performance overview
Our decade-long track record of strong year-over-year organic
growth came to an end in 2020 as a direct result of the COVID-19
pandemic. The unprecedented collapse in demand for promotional
products along with the operational constraints resulting from
'lockdowns' and other restrictions presented a multitude of
challenges for the Group. Equally, however, these obstacles brought
out the best in our team members who responded with incredible
resilience and flexibility as we rapidly and decisively addressed
the challenges presented with a focus on safeguarding the business
and 'looking through' the crisis to make decisions that will
position the Group to thrive once again as markets recover.
2020 started well, with total orders received up around 13% over
prior year at the end of February. The impact of the pandemic began
to be felt from the second week in March, manifesting itself in a
significant reduction in daily order flow as 'lockdown' directives
were widely implemented. Order counts in the US business hit a low
point in the second week of April, falling to less than 20% of the
comparative week in 2019. The initial lifting of restrictions in
May and June in many US states resulted in a steady increase in
order counts to around 50% of prior year by the half year. This
recovery in demand continued through the second half of the year,
with order intake in the fourth quarter running at around 70% of
2019 levels, helped by stronger apparel sales and year-end business
gifting. The smaller UK business saw demand contract sharply, with
order intake below 50% of 2019 level for the full year.
In total, just over 960,000 orders were processed in the year
(2019: 1,587,000). It is encouraging that we continued to acquire
new customers throughout the year, albeit at much lower levels than
planned (2020: 173,000; 2019: 297,000), and the new to existing
customer order ratio remained quite consistent. The customers
acquired during the pandemic have demonstrated typical retention
rates, indicating that they are within our target profile. In
addition, the average order value was higher than historical
comparatives during this period.
In terms of the effect of COVID-19 on demand for 4imprint's
products there were two primary themes. Firstly, any general
economic downturn causes a reduction in demand for promotional
products, which, like many forms of advertising and marketing, are
seen by some organisations as discretionary spend. Secondly,
because this specific crisis was driven by a pandemic, demand for
promotional items was suppressed due to people being unable to
gather for events, meetings, training sessions, fundraisers or
in-office events, which are typically situations where promotional
products have an important role to play. This 'use case' problem
impacted all product categories, with the exception of imprinted
PPE items like masks and hand sanitiser. The impact was felt the
least in the apparel category, and the most in the tradeshow
category, which features items specifically used for a variety of
events.
As a direct result of these factors, Group revenue of $560.04m
was down 35% against 2019. However, the flexibility of the business
model was demonstrated as we still generated a positive underlying
operating profit of $4.39m (2019: $53.93m) even though we
maintained a reduced but still significant marketing presence and
made the very deliberate decision to keep all team members on the
payroll despite the steep fall in business activity. We have made
swift decisions and kept a close eye on cost, with the result that
cash flow was breakeven or better at second half activity levels,
leaving the Group with strong liquidity and a firm platform for
further recovery as market conditions improve.
Operational summary
As the nature of the pandemic became evident, we made sure that
our first priority was the health, safety and wellbeing of our team
members. All of our operations have worked with strict adherence to
evolving government guidelines and best practices, such as the
robust social distancing protocols and other initiatives like
uprated air filtration implemented in our facilities. We have
prioritised the retention of our team members, staying true to the
culture that has been essential to our success over many years.
Whilst representing short-term investment, we are certain that this
approach has left us in the best possible position to take
advantage of the opportunities arising when market conditions
return closer to normal.
Throughout the year we were able to continue to provide
excellent service to our customers via an enhanced and expanded
'work from home' capability. This allowed us to provide continuity
of service for office-based activities under 'lockdown' conditions,
and even though our offices were fully operational in the second
half of the year most team members continued to work effectively
from home, thereby minimising the risk of virus transmission. Most
of the activities at our Oshkosh distribution centre cannot be
carried out remotely, therefore we have been vigilant with safety,
cleaning and social distancing measures as well as rotating shifts
so as to align the number of team members physically present to the
workload at any point in time.
Our supply chain was not left untouched by the pandemic. Initial
concerns over the supply of blank product from manufacturers in
China (where our domestic suppliers source approximately 60% of our
blank products) were largely mitigated by the timing of the
inventory cycle relative to the Chinese New Year. As it turned out,
the more significant impact in the year was in respect of the
domestic production and logistical implications caused by the
rapidly changing situation regarding regional lockdowns, associated
delivery delays and other factors. The long-term, deep working
relationships that we have developed over many years with our tier
1 suppliers meant that we worked together very effectively,
ensuring the best possible service to our customers. We are proud
of what we achieved with our suppliers in difficult circumstances
in 2020 and remain very grateful for the essential part they play
in our business success.
Marketing remains an essential component of our business model
and is at the centre of our strategy to drive our growth. It is the
largest investment we make in the business. In reaction to the
onset of the pandemic, our marketing activities were radically
recalibrated in an extremely short space of time. For the first
time in our history, catalogue circulation and Blue Box (TM)
mailings were completely stopped for several weeks. These
activities were added back into the mix as appropriate as lockdowns
eased and more of our customers gradually returned to work. Search
engine spend, a significant portion of the overall marketing
budget, changes with market demand therefore there was a
significant initial reduction in spend as the pandemic took hold
followed by gradually increasing expense as order intake began to
recover during the year. Our experience through previous economic
downturns has highlighted the importance of continuing marketing
activities even in periods of reduced demand. This helps maintain
brand awareness and facilitates a faster recovery and market share
gain as the crisis passes. Due to the specific nature of this
downturn, we focused our marketing activities more towards our
brand advertising initiatives. The favourable cost dynamics of TV
buying during the bulk of the year, combined with the high level of
'reach' made this pillar of our marketing platform the obvious
choice to keep our place in the minds of our target customers
and
to continue to build brand awareness and equity for the long
term. Initially consisting of two new TV campaigns delivering
contextually appropriate messaging to potential and existing
customers at the start of the pandemic, our campaigns were changed
again to be relevant to recovering demand in the second half of the
year. These different elements, taken together, delivered a
material overall cost reduction, whilst striking an effective
balance between reacting to changed circumstances, maintaining
brand awareness and capturing the limited demand in the market.
This balance was evidenced by the Revenue per Marketing Dollar KPI
in 2020 at $6.03 (2019: $5.58).
Beyond the great work of our teammates and our suppliers in
support of our customers under very difficult circumstances,
another highlight in 2020 was the significant progress made in the
Group's commitment to environmental matters. A firm base had been
laid in previous years, but in 2020 our attention to climate change
mitigation and other aspects of environmental stewardship took a
leap forward with an agreed framework approved by the Board at its
annual strategy session. There are several aspects to our approach,
including a headline commitment to achieve carbon neutrality for
significant aspects of our business no later than December 2022. We
are excited about what we can achieve in the months and years
ahead.
Competitive position
The financial strength of the Group coming into the crisis has
allowed us to make appropriate decisions that support the ongoing
investment in our people, our platform and our differentiated
marketing activities. Whilst it is still too soon to reliably
predict the timing and trajectory of the recovery, we remain very
confident in our strategy and in the clearly proven agility and
resilience of our low fixed cost direct marketing business model.
We consider that 4imprint is in a strong position to take full
advantage of the eventual market share gain opportunities that will
result.
Financial Review
2020 2019 2020 2019
53 weeks 52 weeks 53 weeks 52 weeks
Underlying* Underlying* Total Total
$m $m $m $m
---------------------------------- ------------- ------------- ---------- ----------
Underlying operating profit 4.39 53.93 4.39 53.93
Defined benefit pension scheme
administration and past service
costs (0.42) (0.31)
Net finance (cost)/income (0.02) 0.75 (0.13) 0.37
Profit before tax 4.37 54.68 3.84 53.99
---------------------------------- ------------- ------------- ---------- ----------
* Underlying is before defined benefit pension charges.
The Group's underlying operating result in the period,
summarising expense by function, was as follows:
2020 2019
53 weeks 52 weeks
$m $m
------------------------------ ---------- ----------
Revenue 560.04 860.84
------------------------------ ---------- ----------
Gross profit 157.94 275.32
Marketing costs (92.88) (154.31)
Selling costs (30.78) (31.04)
Admin & central costs (29.26) (35.09)
Share option related charges (0.63) (0.95)
------------------------------ ---------- ----------
Underlying operating profit 4.39 53.93
------------------------------ ---------- ----------
Operating result
After strong trading in the first two months of 2020, the spread
of the COVID-19 pandemic had a significant detrimental effect on
Group performance over the remainder of the year. Group revenue in
2020 was $560.04m (2019: $860.84m), a decrease of 34.9%, reflecting
a significant drop in demand.
2020 was a 53 week accounting period for the Group, compared to
the usual 52 week period. The effect of this extra week on Group
revenue was an increase of around $5m and the impact on underlying
operating profit was negligible due to a full week of payroll and
overheads offsetting the gross margin arising from a quiet trading
week during the holiday period.
The gross profit percentage reduced to 28.2% (2019: 32.0%). The
primary influences driving this fall, in order of magnitude, were:
(i) excess production labour classified within cost of sales
(embroidery, warehouse, artwork) not fully absorbed against low
order volumes; (ii) elevated average order values attracting higher
customer volume discounts; (iii) product mix and residual
tariff-related product cost increases; and (iv) lower supplier and
shipping rebate accrual rates due to lower volumes.
Marketing costs were 16.6% of revenue (2019: 17.9%), leading to
an improvement in our Revenue per Marketing Dollar KPI to $6.03
(2019: $5.58). The favourable reduction in costs reflects the swift
and decisive realignment of the marketing portfolio in the face of
decreased demand.
Included within admin costs is $4.14m (2019: $nil) of employee
retention credits under the US CARES Act and UK Coronavirus Job
Retention Scheme. Head Office costs fell 8.6% to $3.17m (2019:
$3.47m), reflecting the retirement of the Corporate Services
Director in the year and savings in travel costs.
As a result of the above factors, underlying operating profit
was down 91.9% at $4.39m (2019: $53.93m). Statutory operating
profit of $3.97m similarly decreased by 92.6% due to the same
reasons.
Foreign exchange
The primary US dollar exchange rates relevant to the Group's
2020 results were as follows:
2020 2019
Period end Average Period end Average
Sterling 1.36 1.28 1.31 1.28
Canadian dollars 0.79 0.75 0.76 0.75
------------------ ----------- -------- ----------- --------
The Group reports in US dollars, its primary trading currency.
It also transacts business in Canadian dollars, Sterling and Euros.
Sterling/US dollar is the exchange rate most likely to impact the
Group's financial performance.
The primary foreign exchange considerations relevant to the
Group's operations are as follows:
-- Translational risk in the income statement remains low with
98% of the Group's revenue arising in US dollars, the Group's
reporting currency. The net impact on the 2020 income statement
from trading currency movements was not material to the Group's
results.
-- Most of the constituent elements of the Group balance sheet
are US dollar-based. The main exception is the Sterling-based
defined benefit pension liability. Currency movements produced an
exchange gain on the pension liability in the year of $0.53m.
-- The Group generates cash mostly in US dollars, but its
primary applications of post-tax cash are Shareholder dividends,
pension contributions and some Head Office costs, all of which are
paid in Sterling. As such, the Group's cash position is sensitive
to Sterling/US dollar exchange movements. By way of example, using
actual exchange rates, the movement of Sterling against the US
dollar during 2020 meant that every US$1m converted to Sterling was
worth around GBP31,000 less at the 2020 closing rate compared to
the 2019 closing rate.
Share option charges
A total of $0.63m (2019: $0.95m) was charged in the year in
respect of IFRS 2 'Share-based Payments'. This was made up of two
elements: (i) executive awards under the 2015 Incentive Plan and
(ii) charges in respect of the 2019 UK SAYE and the 2018 US
Employee Stock Purchase Plan.
No awards of conditional shares under the 2015 Incentive Plan
will be made in respect of 2020. This is reflected in the lower
IFRS 2 charge year-over-year.
Current options and awards outstanding are 16,052 shares under
the UK SAYE and 68,472 shares under the 2015 Incentive Plan. The
2018 US Employee Stock Purchase Plan matured in December 2020. It
is anticipated that a new US plan will be established in 2021.
Net finance cost
Net finance cost for the year was $0.13m (2019: net finance
income $0.37m). This comprises fees on borrowing facilities and
lease interest charges under IFRS 16, partially offset by external
interest received on deposits. The reduction in net external
interest is due primarily to lower yields on lower deposits.
Taxation
The tax charge for the year was $0.75m (2019: $11.28m), giving
an effective tax rate of 20% (2019: 21%). The charge comprised a
current tax credit of $0.90m, representing net tax receivable
arising primarily as a result of US taxable losses carried back to
earlier years, and a deferred tax charge of $1.65m.
Earnings per share
Underlying basic earnings per share was 12.55c (2019: 154.41c),
a decrease of 91.9%. This reflects the decrease of 91.9% in
underlying profit after tax, and a weighted average number of
shares in issue similar to prior year.
Basic earnings per share was 11.03c (2019: 152.42c), a decrease
of 92.8% over prior year.
Dividends
In April 2020, the Board took the prudent step to cancel the
2019 final dividend due to be paid in May 2020. This decision was
taken to maintain maximum flexibility and liquidity for the
business at a time of significant uncertainty as to how quickly
markets might recover. Whilst the rollout of COVID-19 vaccines
provides cause for optimism, significant uncertainty remains over
the pace of recovery and the potential risk of further virus
strains. As such, the Board is not proposing a final dividend for
2020.
Importantly, the Board has not changed its dividend policy and
it will continue to reassess this position in future periods.
Defined benefit pension plan
The Group sponsors a legacy UK defined benefit pension plan (the
"Plan") which has been closed to new members and future accruals
for several years. The Plan has 101 pensioners and 252 deferred
members.
At 2 January 2021, the deficit of the Plan on an IAS 19 basis
was $3.31m, compared to $12.31m at 28 December 2019. Gross Plan
liabilities under IAS 19 were $42.63m, and assets were $39.32m.
The change in deficit is analysed as follows:
$m
----------------------------------------------------- --------
IAS 19 deficit at 29 December 2019 12.31
Company contributions to the Plan (13.28)
Pension administration and past service costs 0.42
Pension finance charge 0.10
Re-measurement loss due to changes in assumptions 5.55
Return on scheme assets (excluding interest income) (1.26)
Exchange gain (0.53)
----------------------------------------------------- --------
IAS 19 deficit at 2 January 2021 3.31
----------------------------------------------------- --------
The net liability reduced by $9.0m in the year, driven primarily
by employer's contributions of $13.28m and return on assets of
$1.26m, partially offset by remeasurement losses of $5.55m. In
Sterling, the net deficit decreased by GBP6.97m in the year to
GBP2.43m.
The Company paid a 'lump sum' deficit contribution of GBP7.50m
($9.14m) in May 2020. This was in addition to the regular monthly
contributions into the Plan. These contributions are part of a
recovery plan agreed by the Company and the Trustee that aims
towards funding on a buyout basis by mid-2024.
A triennial actuarial valuation of the Plan was completed in
September 2019 and this forms the basis of the 2020 IAS 19
valuation set out above.
Cash flow
The Group had net cash of $39.77m at 2 January 2021, a decrease
of $1.37m against the 28 December 2019 balance of $41.14m.
Cash flow in the period is summarised as follows:
2020 2019
$m $m
----------------------------------------- -------- --------
Underlying operating profit 4.39 53.93
Share option related charges 0.63 0.93
Depreciation and amortisation 3.43 2.78
Lease depreciation 1.50 1.50
Change in working capital 6.59 0.70
Capital expenditure (3.82) (8.18)
----------------------------------------- -------- --------
Underlying operating cash flow 12.72 51.66
Tax and interest (0.52) (9.57)
Defined benefit pension contributions (13.28) (3.59)
Own share transactions 0.94 (2.56)
Capital element of lease payments (1.42) (1.69)
Exchange and other 0.19 0.07
Free cash flow (1.37) 34.32
Dividends to Shareholders - (20.66)
----------------------------------------- -------- --------
Net cash (outflow)/inflow in the period (1.37) 13.66
----------------------------------------- -------- --------
The Group free cash flow before the special pension contribution
of $9.14m was $7.77m (2019: $34.32m), further emphasising the
efficient and cash generative qualities of the Group's business
model, even in the challenging circumstances resulting from the
COVID-19 pandemic.
Working capital inflow of $6.59m (2019: $0.70m) reflects the
flexibility and continuing efficient cash characteristics of the
direct marketing business model.
Capital expenditure of $3.82m (2019: $8.18m) was moderated
during the year in order to conserve cash.
The maturity of the 2018 US Employee Stock Purchase Plan in
December 2020 led to a net cash inflow from own share transactions
of $0.94m (2019: net cash outflow of $2.56m), as the proceeds from
the exercise of the options exceeded purchases of 4imprint Group
plc shares in the year by the Employee Benefit Trust to cover the
requirements of the Group's employee and incentive plans.
Balance sheet and Shareholders' funds
Net assets at 2 January 2021 were $65.37m, compared to $62.95m
at 28 December 2019. The balance sheet is summarised as
follows:
2 January 28 December
2021 2019
$m $m
---------------------------------- ---------- ------------
Non-current assets 43.27 31.84
Working capital (1.50) 5.15
Net cash 39.77 41.14
Lease liabilities (13.21) (2.05)
Pension deficit (3.31) (12.31)
Other assets/(liabilities) - net 0.35 (0.82)
Net assets 65.37 62.95
---------------------------------- ---------- ------------
Shareholders' funds increased by $2.42m since the 2019 year-end.
Constituent elements of the movement were net profit in the period
of $3.09m, exchange gains of $0.86m, own share transactions of
$0.94m and $0.58m of share option related movements, net of the
after tax impact of returns on pension scheme assets and
re-measurement losses on pension obligations of $(3.05)m.
The Group had a net negative working capital balance of $1.50m
at 2 January 2021 (net positive balance of $5.15m at 28 December
2019). This reflects lower year-over-year receivables resulting
from lower trading activity and reduced supplier rebate receivables
which more than offset the reduced payables balance.
The Group signed an extension to its Oshkosh office lease
commencing on 1 October 2020 for a five year period with an option
to renew for a further five years from 2025 to 2030. In accordance
with the requirements of IFRS 16, the Group has assessed the
likelihood of exercising the new option to extend as reasonably
certain and consequently, accounted for the renewal over a lease
term of ten years. This has led to additions to both the
right-of-use asset (included within non-current assets) and lease
liabilities of $12.58m in the year.
The net pension deficit, stated on an IAS 19 basis, reflects the
'lump sum' payment of $9.14m made into the Plan in May 2020.
Balance sheet funding
The Board is committed to aligning the Group's funding with its
strategic priorities. This requires a stable, secure and flexible
balance sheet through the cycle. The Group will therefore typically
remain ungeared and hold a net cash position.
The Board's funding guidelines are unchanged, and aim to provide
operational and financial flexibility:
-- To facilitate continued investment in marketing, people and
technology through different economic cycles, recognising that an
economic downturn typically represents a market share opportunity
for the business.
-- To protect the ability of the business to act swiftly as
growth opportunities arise in accordance with the Group's capital
allocation guidelines.
-- To underpin a commitment to Shareholders through the
maintenance of regular interim and final dividend payments.
-- To meet our pension contribution commitments as they fall due.
The quantum of the cash target at each year-end will be
influenced broadly by reference to the investment requirements of
the business, and the subsequent year's anticipated full year
ordinary dividend and pension payment obligations.
As a result of this approach, the Group entered the COVID-19
crisis with a substantial cash balance and no debt. Despite the
effects of COVID-19 on financial performance, the Group remained in
a strong financial position at the 2020 year-end, enabling
management to make decisions that look to the longer-term health of
the Group and which support 4imprint's distinctive culture.
The Board will keep these guidelines under review and is
prepared to be flexible if circumstances warrant.
Capital allocation
The Board's capital allocation framework is designed to deliver
increasing Shareholder value, driven by the execution of the
Group's growth strategy. The Group's capital allocation priorities
are:
-- Organic growth investments
o Either capital projects or those expensed in the income
statement
o Market share opportunities in existing markets
-- Interim and final dividend payments
o Increasing broadly in line with earnings per share through the
cycle
o Aim to at least maintain dividend per share in a downturn
-- Residual legacy pension funding
o In line with agreed deficit recovery funding schedule
o Further de-risking initiatives, if viable
-- Mergers & acquisitions
o Not a near-term priority
o Opportunities that would support organic growth
-- Other Shareholder distributions
o Quantified by reference to cash over and above balance sheet
funding requirement
o Supplementary dividends most likely method: other methods may
be considered
Treasury policy
The financial requirements of the Group are managed through a
centralised treasury policy. The Group operates cash pooling
arrangements for its North American operations. Forward contracts
may be taken out to buy or sell currencies relating to specific
receivables and payables as well as remittances from overseas
subsidiaries. There were no forward contracts open at the period
end or prior period end. The Group holds most of its cash with its
principal US and UK bankers.
The Group has a $20.0m working capital facility with its
principal US bank, JPMorgan Chase, N.A. The facility has a minimum
EBITDA test and standard debt service coverage ratio and debt to
EBITDA covenants. The interest rate is US$ LIBOR plus 2.0%, and the
facility expires on 31 May 2022. In addition, an overdraft facility
of GBP1.0m, with an interest rate of bank base rate plus 2.0%, is
available from the Group's principal UK bank, Lloyds Bank plc.
Critical accounting policies
Critical accounting policies are those that require significant
judgments or estimates and potentially result in materially
different results under different assumptions or conditions. It is
considered that the only critical accounting judgments are in
respect of revenue and leases.
Key sources of estimation uncertainty
Determining the carrying amount of some assets and liabilities
requires estimation of the effects of uncertain future events. The
key sources of estimation uncertainty are considered to be in
relation to the valuation of the defined benefit Plan liabilities
and assets.
Principal risks and uncertainties
The Group may be affected by a number of risks and
uncertainties. The principal risks, as reported in the 2019 Annual
Report and Accounts, comprise: macroeconomic conditions; markets
& competition; currency exchange; business facility disruption;
disruption to the product supply chain or delivery service;
disturbance in established marketing techniques; reliance on key
personnel; failure or interruption of information technology
systems and infrastructure; failure to adapt to new technological
innovations; and cyber threats.
At the 2020 year end these risks, uncertainties and associated
mitigating activities remain consistent with the detailed review
set out on pages 22 to 26 of the Group's Annual Report 2019, a copy
of which is available on the Group's website:
https://investors.4imprint.com , except for the addition of a new
risk category, climate change & environment, which is detailed
below.
Description of risk
Climate change potentially affects our operations, facilities,
supply chain, team members, communities and our customers in a
variety of ways. As such, it presents a multitude of risks to the
business and threatens our ability to achieve our strategic
objectives.
Potential impact
-- Extreme weather-related events that impact our customers
and/or our suppliers can have 'episodic' negative impact on
revenue, customer acquisition and retention, and they can also
cause increases to our product and distribution costs. Some of our
suppliers are located in geographic areas that are subject to
increased risk for these events.
-- The transition to a low-carbon economy presents several key risks:
-- Potential for increased operational costs related to
mitigation efforts, increased regulatory compliance
and carbon taxes.
-- Increased product costs charged by our suppliers due to increased input costs and regulatory
compliance.
-- Customers will increasingly require a wider range of
low-carbon, sustainable product options that may
be difficult to identify and source, negatively impacting
demand.
-- Increasingly stakeholders will demand that companies are
actively and appropriately addressing climate change and there is
an increased level of reputational risk for companies who are
perceived not to be doing so.
Mitigating activities
-- The flexible nature of our 'drop-ship' model allows for
relatively rapid adjustment to episodes of extreme weather. The
business has very low customer concentration which helps mitigate
an element of the risk as well.
-- The business has set a goal to become 'carbon neutral' by no
later than December 2022 and management is actively monitoring and
measuring progress towards this goal.
-- Our merchandising teams actively collaborate with our
suppliers to continuously curate our range of products to adapt and
meet the needs and tastes of our customers.
In addition, whilst the existing risk categories remain the
same, the COVID-19 pandemic in 2020 has placed significant focus on
certain risk areas. The Group's effective response to these
evolving risks has been crucial, and it will inform the risk agenda
for the 2021 financial year. The heightened risk areas identified,
with associated commentary, are:
Macroeconomic The COVID-19 crisis has led to severe economic
conditions: disruption and a significant reduction in
overall demand in the promotional products
industry. Recovery in 4imprint's primary markets
will be dependent on the duration and scope
of the pandemic, the nature and severity of
possible future containment measures, and
the potential further deterioration in the
financial health of customers. The Group's
mitigation strategies remain unchanged, but
there is closer monitoring of economic conditions
for signs of recovery as well as maintaining
liquidity and preserving the marketing platform.
Business facility The 4imprint business model relies on centralised
disruption: facilities. 'Lockdown' orders have meant that
office and distribution facilities were essentially
closed for periods in the year. A repetition
of these facility closures might conceivably
recur. In mitigation, a robust 'work from
home' capability was in place for customer
service well before the pandemic hit and was
rapidly expanded in the first half of the
year to include most support functions.
-----------------------------------------------------
Disruption of At the start of the pandemic the supply chain
supply: looked like it could present a problem, with
around 60% of blank product originating in
China. Significant disruption in supply would
lead to lost revenue. This eventuality was
largely avoided through good timing of bulk
inventory purchases by domestic suppliers.
Geo-political risk has increased as a result
of heightened trade tensions between the US
and China. Mitigation activities are unchanged,
however relationships with key suppliers have
become even closer in recent months.
-----------------------------------------------------
The Board has ultimate responsibility for risk management. In
practice this takes the form of a pragmatic overall approach that
is tailored specifically towards the nature of the Group's business
model and operations, and the way that it is structured and
controlled. Business operations are conducted from centralised
facilities, with short reporting lines. The Executive Directors are
close to day-to-day business operations, facilitating early
identification of and proactive response to ongoing and emerging
risks.
This approach proved to be particularly appropriate in the first
half of 2020, including early and regular senior management team
meetings leading to the rapid assembly and deployment of working
groups within the business to assess impacts and make plans
covering, for example: internal/team member communications; health
and safety protocols and escalation procedures; shut-down of
facilities; continuity of customer service; supply chain; and
embroidery production. The Board has met regularly since the onset
of the pandemic, receiving regular operational updates.
Going concern
In accordance with the UK Corporate Governance Code 2018 the
Directors are required to state whether or not it is appropriate to
adopt the going concern basis of accounting, and to identify any
material uncertainties over the Group's ability to do so over a
period of at least twelve months from the date of these financial
statements.
Assessment of prospects
In making their assessment of the Group's liquidity risk, the
Directors have carefully considered:
-- The Group's strategy, market position and business model.
-- The principal risks and uncertainties facing the Group, as
outlined in the Principal risks and uncertainties section of this
Financial Review.
-- Information contained in this Financial Review concerning the
Group's financial position, cash flows and liquidity position.
-- Regular management reporting and updates from the Executive Directors.
-- Recent detailed financial forecasts and analysis.
Whilst the COVID-19 pandemic has had a major impact on trading
volumes, the Board considers that the Group's strategy, competitive
position, and business model remain entirely relevant and, indeed,
have proved to be resilient and agile under stress.
Business operations have been able to adapt successfully to the
challenging and rapidly changing conditions in a timely manner. The
marketing portfolio was radically re-shaped in a very short space
of time and, whilst retaining headcount and payroll at 2019 levels
or higher, discretionary overhead spend has been tightly
controlled, demonstrating the essentially minimal fixed cost base
of the direct marketing model.
In addition, capital spend has been minimised and dividend
payments have been temporarily halted. These actions, coupled with
the strong financial position of the Group going into, and
maintained through, this global pandemic, give the Board confidence
that despite substantial residual uncertainty as to future market
conditions, the Group will be in a good position both to withstand
further economic stress and to take market share opportunities as
demand continues to recover.
In light of the assessment of prospects outlined above, the
Group's financial results over recent years, and its performance
throughout 2020 and year-to-date in 2021, the Board considers that
the key factor that would prejudice the liquidity and going concern
of the Group would be a significant additional decline in
demand.
A 'base case' was developed for the purposes of financial
modelling. The commercial underpin to this model is the Board's
view that whilst the promotional products market has contracted in
2020, for example due to the cancellation of trade shows and
physical events, our recent experience is that market demand has
remained resilient across the product range and customer base. The
base case started with current order volumes at around 60% of
pre-pandemic 2019 levels, with further improvement continuing
throughout the review period. Marketing costs were modelled to
increase in line with revenue with the Group's revenue per
marketing dollar KPI at historic levels. This base case shows
improving financial results, an accumulating cash balance and no
liquidity concerns.
An alternative 'distressed' forecast was then produced to model
the effects on the Group's liquidity of a downside scenario based
on severe, but plausible, demand assumptions. This model assumed a
significant deterioration in demand patterns beginning in January
2021, with order volumes for the full year dropping back to around
50% of 2019 levels. Marketing and direct costs were flexed in line
with revenue, but other payroll and overhead costs remained at 2020
levels with some allowance for inflationary increase. This
distressed model involved periods of demand significantly below the
actual experience of the second half of 2020 and was intended to
simulate continued elevated levels of COVID-19 infections with
associated regional lockdowns and no immediate benefit from mass
vaccination, resulting in sustained diminished corporate demand in
a downsized promotional products market.
Even under the severe stress built into the distressed model,
the Group retains sufficient liquidity throughout the assessment
period. This liquidity is in the form of cash balances. In
addition, there are further mitigating actions that the Group could
take, including further cutting marketing costs and reducing
headcount, that are not reflected in the distressed forecast but
would, if required, be fully under the Group's control.
Given the scalability of the Group's business model, as
demonstrated over the past few years, the absence of external
financing, and low fixed or working capital requirements, a reverse
stress testing scenario has not been undertaken. The Group has
proven during 2020 its ability to flex its marketing and other
costs to mitigate the impact of falls in revenue driven by COVID-19
and retains flexibility to further reduce other costs should the
need arise.
Though the Group maintains a $20m line of credit with its US
bankers that expires on 31 May 2022, and a small overdraft facility
with its UK bankers that expires on 31 December 2021, the modelling
in both the base case and distressed scenarios shows the
maintenance of positive cash balances throughout the assessment
period and, as such, there is no current requirement to utilise the
facilities or intention to secure any additional facilities.
The assumptions used in the base forecast and the resultant
sensitised financial forecasts have been reviewed and approved by
the Board. The conclusion of this review is that the Group has
significant flexibility in its variable costs, a very low fixed
cost base and enters the 2021 financial year with a strong net cash
position of $39.77m, enabling it to remain cash positive even under
severe economic stress.
Based on the assessment outlined above, the Directors have
reasonable expectations that the Group and Company will have
adequate resources to continue to operate from the date these
financial statements were approved until at least 2 July 2022.
Accordingly, they continue to adopt the going concern basis in
preparing the financial statements.
Kevin Lyons-Tarr David Seekings
Chief Executive Officer Chief Financial Officer
16 March 2021
Group Income Statement for the 53 weeks ended 2 January 2021
2020 2019
53 weeks 52 weeks
Note $'000 $'000
--------------------------- ---- --------- ---------
Revenue 1 560,040 860,844
Operating expenses (556,068) (807,224)
--------------------------- ---- --------- ---------
Operating profit 1 3,972 53,620
Finance income 168 818
Finance costs (193) (67)
Pension finance charge (104) (378)
--------------------------- ---- --------- ---------
Net finance (cost)/income (129) 373
Profit before tax 3,843 53,993
Taxation 2 (753) (11,276)
--------------------------- ---- --------- ---------
Profit for the period 3,090 42,717
--------------------------- ---- --------- ---------
Cents Cents
--------------------------- ---- --------- ---------
Earnings per share
Basic 3 11.03 152.42
Diluted 3 11.00 151.87
Underlying * basic 3 12.55 154.41
--------------------------- ---- --------- ---------
* Underlying is before defined benefit pension charges.
Group S tatement of Comprehensive Income for the 53 weeks ended
2 January 2021
2020 2019
53 weeks 52 weeks
$'000 $'000
Profit for the period 3,090 42,717
---------------------------------------------------------- --------- ---------
Other comprehensive (expense)/income
Items that may be reclassified subsequently
to the income statement:
Currency translation differences 863 (173)
Items that will not be reclassified subsequently
to the income statement:
Return on pension scheme assets (excluding
interest income) 1,261 2,372
Re-measurement losses on post-employment obligations (5,550) (2,164)
Tax relating to components of other comprehensive
income 1,000 (570)
Effect of change in UK tax rate 241 (9)
Total other comprehensive expense net of tax (2,185) (544)
---------------------------------------------------------- --------- ---------
Total comprehensive income for the period 905 42,173
---------------------------------------------------------- --------- ---------
Group Balance Sheet at 2 January 2021
2020 2019
Note $'000 $'000
------------------------------- ---- -------- --------
Non-current assets
Property, plant and equipment 24,832 24,369
Intangible assets 1,100 1,152
Right-of-use assets 13,065 1,985
Deferred tax assets 4,272 4,338
43,269 31,844
------------------------------- ---- -------- --------
Current assets
Inventories 11,271 11,456
Trade and other receivables 36,799 52,899
Current tax debtor 1,976 140
Cash and cash equivalents 39,766 41,136
------------------------------- ---- -------- --------
89,812 105,631
------------------------------- ---- -------- --------
Current liabilities
Lease liabilities (1,117) (1,630)
Trade and other payables (49,569) (59,209)
Current tax creditor (432) -
(51,118) (60,839)
------------------------------- ---- -------- --------
Net current assets 38,694 44,792
------------------------------- ---- -------- --------
Non-current liabilities
Lease liabilities (12,089) (415)
Retirement benefit obligations 5 (3,310) (12,305)
Deferred tax liabilities (1,193) (968)
(16,592) (13,688)
------------------------------- ---- -------- --------
Net assets 65,371 62,948
------------------------------- ---- -------- --------
Shareholders' equity
Share capital 18,842 18,842
Share premium reserve 68,451 68,451
Other reserves 6,117 5,254
Retained earnings (28,039) (29,599)
------------------------------- ---- -------- --------
Total Shareholders' equity 65,371 62,948
------------------------------- ---- -------- --------
Group Statement of Changes in Shareholders' Equity for the 53
weeks ended 2 January 2021
Retained earnings
---------------------
Share
Share premium Other Own Profit Total
capital reserve reserves shares and loss equity
$'000 $'000 $'000 $'000 $'000 $'000
-------------------------------------- ---------- --------- ---------- --------- ---------- ---------
Balance at 30 December
2018 18,842 68,451 5,427 (1,466) (48,174) 43,080
-------------------------------------- ---------- --------- ---------- --------- ---------- ---------
Profit for the period 42,717 42,717
Other comprehensive income/(expense)
Currency translation differences (173) (173)
Re-measurement gains on
post-employment obligations 208 208
Deferred tax relating
to post-employment obligations (40) (40)
Deferred tax relating
to losses re post-employment
obligations (530) (530)
Effect of change in tax
rates (9) (9)
Total comprehensive income (173) 42,346 42,173
-------------------------------------- ---------- --------- ---------- --------- ---------- ---------
Proceeds from options
exercised 339 339
Own shares utilised 1,343 (1,343) -
Own shares purchased (2,906) (2,906)
Share-based payment charge 928 928
Deferred tax relating
to share options 94 94
Deferred tax relating
to losses re share options (101) (101)
Dividends (20,659) (20,659)
-------------------------------------- ---------- --------- ---------- --------- ---------- ---------
Balance at 28 December
2019 18,842 68,451 5,254 (3,029) (26,570) 62,948
-------------------------------------- ---------- --------- ---------- --------- ---------- ---------
Profit for the period 3,090 3,090
Other comprehensive income/(expense)
Currency translation differences 863 863
Re-measurement gains on
post-employment obligations (4,289) (4,289)
Deferred tax relating
to post-employment obligations 816 816
Deferred tax relating
to losses re post-employment
obligations 184 184
Effect of change in tax
rates 241 241
Total comprehensive income 863 42 905
-------------------------------------- ---------- --------- ---------- --------- ---------- ---------
Proceeds from options
exercised 2,170 2,170
Own shares utilised 3,677 (3,677) -
Own shares purchased (1,229) (1,229)
Share-based payment charge 625 625
Deferred tax relating
to share options (83) (83)
Deferred tax relating
to losses 35 35
Balance at 2 January 2021 18,842 68,451 6,117 (581) (27,458) 65,371
-------------------------------------- ---------- --------- ---------- --------- ---------- ---------
Group Cash Flow Statement for the 53 weeks ended 2 January
2021
2020 2019
53 weeks 52 weeks
Note $'000 $'000
---------------------------------------------- ---- --------- ---------
Cash flows from operating activities
Cash generated from operations 6 3,184 56,248
Tax paid (507) (10,318)
Finance income received 168 818
Finance costs paid (49) (22)
Lease interest (132) (45)
Net cash generated from operating activities 2,664 46,681
---------------------------------------------- ---- --------- ---------
Cash flows from investing activities
Purchases of property, plant and equipment (3,427) (7,673)
Purchases of intangible assets (390) (505)
Proceeds from sale of property, plant and
equipment 93 -
Net cash used in investing activities (3,724) (8,178)
---------------------------------------------- ---- --------- ---------
Cash flows from financing activities
Capital element of lease payments (1,418) (1,687)
Proceeds from share options exercised 2,170 339
Purchases of own shares (1,229) (2,906)
Dividends paid to Shareholders 4 - (20,659)
---------------------------------------------- ---- --------- ---------
Net cash used in financing activities (477) (24,913)
---------------------------------------------- ---- --------- ---------
Net movement in cash and cash equivalents (1,537) 13,590
Cash and cash equivalents at beginning of
the period 41,136 27,484
Exchange gains on cash and cash equivalents 167 62
---------------------------------------------- ---- --------- ---------
Cash and cash equivalents at end of the
period 39,766 41,136
---------------------------------------------- ---- --------- ---------
General information
4imprint Group plc, registered number 177991, is a public
limited company incorporated in England and Wales, domiciled in the
UK and listed on the London Stock Exchange. Its registered office
is 25 Southampton Buildings, London WC2A 1AL.
The Group presents the consolidated financial statements in US
dollars and numbers are shown in US dollars thousands. A
substantial portion of the Group's revenue and earnings are
denominated in US dollars and the Board is of the opinion that a US
dollar presentation gives a more meaningful view of the Group's
financial performance and position.
Accounting policies
The accounting policies applied in these financial statements
are consistent with those of the annual financial statements for
the period ended 28 December 2019, as described in those annual
financial statements, except for a new policy for Government
grants. Government grants are recognised at fair value when there
is reasonable assurance that the conditions associated with the
grants have been complied with and the grants will be received.
Grants compensating for expenses incurred are recognised as a
deduction of the related expenses in the consolidated income
statement on a systematic basis in the same periods in which the
expenses are incurred. Grants deducted from expenses are included
in 'cash generated from operations' in the consolidated cash flow
statement on a consistent basis with the related expenses.
New accounting standards applicable for the first time in this
reporting period have no impact on the Group's results.
Basis of preparation
This announcement was approved by the Board of Directors on 16
March 2021. The financial information in this announcement does not
constitute the Group's statutory accounts for the periods ended 2
January 2021 or 28 December 2019 but it is derived from those
accounts. Statutory accounts for 28 December 2019 have been
delivered to the Registrar of Companies, and those for 2 January
2021 will be delivered after the Annual General Meeting. The
auditor has reported on those accounts. Their reports were
unqualified, did not include a reference to any matters to which
the auditor drew attention by way of emphasis without qualifying
their report and did not contain a statement under section 498(2)
or (3) of the Companies Act 2006.
The audited consolidated financial statements from which these
results are extracted have been prepared under the historical cost
convention in accordance with IFRS (International Financial
Reporting Standards) as adopted by the EU, IFRS IC interpretations
and those parts of the Companies Act 2006 applicable to companies
reporting under IFRS. The standards used are those published by the
International Accounting Standards Board (IASB) and endorsed by the
EU that applied to the 2020 financial year, which started on 29
December 2019 .
Judgments, estimates and assumptions
Impact of COVID-19 on estimates
The impact of COVID-19 on the consolidated financial statements
has been considered in determining the estimates required in
relation to the expected credit loss provision for trade and other
receivables, inventory provisioning, impairment of property, plant
and equipment, and intangibles, and the recoverability of deferred
tax assets.
Whilst the uncertainty surrounding the ultimate impact of the
COVID-19 pandemic has resulted in significant estimation in respect
to the future cash flows of subsidiary companies and in determining
appropriate discount rates, growth rates, and probability of
default rates necessary for undertaking impairment reviews and
assessing the recoverability of assets these are not considered to
represent critical accounting judgments or key sources of
estimation uncertainty in the preparation of the financial
statements.
Critical accounting judgments and key sources of estimation
uncertainty
The preparation of the consolidated financial statements
requires management to make judgments, estimates and assumptions
that affect the application of policies, the amounts reported for
assets and liabilities as at the balance sheet date and the amounts
reported for revenues and expenses during the year.
The estimates and associated assumptions are based on historical
experiences and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making judgments about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
Critical accounting policies are those that require significant
judgments or estimates and potentially result in materially
different results under different assumptions or conditions.
Management considers the following to be the critical accounting
policies:
Critical accounting judgments
Revenue
For most of its product line, the Group operates a 'drop-ship'
business model whereby suppliers hold blank inventory, imprint the
product and ship directly to customers. In order to determine the
amount of revenue to recognise, it is necessary for the Group make
a judgment to assess if it is acting as principal or an agent in
fulfilling the performance obligations and promises to customers
for these transactions.
The Group has full discretion to accept orders, agrees artwork
with the customer, sets the transaction price, selects the
suppliers used to fulfil orders, and considers its customer
satisfaction promises ('on-time or free', price and quality
guarantees) to be integral to meeting its performance obligations.
Accordingly, the Group is of the opinion that it acts as principal
in providing goods to customers and recognises the gross amount of
consideration as revenue.
Leases
The Group signed an extension to its Oshkosh office lease
commencing on 1 October 2020 for a five-year period with an option
to renew for a further five years from 2025 to 2030. In accordance
with the requirements of IFRS 16, the Group has made a judgment on
the likelihood of exercising the new option to extend in
determining the lease term.
Key sources of estimation uncertainty
Pensions
As disclosed in note 5, the Group sponsors a defined benefit
pension scheme closed to new members and future accruals. Period
end recognition of the liabilities under this scheme require a
number of significant actuarial assumptions to be made, including
inflation rate, discount rate and mortality rates. Small changes in
assumptions can have a significant impact on the expense recorded
in the income statement and on the pension liability in the balance
sheet. Sensitivities to changes in these assumptions are disclosed
in note 5. In addition, the assets held by the scheme include funds
that may contain: gilt repos; reverse gilt repos; gilt total return
swaps; inflation swap contracts; and interest rate swaps, the
valuations of which are complex.
1 Segmental reporting
The chief operating decision maker has been identified as the
Board of Directors and the segmental analysis is presented based on
the Group's internal reporting to the Board.
At 2 January 2021, the Group has two operating segments, North
America and UK & Eire. The costs of the Head Office are
reported separately to the Board, but this is not an operating
segment.
2020 2019
Revenue $'000 $'000
--------------------- -------- --------
North America 549,873 839,284
UK & Eire 10,167 21,560
--------------------- -------- --------
Total Group revenue 560,040 860,844
--------------------- -------- --------
Profit 2020 2019
$'000 $'000
--------------------------------------------------- -------- --------
North America 9,170 57,446
UK & Eire (1,605) (42)
--------------------------------------------------- -------- --------
Underlying* operating profit from 4imprint Direct
Marketing 7,565 57,404
Head Office costs (3,173) (3,472)
--------------------------------------------------- -------- --------
Underlying operating profit 4,392 53,932
Defined benefit pension scheme administration
costs and past service costs (note 5) (420) (312)
Operating profit 3,972 53,620
Net finance (cost)/income (25) 751
Pension finance charge (note 5) (104) (378)
--------------------------------------------------- -------- --------
Profit before tax 3,843 53,993
--------------------------------------------------- -------- --------
* Underlying is before defined benefit pension charges.
2 Taxation
2020 2019
$'000 $'000
Current tax
UK tax - current - -
Overseas tax - current (845) 10,845
Overseas tax - prior periods (53) (523)
--------------------------------------------------- ------- -------
Total current tax (898) 10,322
--------------------------------------------------- ------- -------
Deferred tax
Origination and reversal of temporary differences 1,575 954
Adjustment in respect of prior periods 76 -
Total deferred tax 1,651 954
Taxation 753 11,276
--------------------------------------------------- ------- -------
The tax for the period is different to the standard rate of
corporation tax in the respective countries of operation. The
differences are explained below:
2020 2019
$'000 $'000
--------------------------------------------------- ------- --------
Profit before tax 3,843 53,993
Profit before tax for each country of operation
multiplied by rate of corporation tax applicable
in the respective countries 523 12,927
Effects of:
Adjustments in respect of prior periods 23 (523)
Expenses not deductible for tax purposes and
non-taxable income 20 14
Other differences 101 (91)
Adjustments in respect of tax losses (806) (1,051)
US BEAT liability 892 -
Taxation 753 11,276
--------------------------------------------------- ------- --------
The net deferred tax asset at 2 January 2021 has been calculated
at a tax rate of 19% (2019: 17%) in respect of UK deferred tax
items and 25% (2019: 25%) in respect of US deferred tax items.
The UK Budget 2021, on 3 March 2021, included an announcement
that the UK's main corporation tax rate would increase to 25%,
effective from 1 April 2023. This change was not substantively
enacted at the balance sheet date and hence has not been reflected
in the measurement of deferred tax balances at the period end. It
is not anticipated that this change will have a material impact on
the Company's deferred tax balances.
Management do not consider that there are any material uncertain
tax positions.
'Other differences' comprises adjustments in respect of share
options.
'Adjustments in respect of tax losses' includes the tax effect
of US tax losses carried back to prior years.
US BEAT is an additional US federal tax imposed on US
corporations that make certain types of payment to foreign related
parties.
3 Earnings per share
Basic, diluted and underlying
The basic, diluted and underlying earnings per share are
calculated based on the following data:
2020 2019
$'000 $'000
------------------ ------- -------
Profit after tax 3,090 42,717
------------------ ------- -------
2020 2019
$'000 $'000
----------------------------------------------- -------- ---------
Profit before tax 3,843 53,993
Adjustments:
Defined benefit pension scheme administration
and past service costs (note 5) 420 312
Pension finance charge (note 5) 104 378
----------------------------------------------- -------- ---------
Underlying profit before tax 4,367 54,683
Taxation (note 2) (753) (11,276)
Tax relating to above adjustments (100) (131)
----------------------------------------------- -------- ---------
Underlying profit after tax 3,514 43,276
----------------------------------------------- -------- ---------
2020 2019
Number Number
'000 '000
------------------------------------------- -------- --------
Basic weighted average number of shares 28,003 28,026
Adjustment for employee share options 95 102
------------------------------------------- -------- --------
Diluted weighted average number of shares 28,098 28,128
------------------------------------------- -------- --------
2020 2019
Cents Cents
------------------------------------------- -------- --------
Basic earnings per share 11.03 152.42
------------------------------------------- -------- --------
Diluted earnings per share 11.00 151.87
------------------------------------------- -------- --------
Underlying basic earnings per share 12.55 154.41
------------------------------------------- -------- --------
Underlying diluted earnings per share 12.51 153.85
------------------------------------------- -------- --------
The basic weighted average number of shares excludes shares held
in the 4imprint Group plc employee share trusts. The effect of this
is to reduce the average by 82,090 (2019: 59,908).
The basic earnings per share is calculated based on the profit
for the financial period divided by the basic weighted average
number of shares.
For diluted earnings per share, the basic weighted average
number of ordinary shares in issue is adjusted to assume conversion
of all potential dilutive ordinary shares. The potential dilutive
ordinary shares relate to those share options granted to employees
where the exercise price is less than the average market price of
the Company's ordinary shares and are likely to vest at the balance
sheet date.
The underlying basic earnings per share is calculated before the
after-tax effect of defined benefit pension charges and is included
because the Directors consider this gives a measure of the
underlying performance of the ongoing business.
4 Dividends
2020 2019
Equity dividends - ordinary shares $'000 $'000
------------------------------------- ------ ------
Interim paid: 00.00c (2019: 25.00c) - 7,146
Final paid: 00.00c* (2019: 49.20c) - 13,513
------------------------------------- ------ ------
- 20,659
------------------------------------- ------ ------
* Given the inherent uncertainty as to how quickly markets might
recover from the COVID-19 pandemic, and in order to maintain
maximum flexibility, the Board took the prudent step of withdrawing
its recommendation to pay the 2019 final dividend of 59.00c.
The Directors are not proposing a final dividend in respect of
the period ended 2 January 2021
5 Employee pension schemes
The Group operates defined contribution plans for its UK and US
employees. The regular contributions are charged to the income
statement as they are incurred. The charges recognised in the
income statement are:
2020 2019
$'000 $'000
----------------------------------------- --- ------- -------
Defined contribution plans - employers'
contributions 2,023 1,580
---------------------------------------------- ------- -------
The Group also sponsors a UK defined benefit pension scheme
which is closed to new members and future accrual.
The amounts recognised in the income statement are as
follows:
2020 2019
$'000 $'000
---------------------------------------------------- ------- -------
Administration costs paid by the scheme 343 312
Past service costs - GMP equalisation on transfers 77 -
Pension finance charge 104 378
Total defined benefit pension charge 524 690
---------------------------------------------------- ------- -------
The past service cost relates to an estimate of the Guaranteed
Minimum Pension ("GMP") equalisation provision on transfers out of
the scheme following the High Court ruling in the Lloyds case in
November 2020. The charge is an estimate calculated by the
Company's actuaries and the actual result may differ from this
estimate.
The amounts recognised in the balance sheet comprise:
2020 2019
$'000 $'000
----------------------------------------------- --------- ---------
Present value of funded obligations (42,627) (36,322)
Fair value of scheme assets 39,317 24,017
----------------------------------------------- --------- ---------
Net liability recognised in the balance sheet (3,310) (12,305)
----------------------------------------------- --------- ---------
The principal assumptions applied by the actuaries, as
determined by the Directors, at each period end were:
2020 2019
% %
----------------------------------------- ----- -----
Rate of increase in pensions in payment 2.85 2.90
Rate of increase in deferred pensions 2.30 2.15
Discount rate 1.25 1.95
Inflation assumption - RPI 2.90 2.95
- CPI 2.30 2.15
----------------------------------------- ----- -----
The mortality assumptions adopted at 2 January 2021 reflect the
most recent version of the tables used in the September 2019
triennial valuation. The assumptions imply the following life
expectancies at age 65:
2020 2019
Years Years
------------------------- ------ ------
Male currently age 40 22.3 22.3
Female currently age 40 24.2 24.1
Male currently age 65 21.3 21.3
Female currently age 65 23.0 23.0
------------------------- ------ ------
6 Cash generated from operations
2020 2019
$'000 $'000
---------------------------------------------------- --------- --------
Profit before tax 3,843 53,993
Adjustments for:
Depreciation charge 2,992 2,345
Amortisation of intangibles 443 440
Amortisation of right-of-use assets 1,498 1,499
Gain on disposal of property, plant and equipment (80) -
Share option charges 625 928
Net finance cost/(income) 129 (373)
Defined benefit pension administration charge 420 312
Contributions to defined benefit pension scheme* (13,278) (3,593)
Changes in working capital:
Decrease/(increase) in inventories 186 (1,577)
Decrease/(increase) in trade and other receivables 16,119 (6,579)
(Decrease)/increase in trade and other payables (9,713) 8,853
Cash generated from operations 3,184 56,248
---------------------------------------------------- --------- --------
*Includes a special pension contribution of $9.14m (2019:
$nil)
7 Related party transactions
Transactions and balances between the Company and its
subsidiaries have been eliminated on consolidation. The Group did
not participate in any related party transactions with parties
outside of the Group.
Statement of Directors' responsibilities
Each of the Directors confirms that, to the best of their
knowledge:
-- The financial statements within the full Annual Report and
Accounts from which the financial information within this Final
Results Announcement has been extracted, have been prepared in
accordance International Accounting Standards in conformity with
the requirements of the Companies Act 2006 and International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No. 1606/2002 as it applies in the European Union, give a true and
fair view of the assets, liabilities, financial position and profit
of the Company and the undertakings included in the consolidation
taken as a whole.
-- The Chief Executive's Review and Financial Review, and
Principal risks and uncertainties include a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that it faces.
Alternative performance measures
An Alternative Performance Measure ("APM") is a financial
measure of historical or future financial performance, financial
position, or cash flows, other than a financial measure defined or
specified within IFRS.
The Group uses APMs to supplement standard IFRS measures to
provide users with information on underlying trends and additional
financial measures, which the Group considers will aid the users'
understanding of the business.
Definitions
Underlying operating profit is profit before defined benefit
pension charges and exceptional items. The defined benefit pension
plan relates to employees and former employees of businesses sold
by the Group and not to employees of the ongoing business.
Exceptional items are defined below. Both these items may be
volatile in magnitude and distort the underlying performance
measures of the ongoing business. A reconciliation of underlying
operating profit to operating profit is shown in note 1.
Underlying operating margin % is underlying operating profit
divided by total revenue.
Exceptional items are income or costs that are both material and
non-recurring.
Revenue per marketing dollar is the total revenue of the Group
divided by the total marketing expense of the Group. This provides
a measure of the productivity of the marketing expenditure, which
is a cornerstone of the Group's organic revenue growth
strategy.
Free cash flow is defined as the net movement in cash and cash
equivalents before distributions to Shareholders but including
exchange gains/(losses) on cash and cash equivalents. It is a
measure of cash available for allocation in line with the Group's
capital allocation policy (see Financial Review).
Cash conversion is defined as the percentage of underlying
operating cashflow to underlying operating profit and is provided
as a measure of the efficiency of the Group's business model to
generate cash.
Return on average capital employed is defined as underlying
profit before tax divided by the simple average of opening and
closing non-current assets, excluding deferred tax, plus net
current assets and non-current lease liabilities. This is given to
show a relative measure of the Group's efficient use of its capital
resources.
Capital expenditure is defined as purchases of property, plant
and equipment and intangible assets net of proceeds from the sale
of property, plant and equipment. These numbers are extracted from
the cash flows from investing activities shown in the Group cash
flow statement.
Underlying operating cash flow is defined as cash generated from
operations, before pension contributions and defined benefit
pension administration charges, less capital expenditure. This
reflects the cash flow directly from the ongoing business
operations.
Underlying profit before tax is defined as profit before tax
excluding defined benefit pension scheme charges and exceptional
items. A reconciliation of profit before tax to underlying profit
before tax is shown in note 3.
Underlying profit after tax is defined as profit after tax
before defined benefit pension scheme charges and exceptional
items, net of any related tax charges. A reconciliation of profit
before tax to underlying profit after tax is shown in note 3.
Underlying earnings per share is defined as underlying profit
after tax divided by the weighted average number of shares in issue
during the financial year. The calculation of underlying EPS is
shown in note 3.
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END
FR UVRWRABUOAAR
(END) Dow Jones Newswires
March 16, 2021 03:00 ET (07:00 GMT)
Grafico Azioni 4imprint (LSE:FOUR)
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