Final Results

Immediate release 2 July 2003 Profits jump 22*% at International Greetings Products in shops for The Hulk launch International Greetings plc, the leading designer and manufacturer of private label greetings products and licensed stationery, today published its preliminary results for the year ended 31 March 2003. Highlights · Turnover up 3% to £113.7m (2002: £110.7 m) · Pre-tax profits up 22% to £11.1*m (2002: £9.1*m) · Earnings per share up 21% to 18.8*p (2002: 15.6*p) · Strong cash generation with net funds at £3.4 million (2002: net debt £14.9 million) · Far East product sourcing now accounts for 34% of total purchases · UK gift wrap division shows significant improvement · Licensing agreements signed for The Hulk, Harry Potter and for Shrek2 in Spring 2004 · Final dividend per share of 4.45p (2002: 3.3p) making 5.75p for the year, up 28% ( 2002: 4.5p) *Figures exclude amortisation of goodwill of £175,000 (2002: £176,000) and an exceptional cost of £420,000 in 2002 Commenting on today's results, Nick Fisher, Joint Chief Executive, said: " These are a great set of figures against a tough trading background. As we said at the half year stage, we have turned around the UK gift wrap division. Our focus on margins and operational efficiency has brought, and will continue to deliver, impressive results. This is reflected in margin improvement and cash generation" "We are well prepared for the future. Our financial strength means that we can acquire businesses if we see an attractive opportunity; we have further efficiency opportunities to exploit; and we have strong established relationships with a high quality customer base. The proposed 28% increase in full year dividend reflects the confidence in our achievements and in the outlook for the future" ENDS For further information: International Greetings plc 01707 630 630 Nick Fisher, Joint Chief Executive Edelman Financial 020 7344 1200 Michael Henman/James Horsman Arbuthnot Securities Graeme Cull 020 7002 4600 Chairman's Statement International Greetings is a business with a clear vision. It is a focused business that delivers shareholder value through the world class design and efficient manufacturing of products that consumers want and need. It is a business with a proud track record of delivery, and I am delighted to report that our results for the year ended 31 March 2003 show a return to the consistent pattern of growth in profitability that has characterised the company since it was founded in 1979. Over the past 12 months, profit before tax has risen to £10.9m - a 23%* increase on last year's figure, with turnover increasing by 3% to £113.7m. This represents an outstanding performance from our UK divisions, and in particular from the UK gift wrap division following changes in both management and processes, with Anders Hedlund resuming day-to-day operational control. The benefits of these changes to both operating performance and profitability are now clearly visible in these full year figures. I also expect additional improvements in the efficiency of the business to be delivered in the future. We have a balanced approach to manufacturing and sourcing, and over the last 12 months have made significant progress in broadening our business in the Far East and are continuing the selective expansion of our worldwide sourcing programme. This strategy allows us to add further value to our products and reduce manufactured costs. In the USA, where a difficult economic climate resulted in a fall in operating profits, we are looking to develop new opportunities and broaden the scope of the business by focusing on the development of multiple retailers' ranges, more closely aligning the US business to our UK operation. The Board has expressed its commitment to the principles of effective corporate governance outlined in the Stock Exchange Combined Code. While full compliance with the Code is not required of AIM-listed companies, we have continued to develop our procedures as the Group has grown, and have, during the year, established an audit and remuneration committee, whose membership comprises my fellow non-executive director, Hugh Child, and myself. The company's performance this year has demanded a great deal of everyone who works in the business, and I would like to thank them all for their contributions. Strong cash management during the year has resulted in a significant improvement in the Group's financial position, with net debt last year of £14.9m being converted to net funds of £3.4m at 31 March 2003. This puts us in an excellent position to consider taking advantage of the acquisition opportunities that may become available to us. In current market conditions, we recognise the importance of a progressive dividend policy to shareholders. As a result of the growth in our earnings and the strength of our balance sheet we are recommending a final dividend of 4.45p. This makes a total for the year of 5.75p and represents an increase of 28% over last year. John Elfed Jones CBE DL Chairman 2 July 2003 *Figure excludes an exceptional cost of £420,000 in 2002 Review of operations We are a business committed to growth and to delivering value to our shareholders. It is our mission to be our customers' first choice for own brand greetings and licensed stationery products and we have a clear strategy to achieve this goal in each of our markets. The past year has seen an improvement in performance in many areas of the Group as we have focused on margins and efficiency, and we are confident that our approach to the management of the business of International Greetings will continue to reap rewards. UK improvement A key focus for us this past year was ensuring that the Group resumed its pattern of steady growth that has consistently delivered results for a quarter of a century. The improvement in the UK gift wrap business has been achieved as a result of the changes instigated at the end of 2001. Developments in our planning and reporting systems in this area have ensured that we have achieved significant improvements in productivity and efficiency levels, and this year's figures show the extent to which we have successfully managed the recovery. We are also now reaping the benefit of the significant capital investments made over the past three years in printing and converting equipment, and in the purchase and consolidation of additional storage capacity. Our capital expenditure has now reduced from the higher levels of the last couple of years, though we continue to invest in innovative ways of improving efficiency. Investment in equipment at our printing division in Hatfield has resulted in increased automation and illustrates the increasing vertical integration of the business. Over the past three years we have brought in-house a number of processes that were previously outsourced, saving both time and money, and we will continue with this approach in the future. In the UK, there has been a continuing increase in the quality demands and sales value of products. Consumers are spending more, but are wanting - and getting - more for their money. This trend is most pronounced in crackers, but also noticeable in wrap, cards and bows. In wrap, for example, there is a growing demand for higher quality materials, and more sophisticated and diverse finishes on products. US growth potential The United States is the world's leading market for greetings products. It is a market in which we have been successfully operating since 1989, and where our turnover this year represented 24% of the Group total. In America we have traditionally focused primarily on selling premium products to independent retail outlets and to small chains. In the past year, the independent sector has proved to be a difficult environment, and our operating profits in the US division this year are down to £1.1 million. We believe that the best growth prospects for the US division over the next few years lie in the development of the business along similar lines to those in the UK - delivering high quality design to the mass market. We will be approaching this challenge from a position of some strength. We are acknowledged to have the best range of gift wrap designs in the US, and supply relationships with some of America's largest retailers. We have also had an extremely favourable response from US customers to new product launches from our enlarged Pepperpot stationery range. Far East operations Efforts to meet the demand for hand-finished products, from within the UK, face increasing cost constraints. Hand finishing in China allows us to add value to products, maintain margins and enhance value for consumers. Our direct involvement and manufacturing in the Far East began three years ago with the opening of an office in Hong Kong to source products. During that time, purchases from the Far East have increased to 34% of the Group's total, enabling costs to be reduced while maintaining both quality and flexibility. Design and licensing The creativity of our design and licensing teams is an essential part of our success and competitive advantage. Around 80% of International Greetings' design and intellectual property is created and developed in- house. We operate in fast moving fashion markets and have proved over many years that we have the ability to maintain a design edge over our competition. We have more than 50 design staff, based at the Group head office in Hatfield, who develop new trends and concepts for each own brand customer for each season - designs that are tailored to meet their specific consumer needs, and that will achieve the highest sales rates. Licensing is an important part of our business, representing around 20% of Group turnover. We have a portfolio of licences, which serves to limit our over-reliance on any one property, and also allows us to meet different retailers' licensing needs. Our portfolio includes perennial characters such as Barbie, The Simpsons and Winnie the Pooh, together with properties related to cinema and video releases. During the next 12 months, we will be launching ranges based on the films of The Incredible Hulk, the third Harry Potter release and Shrek 2. Acquisitions As the only UK listed company in our sector, we are seen as the natural consolidator in a largely fragmented marketplace. Since our foundation in 1979, International Greetings has acquired small to medium-sized businesses that enable us to offer related product extensions to our existing customer base. Our acquisition strategy is based on strict criteria and we will only consider buying compatible businesses with which we can merge, or businesses with complementary products that can benefit from our design skills, licensing relationships and manufacturing expertise. We have always considered selective acquisitions to be a part of our growth strategy. Having considerably improved the Group's financial position during the year, we are in a strong position to implement this strategy. Conclusion International Greetings has had a successful year, and we will continue to create value for our shareholders by doing what we do best - maintaining our design edge, constantly innovating and continuing to focus on the quality of our products, our service to customers and our manufacturing efficiency. Our business is resilient, and demand for our products is reliable, reflecting the stability of our markets. Trading conditions are tough, but we have a high quality customer base that we are totally focused on serving, and with whom we have developed strong relationships over many years. We are confident that further efficiency improvements and new product development initiatives will drive our business forward during the next 12 months. Nick Fisher Joint Chief Executive Anders Hedlund Joint Chief Executive Financial review The results for the year reflect the intensive management effort that has successfully led to recovery from last year's performance in the UK gift wrap division. The Group's profit before tax in the year to 31 March 2003 was £10.9m, up 23%* from last year. Reported turnover was up 3% at £113m. At constant exchange rates, the growth in turnover was 5%. A 10% increase in sales in our core UK business and a 3% increase (at constant exchange rates) in US turnover was offset by a reduction in sales of lower margin products to the rest of the world. The gross profit margin improved from 29.5% to 31.2%, with the operating profit margin improving by 0.7%* to 10.2%. Net interest payable was down significantly at £0.7m, resulting from a consistently lower level of borrowings throughout the year, as well as lower interest rates. Earnings per share and dividend Basic earnings per share for the year to 31 March 2003 were 18.5p, an increase of 21%*. The final dividend of 4.45p (2002: 3.3p) makes a total dividend for the year of 5.75p, 28% over last year. Notwithstanding this increase in the total dividend, the dividend for the year is still covered 3.2 times by earnings per share. Balance sheet and cashflow The Group's financial position has strengthened considerably during the year. Shareholders' funds increased by £5m to £37.9m, and net debt of £14.9m at 31 March 2002 has been converted into net funds of £3.4m at 31 March 2003. The key factors responsible for this strong cash inflow during the year are: - · A reduction in the level of capital expenditure, following the completion of a number of capital projects in previous years. The net capital expenditure of £2m was £1.9m below the depreciation charge for the year. · The receipt of a Regional Selective Assistance grant of £2.7m, related primarily to capital expenditure incurred in the previous financial year. · A reduction in the level of working capital maintained throughout the year. As a result of the above factors, interest cover has improved considerably during the year, with operating profits covering the net interest expense 16.8 times, up from 6.4* times last year. * Figures exclude an exceptional cost of £420,000 in 2002 Treasury operations The Board continues to assess and manage the risks associated with the treasury function as the business develops. The Group's business has a strong seasonal element resulting in large variations in working capital requirements. As a result, the Board considers that long term reduction of exposure to fluctuations in interest rates on working capital is unlikely to be economically viable. However, where opportunities exist for the short term fixing of elements of this funding at attractive rates (for example, through the use of acceptance credits) these options are considered. The Group also sources an increasing proportion of its purchases denominated in US$. The Group reduces the effect of exchange rate fluctuations, where practicable, through a combination of measures including hedging and forward exchange contracts. Conclusion Following a good trading performance and careful management of resources, the Group's financial position at the end of the year is exceptionally strong. This puts us in an excellent position to take advantage of opportunities as they arise, and to continue to grow the business to maximise earnings and shareholder value. Mark Collini Finance Director *figures exclude an exceptional cost of £420,000 in 2002 Consolidated profit and loss account for the year ended 31 March 2003 Note 2003 2003 2002 2002 £000 £000 £000 £000 Turnover 2 113,732 110,653 Cost of sales (78,239) (78,008) ______ ______ Gross profit 35,493 32,645 Distribution expenses (11,357) (10,097) Administrative expenses - before exceptional (12,515) (11,986) item - exceptional item 2 - (420) ______ ______ Total administrative (12,515) (12,406) expenses ______ ______ Operating profit 2 11,621 10,142 Net interest payable (690) (1,657) ______ ______ Profit on ordinary 2-3 10,931 8,485 activities before taxation Tax on profit on ordinary (3,299) (2,516) activities ______ ______ Profit for the financial 7,632 5,969 year Dividends - equity 4 (2,385) (1,849) Retained profit for the 5,247 4,120 financial year Earnings per share 5 Basic 18.5p 14.6p Excluding amortisation of goodwill and exceptional 18.8p 15.6p item Diluted 18.3p 14.2p Consolidated statement of total recognised gains and losses for the year ended 31 March 2003 2003 2002 £000 £000 Profit for the financial year 7,632 5,969 Currency translation differences arising on foreign currency net investments (602) - ______ ______ Total recognised gains and losses relating to 7,030 5,969 the financial year Consolidated balance sheet at 31 March 2003 Note 2003 2002 £000 £000 £000 £000 Fixed assets Intangible assets - goodwill 1,071 1,262 Tangible assets 21,721 23,437 ______ ______ 22,792 24,699 Current assets Stocks 21,860 25,061 Debtors 9,856 16,355 Cash at bank and in hand 10,547 2 ______ ______ 42,263 41,418 Creditors: amounts falling (21,438) (28,299) due within one year ______ ______ Net current assets 20,825 13,119 ______ ______ Total assets less current 43,617 37,818 liabilities Creditors: amounts falling due after more than one year (2,278) (3,477) Provisions for liabilities (394) (800) and charges Deferred income (3,016) (581) ______ ---- Net assets 37,929 32,960 ______ ______ Capital and reserves Called up share capital 2,077 2,054 Share premium account 1,081 780 Other reserves 1,016 1,618 Profit and loss account 33,755 28,508 ______ ______ Equity shareholders' funds 6 37,929 32,960 ______ ______ Consolidated cash flow statement for the year ended 31 March 2003 2003 2002 £000 £000 Net cash inflow from operating 22,510 15,716 activities Returns on investments and servicing of finance (707) (1,649) Taxation (2,980) (2,826) Capital expenditure 752 (8,242) Equity dividends paid (1,892) (1,837) ______ ______ Cash inflow before financing 17,683 1,162 Financing (1,553) 1,480 ______ ______ Increase in cash 2,642 16,130 Reconciliation of net cash flow to movement in net funds/(debt) for the year ended 31 March 2003 2003 2002 £000 £000 Increase in cash in the year 16,130 2,642 Cash outflow/(inflow) from debt and lease financing 1,877 (1,308) ______ ______ Change in net debt resulting from 18,007 1,334 cash flows Inception of finance leases (695) (258) Translation differences 1,028 - ______ ______ Movement in net debt in the year 18,340 1,076 Net debt at beginning of year (14,907) (15,983) ______ ______ Net funds/(debt) at end of year 3,433 (14,907) ______ ______ Notes 1 Basis of preparation The financial information set out above does not constitute the Company's statutory financial statements for the years ended 31 March 2003 or 2002. Statutory financial statements for 2002 have been delivered to the registrar of companies, and those for 2003 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. 2 Segmental analysis (a) Geographical area of operation UK USA Group 2003 2002 2003 2002 2003 2002 £000 £000 £000 £000 £000 £000 Turnover 95,260 90,100 18,472 20,553 113,732 110,653 ______ ______ ______ ______ ______ ______ Operating profit before exceptional 10,524 8,265 1,097 2,297 11,621 10,562 item Exceptional item - (420) - - - (420) ______ ______ ______ ______ ______ ______ Operating profit after exceptional 10,524 7,845 1,097 2,297 11,621 10,142 item ______ ______ ______ ______ ______ ______ Net interest (690) (1,657) Profit on ordinary activities before 10,931 8,485 taxation Net assets 31,961 26,733 5,968 6,227 37,929 32,960 ______ ______ ______ ______ ______ ______ The above results relate entirely to continuing operations. The exceptional item, included within administrative expenses, comprises: 2003 2002 £000 £000 Costs arising from the liquidation of the - 420 Company's insurers during the year ______ ______ (b) Geographical analysis of turnover by destination 2003 2002 £000 £000 UK 79,101 71,828 USA 27,180 28,533 Rest of world 7,451 10,292 ______ ______ 113,732 110,653 ______ ______ 3 Profit on ordinary activities before taxation 2003 2002 £000 £000 Profit on ordinary activities before taxation is stated after charging/(crediting) Auditors' remuneration - audit fees paid to the company's auditor and 68 70 its associates - non audit fees paid to the company's auditor and its associates 68 60 Hire of plant and machinery - rentals payable under 341 325 operating leases Hire of other assets - operating leases 307 516 Release of deferred grant income (293) (169) Depreciation-owned 3,821 3,651 -leased 101 174 Amortisation of goodwill 175 176 ______ ______ 4 Dividends 2003 2002 £000 £000 Interim paid - 1.3p per share (2002: 1.2p) 536 493 Final proposed - 4.45p per share (2002: 3.3p) 1,849 1,356 ______ __ 2,385 1,849 ______ ______ 5 Earnings per share 2003 2002 Earnings per share excluding amortisation of goodwill 18.8p 15.6p and exceptional item Loss per share on exceptional item - (0.7p) Amortisation of goodwill (0.3p) (0.3p) ______ ______ Basic earnings per share 18.5p 14.6p ______ ______ Diluted earnings per share 18.3p 14.2p ______ ______ ______ The basic earnings per share is based on the earnings of £7,632,000 (2002: £5,969,000) and the weighted average number of ordinary shares in issue of 41,229,758 (2002: 40,864,758). The calculation of diluted earnings per share is based on 41,760,588 (2002: 41,907,777) ordinary shares. The difference of 530,830 (2002: 1,043,019) represents the dilutive effect of outstanding employee share options which has been calculated in accordance with FRS 14. Earnings per share excluding amortisation of goodwill and exceptional item is based upon the earnings for the year as above after adjusting for amortisation of goodwill of £175,000 (2002 : £176,000), an exceptional item of £nil (2002 : £420,000) and the tax relief thereon. 6 Reconciliation of movements in shareholders' funds 2003 2002 £000 £000 Profit for the financial year 7,632 5,969 Dividends (2,385) (1,849) ______ ______ 5,247 4,120 Other recognised gains and losses relating to the year (net) (602) - New share capital subscribed 324 172 ______ ______ Net addition to shareholders' funds 4,969 4,292 Opening shareholders' funds 32,960 28,668 ______ ______ Closing shareholders' funds 37,929 32,960 ______ ______ 7 Directors' approval This statement was approved by the directors on 2 July 2003.

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