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IG Design Group PLC (IGR)

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Tuesday 29 November, 2016

IG Design Group PLC

Interim Results

RNS Number : 3573Q
IG Design Group PLC
29 November 2016
 

 

29 November 2016

 

IG Design Group PLC 

(the "Company", the "Group" or "Design Group") 

Interim Results

IG Design Group plc, one of the world's leading designers, innovators and manufacturers of gift packaging, greetings, stationery, creative play products and giftware, announces its Interim Results for the six months ended 30 September, 2016.

 

Financial Highlights

 

·      Sales up 21.5% to £145.5m at the half year from £119.8m

Ø 5.6% organic growth, 7.1% Lang and 8.8% FX translation

·      Gross margin up 40.8% to £30.8m from £21.9m

Ø 14.9% organic growth, 13.8% Lang and 12.1% FX translation

·      Operating profit before exceptional items and LTIP charges up 42.6% to £9.3m from £6.5m

Ø 13.5% organic growth, 10.9% Lang, 18.2% FX translation

·      PBT up 57.5% before exceptional items and LTIP charges to £8.2m from £5.2m

Ø 25.2% organic growth, 13.7% Lang, 18.6% FX translation

·      Underlying Earnings Per Share up 50.0% to 9.6p from 6.4p

Ø 20.0% organic, 10.0% Lang, 20.0% FX translation

·      Net Debt is £1.7m lower than in the prior year at £76.4m

·      Interim Dividend declared of 1.75p

·      Financial performance ahead of expectations, providing confidence for upgrading of annual dividend guidance

 

 

Operational Highlights

 

Group

·      Successful re-branding to IG Design Group plc providing greater clarity to our customers, suppliers and employees.

·      Considerable returns obtained from the successful implementation of efficiency projects worldwide.

 

UK

·      Sales 4% lower at £55.1m due to scheduling of certain customer deliveries into the second half of the year.

·      Profit increased 4.0% despite FX transaction impact following recent political and economic events.

·      Our manufacturing facility in China has provided increased volumes of other products to our UK businesses with record levels of bags and cards being produced.

 

Continental Europe

·      Sales in local currency up 11% to 19.8m with growth in profit of 25%.

·      Strong order book in place for the balance of the financial year.

 

Australia (JV)

·      Sales in local currency 6% lower driven by timing while profit has advanced 54% against prior year.

 

USA

·      Trading performance has been particularly strong with organic sales in local currency up by 21% to $66.6m and profit even stronger up 36%.

·      Initial integration of Lang Companies completed successfully, adding to profitability and now expected to be marginally earnings enhancing in the current year as well as more materially accretive in FY18.

·      Further opportunities for commercial, operational and purchasing synergies to deliver enhanced profitability. 

 

Outlook

 

The Board is confident that the current rate of sales and gross margin will continue into the second half of the year, resulting in the annual financial performance of the Group now expected to be above current market forecasts.  While the timing of overheads and the acquisition of Lang part way through the year (and so excluding loss making months) has slightly flattered H1 results at the levels of operating profit and below, we are also confident that the full year outlook for profit and our key underlying earnings per share metric will continue to outperform.

 

Paul Fineman, Chief Executive said:

 

"We are delighted to be reporting such strong performance during the first half of the year, with all regions trading profitably and continuing to grow, both organically and through acquisition.

 

"We are continuing to drive growth from very solid foundations and still identifying further investment opportunities with fast payback to continuously improve efficiencies and enhance capabilities across all territories.

 

"With a substantial order book in place for the remainder of the year, we are on course to deliver a full year financial performance ahead of market expectations. Further we are sufficiently confident with the prospects for profits growth and cash generation to increase the total dividend expectation for the full year to 4p. The Group remains committed to creating sustainable value for our shareholders through both organic growth and, when the opportunity arises, through carefully considered acquisitions."

 

- ENDS -

 

This announcement contains inside information.

 

 

IG Design Group PLC                                              Tel:  01525 887310

Paul Fineman, Chief Executive

Anthony Lawrinson, Chief Financial Officer

 

Cenkos Securities                                                    Tel:  020 7397 8900

Bobbie Hilliam

Harry Pardoe

 

Redleaf Communications                                        Tel: 0207 382 4730

Rebecca Sanders-Hewett                                          designgroup@redleafpr.com

Sarah Fabietti-Dallison

Susie Hudson

 

 

Executive summary

 

Overview

We are delighted with our performance during the first six months of the current trading year, which has seen growth both organically and through acquisition. Overall sales and profit before tax, exceptional items and LTIP charges are up 21.5% and 57% respectively. Adjusted fully diluted earnings per share is up 50% whilst net debt is lower than at the prior period despite funding the seasonal working capital at the newly acquired Lang business.

 

Performance by region

We are pleased to report that all regions have again traded profitably during the period.

 

Americas - our trading performance has been particularly strong with organic sales and operating profit growth of 21% and 36% respectively. There has been sales growth across all channels and product categories. We have begun to deliver fast payback from the investment programme in our US wrap manufacturing facilities and have identified further opportunities both within the US and through leveraging our capability across our Group to accelerate growth across the Americas.

 

We are pleased with the smooth integration of the recently acquired Lang Group of Companies and are optimistic with prospects for commercial, operational and purchasing synergies to deliver enhanced profitability.

 

Europe - with sales growth of 11% and profits growth of 25%, our progress across Continental Europe has been most encouraging and we are pleased to report a strong order book in place for the balance of the trading year.

 

Australia - the timing of some customer delivery requirements has impacted on sales revenues during the first half of the year, however, whilst sales in local currency are 6% lower, profit is 54% ahead of the prior year with product mix and operational efficiency contributing to this pleasing outcome.

 

UK - scheduling of certain customer deliveries into the second half of the year has resulted in sales being 3.6% lower, although profits are modestly ahead of the prior year. Once again, our manufacturing facility in China has provided increased volumes of products to our UK businesses with record levels of bags and cards being produced.

 

Central costs - reflect some losses on foreign exchange translation at the half year which will largely reverse in the second half.

 

Financial review

Reported sales are up 21.5% to £145.5 million on the prior period (2015 H1: £119.8 million) despite minor timing differences in the UK and Australian markets. Organic growth represents 5.5% of this growth with foreign exchange translation effects accounting for 8.8% and our acquisition of Lang a further 7.1%. Overall phasing of delivery to customers is expected to be split equally between the two halves of the year.

 

Gross profit margins at 21.2% (2015 H1: 18.2%) were higher than the prior year, assisted by Lang which benefits from higher gross margins, albeit with a higher cost delivery model reflected in overheads. Organic progression on margins is also positive, benefiting from efficiencies and favourable mix.

 

Overhead costs are higher at £22.5 million (2015 H1: £16.0 million). This is largely driven by a) the impact of Lang (£2.3 million); b) the effect of overseas costs translated at current exchange rates; c) a higher LTIP charge of £0.9 million (2015 H1: £0.3 million) arising as the likelihood of vesting of share incentive plans to management increases; and d) our recent investments in people, rebranding and growth opportunities.

 

The LTIP charge is a largely non-cash accounting charge and we exclude the effect of this when measuring underlying trends in profitability. As a percentage of sales, and after removing the effect of the LTIP charge, overhead costs rose from 13.1% to 14.9% or 14.0% after excluding Lang from the current period.

 

Operating profit before exceptional costs and LTIP charges again improved strongly by 43% to £9.3 million (2015 H1: £6.5 million) while profit before tax, exceptional items and LTIP charges was up 57% to £8.2 million from £5.2 million in the equivalent period last year. These increases partly reflect advantageous phasing associated with the acquisition of Lang only part way through the period (and thus excluding early seasonal loss making months) and overheads which will be higher in the second half, but the Group´s performance to date and outlook for the full year is nonetheless well ahead of management's previous expectations.

 

The exceptional credit during the period of £0.6 million (2015 H1: nil) comprises a cash charge of £0.5 million and a non-cash credit of £1.1 million both associated with the acquisition of Lang. The cash items reflect acquisition costs and restructuring. As previously indicated these costs may eventually reach circa $1.5 million (£1.2 million at current exchange rates). The non-cash credit is an estimated amount and reflects the 'gain on bargain purchase' on acquisition of the Lang business for an attractive price paid relative to the assets acquired. It is anticipated that this non-cash credit may be wholly or partly offset later in the year by other non-cash charges associated with further reinvestment in our global printing platform.

 

After allowing for such costs and credits in the period, profit before tax and after exceptional items and LTIP charges was £7.9 million, up 61% on the prior year (2015 H1: £4.9 million).

 

Finance expenses in the period were again substantially lower on the prior year period at £1.0 million (2015 H1: £1.3 million) reflecting the continued effect of improved borrowing costs, efficient use of lower cost asset based lending working capital facilities and lower average indebtedness. We refinanced our global facilities in June 2016 in every territory apart from Australia (which is a joint venture) with HSBC, achieving more attractive terms and conditions as a result and extending the maturity of our main facilities to at least June 2019. Costs of £0.5 million were incurred in respect of this, with payback expected to be achieved within the year.

 

The effective underlying tax rate (before exceptional items) was 24% (2015 H1: 23%), well below the blended prevailing rate which based upon the current mix of Group profits would be closer to 28%. The difference arises because of our ongoing ability to recognise further historical tax losses in the USA as profitable growth continues. We anticipate by the year end that all US losses will have been recognised with just £0.4 million of tax loss effect unrecognised in the UK. This means that the effective tax rate will rise quickly in future periods especially if growth is heavily fuelled by our US business as is our expectation. Cash tax is increasingly payable in most of our geographic regions of operation as historical losses are fully utilised.

 

Stated before exceptional items and LTIP charges, basic earnings per share were ahead of expectations and much improved at 9.8p (2015 H1: 6.5p). The equivalent statutory outcome was 9.7p (2015 H1: 6.2p) after exceptional items and LTIP charges. Our primary measure of performance is adjusted fully diluted earnings per share (stated before exceptional items and LTIP charges) and this was up 50% to 9.6p (2015 H1: 6.4p). The half year EPS outcome benefits from the timing of profitability for reasons explained above.

 

The Group issued three million new shares during the period for aggregate net proceeds of £5.0 million to fund the acquisition of Lang and associated working capital. The timing of this event further flatters EPS because the dilution effect of the new shares issued is only included for a part of the period, and will be included for the whole of the second half. Nonetheless, the growth in EPS was well ahead of management and market expectations, providing us with the confidence to upgrade our outlook for the full year against previous market expectations.

 

Capital expenditure in the six months was £3.0 million (2015 H1: £1.7 million), somewhat higher than the prior period as we seek out opportunities to invest in efficiency. A third of the expenditure was in our joint venture Artwrap where we invested in updating the warehouse management system to drive operational efficiencies and to support a new longer term customer contract.

 

As previously announced, we acquired the Lang Group of Companies in Wisconsin, USA in June 2016. While the purchase price was four times underlying EBITDA, the price paid was $3.4 million (£2.7 million) after an adjustment in respect of working capital. Since the assets acquired were greater than this, an estimated exceptional non-cash credit to the profit and loss account of £1.1 million has been reflected at the 30 September 2016, although this may be revised before the year end, as it is based upon estimates. Exceptional cash costs of the acquisition and associated restructuring were £0.5 million at the period end and are explained more fully above.

 

Cash used by operations was £54.2 million (2015 H1: £44.6 million) reflecting the growing scale of the business and the seasonal funding of the newly acquired Lang business. The underlying cash dynamics reflect the usual and highly variable phasing of deliveries to customer requirements from year to year.

 

Cash flows associated with interest, tax and dividends in aggregate were up from £2.6 million in 2015 H1 to £2.9 million, though dividend payments (including a modest amount to our joint venture partner) have doubled while tax and interest payments have declined.

 

Pleasingly, net debt at 30 September 2016 was lower than the prior year at £76.4 million (2015 H1: £78.0 million). This benefits from strong underlying trading cash flows, tight control of working capital and of course the equity issue in the period but is also despite funding substantial capital expenditure and the acquisition and peak seasonal requirements of Lang, both of which will yield future improvements in our cash flows.

 

Furthermore, while recent exchange rate movements have assisted profits growth - the translation effect has been explained fully above - they have also accounted for an additional £7.0 million on the reported debt balance at the half year. This is optical only since currency cash flows will largely repay the currency debt before the year end, at which point the retranslation effect is expected to be small. Our focus on reduction of average leverage has not wavered and we continue to target average debt to EBITDA of less than 2.5 times.

 

Dividend

A final dividend for the year ended 31 March 2016 of 1.5p per share was paid in September 2016 making the total for the year 2.25p. The Board is pleased to declare an interim dividend of 1.75p per share in respect of H1 2016/17 (2015 H1: 0.75p) in line with our intention to steadily increase total dividends whilst still preserving sufficient cash to reduce leverage and fund growth. This will be paid on Tuesday 17 January 2017 to shareholders on the register on Friday 9 December 2016.

 

Current trading outlook

With a strong order book in place for the balance of FY 2016/17 we are on course to deliver financial results materially ahead of market expectations for the full year. Current momentum in sales and gross margin is expected to be maintained into the second half of the year. While the timing of overheads and the acquisition of the Lang Group of Companies part way through the year (therefore excluding early periods which are seasonally loss making) has slightly flattered the first half year's results at the levels of operating profit and below, profits and our key metric of earnings per share are also expected to be stronger.

 

Our businesses continue to effectively convert profit into cash and our healthy balance across all aspects of our activities, by region, season, brand and product category have provided good insulation against recent macroeconomic and political events. Investment opportunities with fast payback continue to be identified across all territories, allowing us to continuously improve efficiencies, enhance our capabilities and expand into adjacent product and market areas.

 

With the positive outlook, underpinned by the Group's profits growth and cash generation, this has allowed us to increase dividend expectations for the total year to 4p including the 1.75p above in respect of the half year period.

 

We remain well placed to deliver ever-improving shareholder returns through both organic growth and, when the opportunity arises, through carefully considered acquisitions.

 

Paul Fineman                           Anthony Lawrinson

Chief Executive Officer                Chief Financial Officer

29 November 2016                     29 November 2016

 

 

 

 

 

Consolidated income statement

six months ended 30 September 2016

 

 

 

 

 

Unaudited

 

 

 

 

 

six months

12 months

 

Unaudited six months ended 30 Sep 2016

ended

ended

 

Before

Exceptional

 

30 Sep

31 Mar

 

exceptional

items

 

2015

2016

 

items

(note 10)

 Total

total

total

 

£000

£000

£000

£000

£000

Revenue

145,525

-

145,525

119,818

236,950

Cost of sales

(114,730)

-

(114,730)

(97,952)

(193,552)

Gross profit

30,795

-

30,795

21,866

43,398

 

21.2%

 

21.2%

18.2%

18.3%

Selling expenses

(8,317)

-

(8,317)

(6,068)

(12,609)

Administration expenses

(14,172)

563

(13,609)

(9,944)

(18,923)

Other operating income

99

-

99

349

758

Operating profit

8,405

563

8,968

6,203

12,624

Finance expenses

(1,045)

-

(1,045)

(1,276)

(2,763)

Profit before tax

7,360

563

7,923

4,927

9,861

Income tax (charge)/credit

(1,792)

26

(1,766)

(1,133)

(2,219)

Profit for the period

5,568

589

6,157

3,794

7,642

Attributable to:

 

 

 

 

 

Owners of the Parent Company

 

 

5,865

3,643

7,261

Noncontrolling interests

 

 

292

151

381

 

Earnings per ordinary share

 

Unaudited six months

Unaudited six months

12 months

 

ended 30 Sep 2016

ended 30 Sep 2015

ended 31 Mar 2016

 

Diluted

Basic

Diluted

Basic

Diluted

Basic

Adjusted earnings per share excluding exceptional items and LTIP charges

9.6p

9.8p

6.4p

6.5p

13.2p

13.5p

Cost per share on LTIP charges

(1.1p)

(1.1p)

(0.4p)

(0.3p)

(1.2p)

(1.2p)

Adjusted earnings per share excluding exceptional items

8.5p

8.7p

6.0p

6.2p

12.0p

12.3p

Earnings per share on exceptional items

1.0p

1.0p

-

-

-

-

Earnings per share

9.5p

9.7p

6.0p

6.2p

12.0p

12.3p

 

 

 

 

Consolidated statement of comprehensive income

six months ended 30 September 2016

 

Unaudited

Unaudited

 

 

six months

six months

12 months

 

ended

 ended

ended

 

30 Sep

30 Sep

31 Mar

 

2016

2015

2016

 

£000

£000

£000

Profit for the period

6,157

3,794

7,642

Other comprehensive income:

 

 

 

Exchange difference on translation of foreign operations (net of tax)

3,069

(687)

1,794

Transfer to profit and loss on maturing cash flow hedges (net of tax)

223

(572)

(572)

Net loss on cash flow hedges (net of tax)

(580)

(1)

(223)

Other comprehensive income for period, net of tax, items which may be reclassified to profit and loss in subsequent periods

2,712

(1,260)

999

Total comprehensive income for the period, net of tax

8,869

2,534

8,641

Attributable to:

 

 

 

Owners of the Parent Company

8,107

2,541

8,191

Noncontrolling interests

762

(7)

450

 

8,869

2,534

8,641

 

 

 

 

 

Consolidated statement of changes in equity

six months ended 30 September 2016

 

 

 

Share

 

 

 

 

 

 

 

 

 

premium

 

 

 

 

 

 

 

 

 

and

 

 

 

 

 

 

 

 

 

 capital

 

 

 

 

 

Non

 

 

Share

redemption

Merger

Hedging

Translation

Retained

Shareholder

controlling

 

 

capital

reserve

reserves

reserves

reserve

earnings

equity

interest

Total

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

At 31 March 2016

 2,963

 4,852

 17,164

 (223)

 (100)

 43,346

 68,002

 3,370

 71,372

Profit for the period

 -

-

-

-

-

 5,865

 5,865

 292

 6,157

Other comprehensive income

-

-

-

 (357)

 2,599

-

 2,242

 470

 2,712

Total comprehensive income for the period

-

-

-

 (357)

 2,599

 5,865

 8,107

 762

 8,869

Equitysettled sharebased payment

-

-

-

-

-

 514

 514

 -

 514

Tax on equitysettled sharebased payment

-

-

-

-

-

 850

 850

 -

 850

Shares issued

150

 4,883

-

-

-

 -

 5,033

 -

 5,033

Options exercised

 19

 34

-

-

-

 -

 53

 -

 53

Equity dividends paid

-

-

-

-

-

 (1,039)

 (1,039)

 (260)

(1,299)

At 30 September 2016

 3,132

 9,769

 17,164

 (580)

 2,499

 49,536

 81,520

 3,872

 85,392

 

 

six months ended 30 September 2015

 

 

 

Share

 

 

 

 

 

 

 

 

 

 

premium

 

 

 

 

 

 

 

 

 

 

and

 

 

 

 

 

 

 

 

 

 

 capital

 

 

 

 

 

Non

 

 

 

Share

redemption

Merger

Hedging

Translation

Retained

Shareholder

controlling

 

 

 

capital

reserve

reserves

reserves

reserve

earnings

equity

interest

Total

 

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

 

At 31 March 2015

2,910

4,801

17,164

 572

 (1,825)

36,042

 59,664

 2,920

 62,584

 

Profit for the period

-

-

-

-

-

3,643

3,643

 151

3,794

 

Other comprehensive income

-

-

-

 (573)

 (529)

 -

(1,102)

 (158)

(1,260)

 

Total comprehensive income for the period

-

-

-

(573)

(529)

 3,643

 2,541

 (7)

 2,534

Equitysettled sharebased payment

-

 -

-

-

-

 165

165

-

 165

Options exercised

33

4

 -

-

-

 (30)

7

-

7

Equity dividends paid

-

-

-

-

-

(588)

(588)

 -

(588)

At 30 September 2015

 2,943

4,805

17,164

(1)

 (2,354)

 39,232

 61,789

2,913

 64,702

 

 

year ended 31 March 2016

 

 

 

Share

 

 

 

 

 

 

 

 

 

premium

 

 

 

 

 

 

 

 

 

and

 

 

 

 

 

 

 

 

 

 capital

 

 

 

 

 

Non

 

 

Share

redemption

Merger

Hedging

Translation

Retained

Shareholder

controlling

 

 

capital

reserve

reserves

reserves

reserve

earnings

equity

interest

Total

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

At 1 April 2015

 2,910

 4,801

 17,164

 572

 (1,825)

 36,042

 59,664

 2,920

 62,584

Profit for the year

-

 -

 -

 -

 -

 7,261

 7,261

 381

 7,642

Other comprehensive income

-

 -

 -

 (795)

 1,725

 -

 930

 69

 999

Total comprehensive income for the year

 -

 -

 -

 (795)

 1,725

 7,261

 8,191

 450

 8,641

Equitysettled sharebased payment

 -

 -

 -

 -

 -

 596

 596

 -

 596

Tax on equitysettled sharebased payments

 -

 -

 -

 -

 -

 509

 509

 -

 509

Options exercised

53

 51

 -

 -

 -

 (30)

 74

 -

 74

Equity dividends paid

 -

 -

 -

 -

 -

 (1,032)

 (1,032)

 -

(1,032)

At 31 March 2016

2,963

 4,852

 17,164

 (223)

 (100)

 43,346

 68,002

 3,370

 71,372

 

 

 

 

 

Consolidated balance sheet

as at 30 September 2016

 

 

 

Unaudited

Unaudited

 

 

 

as at

as at

As at

 

 

30 Sep

30 Sep

31 March

 

 

2016

2015

2016

 

Note

£000

£000

£000

Noncurrent assets

 

 

 

 

Property, plant and equipment

 

33,450

28,093

30,190

Intangible assets

 

33,733

31,634

32,236

Deferred tax assets

 

4,426

3,342

4,296

Total noncurrent assets

 

71,609

63,069

66,722

Current assets

 

 

 

 

Inventory

 

74,355

66,129

46,006

Asset held for sale - land and buildings

 

-

1,250

-

Trade and other receivables

 

105,810

86,131

21,187

Derivative financial assets

 

86

166

218

Cash and cash equivalents

4

5,381

1,327

8,380

Total current assets

 

185,632

155,003

75,791

Total assets

 

257,241

218,072

142,513

Equity

 

 

 

 

Share capital

 

3,132

2,943

2,963

Share premium

 

8,429

3,465

3,512

Reserves

 

20,423

16,149

18,181

Retained earnings

 

49,536

39,232

43,346

Equity attributable to owners of the Parent Company

 

81,520

61,789

68,002

Noncontrolling interests

 

3,872

2,913

3,370

Total equity

 

85,392

64,702

71,372

Noncurrent liabilities

 

 

 

 

Loans and borrowings

4

(254)

20,395

18,349

Deferred income

 

1,133

1,013

1,145

Provisions

 

872

862

869

Other financial liabilities

 

 2,242

3,133

2,095

Deferred tax liability

 

352

-

352

Total noncurrent liabilities

 

4,345

25,403

22,810

Current liabilities

 

 

 

 

Bank overdraft

4

4,576

2,871

1,508

Loans and borrowings

4

75,250

52,370

3,584

Deferred income

 

150

626

118

Provisions

 

220

108

212

Income tax payable

 

2,809

1,706

1,945

Trade and other payables

 

64,975

55,287

27,221

Other financial liabilities

 

19,524

14,999

13,743

Total current liabilities

 

167,504

127,967

48,331

Total liabilities

 

171,849

153,370

71,141

Total equity and liabilities

 

257,241

218,072

142,513

 

 

 

 

Consolidated cash flow statement

six months ended 30 September 2016

 

 

Unaudited

Unaudited

 

 

six months

six months

12 months

 

ended

ended

ended

 

30 Sep

30 Sep

31 Mar

 

2016

2015

2016

 

£000

£000

£000

Cash flows from operating activities

 

 

 

Profit for the year

6,157

3,794

7,642

Adjustments for:

 

 

 

Depreciation

1,809

1,869

3,596

Amortisation of intangible assets

328

201

285

Finance expenses

1,045

1,276

2,763

Negative goodwill release to income

(1,067)

-

-

Income tax charge

1,766

1,133

2,219

Profit/(loss) on sales of property, plant and equipment

15

(62)

(186)

Profit on external sale of intangible fixed assets

-

-

1

Equitysettled sharebased payment

870

300

908

Operating profit after adjustments for noncash items

10,923

8,511

17,228

Change in trade and other receivables

(78,676)

(64,612)

1,041

Change in inventory

(22,863)

(20,698)

1,219

Change in trade and other payables

36,436

32,548

1,863

Change in provisions and deferred income

(58)

(305)

(607)

(Cash used by)/cash generated from operations

(54,238)

(44,556)

20,744

Tax paid

(525)

(838)

(1,797)

Interest and similar charges paid

(1,060)

(1,219)

(1,961)

Net cash (outflow)/inflow from operating activities

(55,823)

(46,613)

16,986

Cash flow from investing activities

 

 

 

Proceeds from sale of property, plant and equipment

48

104

1,568

Acquisition of subsidiary

(2,669)

-

-

Acquisition of intangible assets

(77)

(193)

(382)

Acquisition of property, plant and equipment

(2,914)

(1,539)

(4,377)

Receipt of government grants

39

-

-

Net cash outflow from investing activities

(5,573)

(1,628)

(3,191)

Cash flows from financing activities

 

 

 

Proceeds from issue of share capital

5,086

7

74

Repayment of secured borrowings

(21,774)

(640)

(5,708)

Net movement in credit facilities

68,575

47,000

184

Payment of finance lease liabilities

(229)

(301)

(1,712)

Loan arrangement fees

(287)

-

-

Equity dividend paid

(1,039)

(588)

(1,032)

Dividends paid to noncontrolling interests

(260)

-

-

Net cash inflow/(outflow) from financing activities

50,072

45,478

(8,194)

Net (decrease)/increase in cash and cash equivalents

(11,324)

(2,763)

5,601

Cash and cash equivalents at beginning of period

6,872

1,278

1,278

Effect of exchange rate fluctuations on cash held

5,257

(59)

(7)

Cash and cash equivalents at end of the period

805

(1,544)

6,872

 

 

 

 

Notes to the interim financial statements

 

1 Accounting policies

Basis of preparation

The financial information contained in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 and is unaudited.

 

The Group interim report has been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRS"). The financial information for the year ended 31 March 2016 is extracted from the statutory accounts of the Group for that financial year and does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The auditor's report was (i) unqualified; (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under Section 498 (2) of the Companies Act 2006.

 

The interim report does not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements for the year ended 31 March 2016.

 

Going concern basis

The borrowing requirement of the Group increases steadily over the period from July and peaks in October, due to the seasonality of the business, as sales of wrap and crackers are mainly for the Christmas market, before then reducing.

 

As with any company placing reliance on external entities for financial support, the Directors acknowledge that there can be no certainty that this support will continue, although, at the date of approval of this interim report, they have no reason to believe that it will not do so.

 

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements.

 

Significant accounting policies

The accounting policies adopted in the preparation of the interim report are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 March 2016.

 

 

2 Segmental information

The Group has one material business activity being the design, manufacture and distribution of gift packaging and greetings, stationery and creative play products, and design-led giftware.

 

For management purposes the Group is organised into four geographic business units.

 

The results below are allocated based on the region in which the businesses are located; this reflects the Group's management and internal reporting structure. The decision was made during 2011 to focus Asia as a service provider of manufacturing and procurement operations, whose main customers are our UK businesses. Both the China factory and the majority of the Hong Kong procurement operations are now overseen by our UK operational management team and we therefore continue to include Asia within the internal reporting of the UK operations, such that UK and Asia comprise an operating segment. The chief operating decision maker is the Board.

 

Intrasegment pricing is determined on an arm's length basis. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

 

Financial performance of each segment is measured on operating profit. Interest income or expense and tax are managed on a Group basis and not split between reportable segments.

 

Segment assets are all noncurrent and current assets, excluding deferred tax and income tax receivable. Where cash is shown in one segment, which nets under the Group's banking facilities, against overdrafts in other segments, the elimination is shown in the eliminations column. Similarly intersegment receivables and payables are eliminated.

 

 

UK and Asia

Europe

USA

Australia

Eliminations

Group

 

£000

£000

£000

£000

£000

£000

Six months ended 30 September 2016

 

 

 

 

 

 

Revenue - external

 55,117

 16,545

 58,560

 15,303

-

 145,525

- inter segment

 1,448

 224

 -

-

 (1,672)

-

Total segment revenue

 56,565

 16,769

 58,560

 15,303

 (1,672)

 145,525

Segment result before exceptional items

 4,000

 1,258

 3,758

 1,020

-

 10,036

Exceptional items

 -

 -

 563

-

-

563

Segment result

 4,000

 1,258

 4,321

 1,020

-

 10,599

Central administration costs

 

 

 

 

 

(1,631)

Net finance expenses

 

 

 

 

 

(1,045)

Income tax

 

 

 

 

 

(1,766)

Profit for the six months ended 30 September 2016

 

 

 

 

 

 6,157

Balances at 30 September 2016

 

 

 

 

 

 

Segment assets

139,043

31,989

66,914

14,869

4,426

257,241

Segment liabilities

 (78,480)

 (12,426)

 (69,222)

 (8,560)

 (3,161)

(171,849)

Capital expenditure

 

 

 

 

 

 

- property, plant and equipment

 1,085

 226

 554

 1,049

 -

 2,914

- intangible

 26

-

 49

 2

-

 77

Depreciation

 885

 349

 424

 151

-

 1,809

Amortisation

 131

 21

 165

 11

-

 328

 

 

UK and Asia

Europe

USA

Australia

Eliminations

Group

 

£000

£000

£000

£000

£000

£000

Six months ended 30 September 2015

 

 

 

 

 

 

Revenue - external

57,151

 12,901

 35,803

 13,963

 -

 119,818

- inter segment

1,381

 -

-

-

(1,381)

-

Total segment revenue

58,532

 12,901

35,803

13,963

(1,381)

119,818

Segment result before exceptional items

3,558

 835

 1,796

 509

 -

 6,698

Exceptional items

-

 -

-

-

-

-

Segment result

3,558

 835

1,796

509

-

6,698

Central administration costs

 

 

 

 

 

(495)

Net finance expenses

 

 

 

 

 

(1,276)

Income tax

 

 

 

 

 

(1,133)

Profit for the six months ended 30 September 2015

 

 

 

 

 

 3,794

Balances at 30 September 2015

 

 

 

 

 

 

Segment assets

141,597

 24,388

35,441

13,304

3,342

218,072

Segment liabilities

(77,767)

 (19,340)

(44,382)

(8,721)

(3,160)

(153,370)

Capital expenditure

 

 

 

 

 

 

- property, plant and equipment

653

 261

 396

 229

 -

1,539

- intangible

162

 -

 31

 -

 -

 193

Depreciation

1,091

 332

 362

 84

 -

 1,869

Amortisation

133

 20

29

 19

 -

 201

 

 

 

 

 

 

 

Year ended 31 March 2016

 

 

 

 

 

 

Revenue - external

 109,723

 34,097

 65,259

 27,871

-

 236,950

- inter segment

 2,085

 337

-

-

 (2,422)

-

Total segment revenue

111,808

 34,434

 65,259

 27,871

 (2,422)

 236,950

Segment result

 5,700

 2,874

 3,465

 1,494

-

 13,533

Central administration costs

 

 

 

 

 

(909)

Net finance expenses

 

 

 

 

 

(2,763)

Income tax

 

 

 

 

 

(2,219)

Profit for the year ended 31 March 2016

 

 

 

 

 

 7,642

Balances at 31 March 2016

 

 

 

 

 

 

Segment assets

114,171

18,029

(3,789)

9,806

4,296

142,513

Segment liabilities

 (46,711)

 (10,499)

 (6,678)

 (4,956)

 (2,297)

(71,141)

Capital expenditure

 

 

 

 

 

 

- property, plant and equipment

 1,508

 530

 1,924

 415

-

 4,377

- intangible

 285

 16

 56

 25

-

 382

Depreciation

 2,062

 654

 711

 169

-

 3,596

Amortisation

 163

 40

 55

 27

-

 285

 

 

3 Exceptional items

 

 

Six months

Six months

12 months

 

ended

ended

ended

 

30 Sep

30 Sep

31 Mar

 

2016

2015

2016

 

£000

£000

£000

Acquisition of Lang Companies Inc.

 

 

 

- transaction and restructuring costs(a)

504

-

-

- gain on bargain purchase(b)

(1,067)

-

-

Total

(563)

-

-

- income tax credit

(26)

-

-

 

(589)

-

-

(a)     Transaction and restructuring costs relating to the acquisition of the Lang business.

(b)     Gain on the bargain purchase on the acquisition of the Lang business (see note 7 for further details).

 

 

4 Cash, loans and borrowings

Net debt

 

Six months

Six months

12 months

 

ended

ended

ended

 

30 Sep

30 Sep

31 Mar

 

2016

2015

2016

 

£000

£000

£000

Cash and cash equivalents

5,381

1,327

8,380

Bank overdrafts

(4,576)

(2,871)

(1,508)

Cash and cash equivalents per cash flow statement

805

(1,544)

6,872

Bank loans and borrowings

(75,402)

(73,038)

(22,142)

Loan arrangement fees

406

273

209

Finance leases

(2,200)

(3,733)

(2,422)

Net debt as used in the executive summary

(76,391)

(78,042)

(17,483)

 

Split between current and non-current

 

Six months

Six months

12 months

 

ended

ended

ended

 

30 Sep

30 Sep

31 Mar

 

2016

2015

2016

 

£000

£000

£000

Non-current liabilities

 

 

 

Secured bank loans

-

(20,553)

(18,425)

Loan arrangement fees

254

158

76

 

254

(20,395)

(18,349)

Current liabilities

 

 

 

Asset backed loan

(51,043)

(42,585)

(797)

Revolving credit facilities

(24,359)

(4,471)

-

Current portion of secured bank loans

-

(5,429)

(2,920)

Bank loans and borrowings

(75,402)

(52,485)

(3,717)

Loan arrangement fees

152

115

133

 

(75,250)

(52,370)

(3,584)

Finance leases of £2,200,000 (2015: £3,733,000) are included within other financial liabilities and are split £1,703,000 (2015: £3,077,000) non-current and £497,000 (2105: £656,000) current.

 

Loan arrangement fees represent the unamortised portion of costs in arranging the new three year facilities which commenced in June 2016.                            

                                                                               

Drawings under the revolving credit facility are classified as short term in the above table, as current drawings under the facilities mature within one year.

 

 

5 Taxation

 

Six months

Six months

12 months

 

ended

ended

ended

 

30 Sep

30 Sep

31 Mar

 

2016

2015

2016

 

£000

£000

£000

Current tax expenses

 

 

 

Current income tax charge

1,376

481

1,520

Deferred tax expense

 

 

 

Relating to original and reversal of temporary differences

390

652

699

Total tax in income statement

1,766

1,133

2,219

Taxation for the six months to 30 September 2016 is based on the effective rate of taxation, which is estimated to apply in each country for the year ended 31 March 2017.

 

 

6 Earnings per share

 

 

Six months ended

30 Sep 2016

Six months ended

30 Sep 2015

12 months ended

31 Mar 2016

 

Diluted

Basic

Diluted

Basic

Diluted

Basic

Adjusted earnings per share excluding exceptional items and LTIP charge

9.6p

9.8p

6.4p

6.5p

13.2p

13.5p

Cost per share on LTIP charge

(1.1p)

(1.1p)

(0.4p)

(0.3p)

(1.2p)

(1.2p)

Adjusted earnings per share excluding exceptional items

8.5p

8.7p

6.0p

6.2p

12.0p

12.3p

Earnings per share on exceptional items

1.0p

1.0p

-

-

-

-

Earnings per share

9.5p

9.7p

6.0p

6.2p

12.0p

12.3p

 

The basic earnings per share is based on the profit attributable to equity holders of the Parent Company of £5,865,000 (2015: £3,643,000) and the weighted average number of ordinary shares in issue of 60,442,000 (2015: 59,220,000) calculated as follows:

 

As at

As at

As at

 

30 Sep

30 Sep

31 Mar

Weighted average number of shares in thousands of shares

2016

2015

2016

Issued ordinary shares at 1 April

59,257

58,206

58,206

Shares issued in respect of share placing

1,049

-

-

Shares issued in respect of exercising of share options

136

1,014

637

Weighted average number of shares at end of the period

60,442

59,220

58,843

Total number of options, over 5p ordinary shares, in issue at 30 September 2016 was 1,210,000 (2015: 1,540,285).

 

Adjusted basic earnings per share excludes exceptional items and LTIP charges which were a net charge of £307,000 (2015: £300,000) along with the tax relief attributable to those items of £209,000 (2015: £69,000). This gives an adjusted profit of £5,963,000 (2015: £3,874,000).

 

 

7 Acquisitions of subsidiaries                                                       

Acquisitions in the current period                                                  

On 11 July 2016, the Group acquired all of the share capital of Lang Companies Inc. ("Lang") for a cash consideration of £2,669,000 ($3,443,000). Acquisition costs of £260,000 were incurred during the period and expensed in the income statement as an exceptional item. Lang is a design-led supplier of high-quality branded consumer home décor and lifestyle products, based in the USA. Lang is a natural fit with the Group, being a design-led company with complementary products and markets. There are natural synergy opportunities with the Group in sourcing and cross selling. In the period from acquisition to 30 September 2016 Lang contributed net profit of £761,000 to the consolidated Group net profit for the six months ended 30 September 2016. If the acquisition had occurred on 1 April 2016, Group revenue would have been £150,606,000 and net profit would have been £6,077,000. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 April 2016.      

 

Effect of acquisition                                                          

The acquisition had the following effect on the Group's assets and liabilities (numbers are provisional).           

 

Recognised

 

values on

 

acquisition

 

£000

Property, plant and equipment

298

Intangible assets

1,225

Inventories

2,967

Trade and other receivables

6,005

Trade and other payables

(6,002)

Deferred tax liabilities

(757)

Net identifiable assets and liabilities

3,736

Total cash consideration paid

2,669

Gain on bargain purchase recognised immediately in the income statement

1,067

The gain on bargain purchase arose as a result of the sum of the net assets acquired being greater than the amount paid. This was possible due to the low number of potential acquirers for the business.

 

 

 

Directors and advisers

 

John Charlton

Non-Executive Chairman

 

Anders Hedlund

Founder and Non-Executive Deputy Chairman

 

Paul Fineman

Chief Executive Officer

 

Anthony Lawrinson

Chief Financial Officer and Company Secretary

 

Lance Burn

Executive Director

 

Elaine Bond

NonExecutive Director

 

Mark Tentori

NonExecutive Director

 

Financial and nominated adviser and broker

Cenkos Securities Plc

6, 7, 8, Tokenhouse Yard
London EC2R 7AS

 

Auditor

KPMG LLP

Altius House
One North Fourth Street
Milton Keynes MK9 1NE

 

Registered office

No 7, Water End Barns
Water End
Eversholt MK17 9EA

 

IG Design Group plc is registered in England and Wales, number 1401155

 

Share registrar

Capita Asset Services

The Registry
34 Beckenham Road
Beckenham BR3 4TU

 

Tel UK: 0871 664 0300 (Calls cost 10p per minute plus network extras. Lines are open from 8.30am to 5.30pm, Monday to Friday)

Tel overseas: +44 (0)20 8639 3399

 

Email: shareholderenquiries@capita.co.uk

 

Visit us online at thedesigngroup.com

 


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