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St. Ives PLC (SIV)

  Print      Mail a friend       Annual reports

Tuesday 07 March, 2017

St. Ives PLC

Half-year Report

RNS Number : 6767Y
St. Ives PLC
07 March 2017
 

 This announcement contains inside information

 

7 March 2017

 

ST IVES plc

Half Year Results for the 26 weeks ended 27 January 2017

St Ives plc, the international marketing services group, announces half year results for the 26 weeks ended 27 January 2017.

Financial Highlights

 

26 weeks to

27 January

2017

26 weeks to

29 January

2016

%age

change

Revenue

£195.1m

£185.7m

5%

Adjusted profit before tax*

£9.8m

£16.1m

(39)%

Adjusted basic earnings per share*

5.45p

9.70p

(44)%

Interim dividend

0.65p

2.35p

(72)%

Statutory loss before tax

£(26.8)m

£(2.8)m

-

 

 

 

 

Net debt

£70.4m

£80.8m

£10.4m less**

* Adjusted Results exclude Adjusting Items to enhance understanding of the financial performance of the Group. Adjusting Items comprise of redundancies, empty property and restructuring costs; impairments, gain or loss on disposal of properties; costs related to the acquisitions or setting up of new subsidiaries; impairment or amortisation charges related to goodwill, tangible and intangible assets; contingent consideration required to be treated as remuneration; movements in deferred consideration and costs related to the St Ives Defined Benefits Pension Scheme.

** Net debt as at 29 July 2016.

 

Key points

·      Very challenging six months, reflected in our financial performance

·      Strategic Marketing segment, which lies at the centre of our long term growth strategy, represents 39% of Group revenue and 55% of Adjusted operating profit

·      Revenue growth of 5% driven by our Strategic Marketing segment which delivered growth of 9%. Revenue in Books 15% ahead of the previous half year, partially offset by a 3% decline in Marketing Activation

·      Further progress made against key strategic priorities - collaboration and internationalisation

-     Over 160 of our clients currently working with more than one business across the Group (2016:130)  including Unilever, Standard Life Investments,  Microsoft and Bosch

-     Over 45% of our Strategic Marketing revenue now comes from clients based outside of the UK (2016: 40%).  Nine of our Strategic Marketing businesses are servicing clients on an international basis

·      Net debt reduced to £70.4 million (29 July 2016: £80.8 million), with further debt reduction initiatives being pursued in H2

·      Interim dividend of 0.65 pence (2016: 2.35 pence) recognises the importance of dividends to shareholders whilst reflecting the importance of investing in the further organic growth of the Strategic Marketing segment, and the strengthening of the balance sheet

Matt Armitage, Chief Executive, said:

"While recent months have proved very challenging, these results mask further encouraging underlying progress within our core Strategic Marketing segment, with a number of exciting new projects being won from existing and new clients as we continue to develop our unique offering. We remain confident in the quality and strength of our Strategic Marketing businesses and in the long term growth strategy for this segment.

"However, we recognise the effect that the legacy businesses are having on our overall performance and on our ability to generate value for shareholders.  We are reviewing strategic options for both our Marketing Activation and our Books segments whilst taking decisive action to improve efficiencies and reduce costs and to diversify our Marketing Activation sector focus. This is a priority for us in the months ahead and we will continue to report on its progress."

For further information, please contact:

St Ives plc

020 7928 8844

Matt Armitage, Chief Executive

Brad Gray, Chief Financial Officer

 

 

MHP Communications

020 3128 8139

John Olsen, Giles Robinson, Gina Bell

 

 

 

Chief Executive's Review

Introduction

Recent months have been very challenging for the Group as a whole, and this is reflected in the reported results for the first six months of the current financial year.  It has also been a very disappointing period for shareholders, something of which the Board is acutely aware.

The challenges reside primarily within our legacy Marketing Activation and Books segments.  In both cases, and despite their strong market positions, competition is becoming ever more intense and is leading to relentless downward pressure on margins.  We are taking immediate action to reduce the cost base of both segments to reflect the new market realities and, at the same time, we are reviewing the strategic options for both.

These issues, and their impact on the results, mask further encouraging underlying progress within our core Strategic Marketing segment.  This segment lies at the centre of our long term growth strategy and now represents some 39% of Group revenues and 55% of Adjusted operating profit.  We have seen important progress in our pursuit of organic growth here, particularly through collaboration between our various businesses.

Group Performance

Group revenue of £195.1 million was 5% higher than the comparable period in the previous year. Our Strategic Marketing segment delivered growth of 9% - primarily acquisition growth. Revenue within our Books Segment was 15% ahead of the previous half year. These performances were partially offset by a 3% decline in our Marketing Activation segment, due to continued pressure within the grocery retail sector. 

The Group's statutory loss before tax of £26.8 million (2016: £2.8 million) includes Adjusting Items of £36.6 million (2016: £19.0 million), of which £35.7 million relates to non-cash items. The non-cash Adjusting Items include an impairment charge of £23.9 million in the Marketing Activation segment and £3.0 million in the Books segment.

The Group's adjusted profit before tax declined to £9.8 million (2016: £16.1 million) and adjusted basic earnings per share decreased by 44% to 5.45 pence (2016: 9.70 pence).

The half year saw further growth in our Strategic Marketing segment although, as previously reported, we experienced a number of project cancellations and deferrals in the last quarter of the previous financial year, which have also impacted revenue growth and operating margin within the first half of the current financial year. We remain encouraged by the progress that has been made to replace the cancelled work. However, this process is taking longer than previously anticipated, and it is unlikely that we will see the full benefit of the new work we have won until the final quarter of the current financial year.

Balance Sheet

Net debt as at 27 January 2017 was £70.4 million, down from the £80.8 million as at 29 July 2016, representing a net debt to adjusted EBITDA ratio of 2.0x (29 July 2016: 2.0x).  Further reducing the Group's indebtedness, including a focus on cash generation and the disposal of certain non-core properties currently held for sale, is a priority for the Board.

 

Dividend

The Board has reviewed the Group's near-term dividend policy to reflect the impact of the issues experienced in the legacy businesses and the costs involved in the ongoing cost-reduction initiatives (more details of which are set out in the Segment Overview below). In doing so it has balanced the importance of dividends to shareholders, the importance of investing in the further organic growth of the core Strategic Marketing segment, and the strengthening of the balance sheet.  Against that background the Board has declared an interim dividend of 0.65 pence per share, a decrease of 72% against last year's interim dividend of 2.35 pence.  The Board will re-evaluate the Group's longer-term dividend policy in due course.

The interim dividend of 0.65 pence will be paid on 5 May 2017 to the shareholders on the register at 7 April 2017, with an ex-dividend date on 6 April 2017.

 

Pension Scheme

On an IAS 19 basis the net deficit on the St Ives Defined Benefits Pension Scheme (the "Scheme") has reduced to £18.5 million (29 July 2016: £26.4 million). Scheme assets performed well increasing by £8.9 million over the period. Scheme liabilities increased by £1.0 million to £371.5 million, where an increase in the discount rate used to calculate the liabilities was offset by an increase in the inflation rate.

Strategic Priorities

We are confident in our long term strategy for further growth, which is built around our Strategic Marketing segment and which remains centred around three key priorities:

Collaboration

We continue to make progress with our collaboration agenda with over 160 of our clients currently working with more than one business across the Group (2016: 130).  These include Unilever, Standard Life Investments, Microsoft and Bosch.

We are seeing a general increase in demand for integrated solutions from clients within our Strategic Marketing segment, which, while aligning to our collaboration agenda, has lead us to review and evolve our operating model within the segment, and resulted in us bringing a number of our Digital and Data businesses closer together.

Internationalisation

Many of our businesses now deliver international solutions for clients.  Over 45% of our Strategic Marketing revenue now comes from clients based outside of the UK (2016: 40%).  Nine of our Strategic Marketing businesses are servicing clients on an international basis.

Our strategy for developing our overseas footprint is client-driven; we will open offices in those territories where we can identify client-led opportunities. However, we will be disciplined in our implementation of this strategy; the opportunities must be in large markets or in markets with the potential for significant and sustainable growth, and the offices need to be capable of generating appropriate returns within a reasonable period of time.

Acquisitions

In the longer term, the acquisition of further complementary marketing services businesses, which add value to our existing portfolio and operate in our chosen growth areas of digital, data and insight services, will continue to be an important element of the growth strategy of our Strategic Marketing segment.

Given the recent challenges however, we are currently prioritising organic growth, including leveraging the investments we have made in existing propositions and in new offices.

Segment Overview

 

Strategic Marketing

Our Strategic Marketing operations represent 39% of Group revenue for the half year (2016: 37%) and 55% of Group Adjusted operating profit.

 

2017
£'m

2016
£'m

Digital

41.6

32.2

Data

16.7

19.9

Insight

17.5

17.3

Revenue

75.8

69.4

Adjusted operating profit

6.2

9.7

We have seen further encouraging underlying progress within the Strategic Marketing segment, the core of the Group and of our long term growth strategy.

One of our priorities has been to replace the work lost in the last quarter of the previous financial year, and we have had a number of significant new client wins and contract renewals including long term agreements to be the digital partner of Rockwell Automation and DuPont Pioneer. We are encouraged by these successes although it is taking longer than previously anticipated to replace the lost revenues; revenue growth and operating margin were therefore subdued in the half year.

As a result of an increase in client demand for more integrated solutions, we have continued to drive our collaboration agenda and to evolve our operating model accordingly. We continue to focus on the disciplines of Digital, Data and Insight although the strict distinctions between these disciplines are becoming less relevant as more integrated propositions are provided to clients.

During the half year we announced some senior management changes within our Digital and Data businesses. Our three Digital businesses (Amaze, Realise and Branded3) are now under the management responsibility of a single individual, Tony Murphy, who was previously the CEO of Realise. We have also announced that our two Data businesses (Occam and Response One) will be managed by a single individual, Damian Coverdale (previously MD at Response One). These changes will ensure that we offer a coherent proposition combined with the breadth and scale of services to support our clients' expanding digital and data requirements.

Our Data businesses work increasingly with each other and also with our digital marketing businesses, where numerous joint propositions have been developed. We see further opportunities for collaboration between our Digital and Data businesses as data continues to be the driving force behind successful digital marketing and transformation activities.

Synergies between Solstice, our Chicago-based mobile and emerging technology business, and TAB continue to result in both businesses sharing resources, working practices, growth frameworks and data. The two are working together to develop innovative connected digital experiences using Voice, Virtual Reality and Internet of Things technology for clients. New wins in the half year have included projects for clients including Ford, BMW, Bosch and Electrolux.

Within our research consultancy, Incite, we have seen growth of our UK and US businesses through a significant number of new client wins in the technology, FMCG, finance and pharma sectors, although client spend and sentiment in Asia has been less robust. We continue to support our overseas offices in order to provide an international offering to clients - a growing number of Incite's clients are serviced by more than one Incite office - and to drive long-term growth, although this continues to affect short-term profitability.

Our healthcare consultancy, Hive, has experienced a number of new client wins including Roche, Leo Pharma, Ipsen, Gilead and Almiral. The business has also expanded its offering and client base in the US, delivering significant growth (albeit from a low base) through a number of client wins including Pfizer. We see the US, and further international expansion, as a significant contributor to future growth.

Our retail consultancy, Pragma has undertaken a number of large advisory projects, including strategic reviews and commercial due diligence of multinational consumer businesses. A growing number of such projects involve collaboration with FSP, our specialist property consulting firm, particularly where catchment analysis or location planning forms a key part of the investment decision.

The progress outlined above underscores the quality of our individual Strategic Marketing businesses and the potential for further profitable growth that they offer, both individually and, more importantly, through collaboration. They offer differentiated, value added services to clients and we are confident that the segment's margins can and will return to levels achieved in previous years.

Marketing Activation

Our Marketing Activation segment represented 40% of Group revenue for the half year (2016: 43%) and 17% of Group Adjusted operating profit.

 

2017
£'m

2016
£'m

Revenue

77.9

80.2

Adjusted operating profit

1.9

4.0

Trading conditions within this segment continue to be very challenged, due in large part to the ongoing pressures within the grocery retail market. Whilst our expertise in grocery retail remains an important strength, diversification of the client base beyond this sector continues to be a priority.

The segment has had a number of new wins and project extensions during the half year for clients including Royal Mail, Innocent, Superdry, AkzoNobel, ESPA and OfficeTeam. While we have been successful in securing this work, the market remains extremely price competitive in all areas.

We will continue to focus on protecting margins through driving efficiency improvements and cost reductions, the benefits of which are expected to come through in the final quarter of the current financial year. A consultation has commenced with employees to reduce employee numbers in SP Group, our point-of-sale business. The cash cost, in addition to other restructuring costs, will be approximately £1.0 million and will be recorded in the second half of the year. In addition a non-cash impairment charge of £23.9 million has been incurred relating to SP Group, which is heavily dependent on the grocery retail market.  At the same time, we are focusing on growth opportunities in markets that value service and innovation to further reduce the over-reliance on grocery retail.

Books

Our market-leading Books business represented 21% (2016: 20%) of Group revenue for the half year and 28% of Group Adjusted operating profit.

 

2017
£'m

2016
£'m

Revenue

41.4

36.1

Adjusted operating profit

3.2

3.7

Revenue was 15% higher than the prior half year at £41.4 million (2016: £36.1 million).

Trading during the first half year was generally positive, particularly during the pre-Christmas period, and this has continued in the new year. Sales of printed books in the UK as reported by Nielsen were up 5% on 2016.

Following the end of the half year and as announced on 8 February, we were informed by HarperCollins that our contract for the production of monochrome books in the UK would not be renewed.  The contract ends on 30 June 2017. As a result of the non-renewal, significant re-structuring and cost reductions are underway.  We expect the mitigating actions to result in a one-off cash cost of £1.5 million, the majority of which will now impact the second half of this financial year and a £3.0 million non-cash impairment charge that has impacted the first half of the current financial year.

We continue to adapt to suit the evolving needs of clients, leveraging our well-invested digital print technology to provide a broader product range, greater capacity to support fast lead-times, lower stock-holding and with continued focus on extending supply-chain solutions to reduce the overall cost of the books supply-chain.

Outlook

Trading across our Strategic Marketing segment is recovering. We are encouraged by the new projects being won from existing and new clients, and excited by the opportunities that the increased collaboration between our businesses is generating. 

Trading conditions within our Marketing Activation segment continue to be very challenging, due in large part to the ongoing pressures within the grocery retail market, but we are taking decisive action to increase efficiency and reduce costs and remain focused on diversifying into other sectors.

Similarly, within our Books business we are taking decisive action to ensure that the cost base reflects the future level of volumes we now expect.

Overall, we remain confident in the long term growth strategy currently being pursued in Strategic Marketing, and in the quality of the businesses within that segment, as illustrated by the clients and contracts they continue to attract.  However, we recognise the need to address, decisively, the effect that the legacy businesses are having on the Group's overall performance and on our ability to generate value for shareholders.  This, together with further strengthening of the balance sheet, is a priority for the Board and we will report further to shareholders on this in the months ahead. 

Matt Armitage

Chief Executive

7 March 2017

Condensed Consolidated Income Statement

 

 

26 weeks to 27 January 2017

26 weeks to

29 January

2016

(Restated

Note 6)

 52 weeks to

29 July

2016

(Restated

 Note 6)

 

 

Note

 

 

Adjusted Results

£'000

 

 

Adjusting Items

(Note 3)

£'000

 

 

Statutory Results

£'000

 

 

Statutory

 Results

£'000

 

 

Statutory

 Results

£'000

Revenue

2

195,127

195,127

185,706

367,546

Cost of sales

 

(144,746)

(144,746)

(131,973)

(262,468)

Gross profit

 

50,381

50,381

53,733

105,078

Selling costs

 

(13,599)

(13,599)

(12,945)

(25,011)

Administrative expenses

 

(25,621)

(36,781)

(62,402)

(40,055)

(80,304)

Share of results of joint ventures

 

122

122

(104)

(122)

Other operating (expense)/income

 

(7)

457

450

(1,669)

(1,484)

Profit/(loss) from operations

2

11,276

(36,324)

(25,048)

(1,040)

(1,843)

Net pension finance charge

 

(323)

(323)

(494)

(972)

Other finance costs

 

(1,472)

(1,472)

(1,313)

(2,899)

Profit/(loss) before tax

 

9,804

(36,647)

(26,843)

(2,847)

(5,714)

Income tax (charge)/credit

 

(2,031)

893

(1,138)

(2,347)

(2,391)

Net profit/(loss) for the period

 

7,773

(35,754)

(27,981)

(5,194)

(8,105)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings/(loss) per share (p)

5

5.45

(25.08)

(19.63)

(3.96)

(5.93)

 

 

 

 

 

 

 

Diluted earnings/(loss) per share (p)

5

5.45

(25.07)

(19.62)

(3.88)

(5.89)

 

Adjusting Items comprise of redundancies, empty property and restructuring costs; impairments, gain or loss on disposal of properties; costs related to the acquisitions or setting up of new subsidiaries; impairment or amortisation charges related to goodwill, tangible and intangible assets; contingent consideration required to be treated as remuneration; movements in deferred consideration and costs related to the St Ives Defined Benefits Pension Scheme.

 

Condensed Consolidated Statement of Comprehensive Income

 

26 weeks to
27 January
2017
 £'000

26 weeks to
29 January
2016
 £'000

52 weeks to
29 July
2016
 £'000

Loss for the period

(27,981)

(5,194)

(8,105)

Items that will not be reclassified subsequently to profit or loss:

 

 

 

Remeasurement of the net retirement benefits obligation

7,335

5,873

83

Tax charge on items taken directly to equity

(1,320)

(1,057)

(545)

 

6,015

4,816

(462)

Items that may be reclassified subsequently to profit or loss:

 

 

 

Transfers of (profits)/losses on cash flow hedges to hedged items

(109)

127

127

Profits/(losses) on cash flow hedges

163

(235)

(302)

Profit on foreign exchange

759

409

 

813

(108)

234

Other comprehensive income/(expense) for the period

6,828

4,708

(228)

Total comprehensive expense for the period

(21,153)

(486)

(8,333)

All income for all periods was attributable to shareholders of the parent company.

 

Condensed Consolidated Statement of Changes in Equity

 

 

 

Share

capital

£'000

Additional paid-in capital^

£'000

ESOP

reserve

£'000

Treasury shares

£'000

Share

option

reserve

£'000

Hedging

and

translation

reserve

£'000

Other

reserves

£'000

Retained

earnings

£'000

Non-

controlling

interest

£'000

 

 

 

Total

£'000

Balance at 1 August 2015

13,089

55,521

(820)

6,773

427

61,901

57,892

132,882

Loss for the period

(5,194)

(5,194)

Other comprehensive (expense)/profit for the period

(108)

4,816

4,708

Comprehensive expense for the period

(108)

(108)

(378)

(486)

Dividends

(7,515)

(7,515)

Issue of share capital

115

(115)

(115)

Acquisitions

260

1,062

658

1,720

(527)

5,116

6,569

Recognition of shared-base contingent consideration deemed as remuneration

2,240

2,240

2,240

Transfer of contingent consideration deemed as remuneration

(933)

(933)

986

53

Purchase of own shares

(395)

(395)

(35)

(430)

Exchange differences

(1,060)

(1,060)

(1,060)

Recognition of share-based payments

446

446

446

Settlement of share-based payments

13

119

302

(980)

(559)

740

194

Balance at 29 January 2016

13,477

56,702

(208)

(162)

7,546

(741)

63,137

51,163

5,116

132,893

Loss for the period

(2,911)

(2,911)

Other comprehensive income/(expense) for the period

342

342

(5,278)

(4,936)

Comprehensive income/(expense) for the period

342

342

(8,189)

(7,847)

Dividends

(3,419)

(3,419)

Issue of share capital

660

12,716

(20)

12,696

13,356

Acquisitions

105

272

(1)

271

(1)

(5,116)

(4,741)

Recognition of shared-base contingent consideration deemed as remuneration

2,903

2,903

2,903

Transfer of contingent consideration deemed as remuneration

97

(2,362)

(2,265)

2,396

131

Exchange differences

1,060

1,060

1,060

Purchase of own shares

35

35

Recognition of share-based payments

(682)

(682)

(682)

Settlement of share-based payments

2

8

228

(451)

(215)

128

(85)

Deferred tax on share-based payments

(231)

(231)

255

24

Balance at 29 July 2016

14,244

69,795

(163)

6,723

661

77,016

42,368

133,628

Loss for the period

(27,981)

(27,981)

Other comprehensive income for the period

813

813

6,015

6,828

Comprehensive income/(expense) for the period

813

813

(21,966)

(21,153)

Dividends

(7,777)

(7,777)

Recognition of shared-base contingent consideration deemed as remuneration

2,828

2,828

2,828

Transfer of contingent consideration deemed as remuneration

(371)

(371)

393

22

Settlement of share-based payments

44

395

(123)

272

124

440

Recognition of share-based payments

(54)

(54)

(54)

Balance at 27 January 2017

14,288

70,190

(163)

9,003

1,474

80,504

13,142

107,934

^ Additional paid-in capital represents share premium, merger reserve and capital redemption reserve.

 

Condensed Consolidated Balance Sheet

 

 

 

 

 

 

Note

27 January 2017

£'000

29 January 2016

£'000

29 July

2016

£'000

Assets

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

 

29,022

44,929

35,559

Investment property

 

6,203

6,203

Goodwill

 

115,332

156,191

135,633

Other intangible assets

 

48,618

42,956

53,234

Available for sale

 

3

3

3

Investment in joint venture

 

206

94

Deferred tax assets

 

232

139

232

Other non-current assets

 

14

750

374

 

 

199,630

244,968

231,332

Current assets

 

 

 

 

Inventories

 

6,467

7,097

7,482

Trade and other receivables

 

95,656

86,940

90,761

Income tax receivable

 

1,246

Asset held for sale

 

1,481

Cash and cash equivalents

 

18,486

14,005

11,835

 

 

120,609

108,042

112,805

Total assets

 

320,239

353,010

344,137

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

86,392

75,601

76,486

Derivative financial instruments

 

226

124

535

Income tax payable

 

2,047

932

Deferred consideration payable

 

2,367

9,607

1,772

Deferred income

 

6,801

6,666

6,206

Provisions

 

9

342

31

 

 

97,842

93,272

85,030

Non-current liabilities

 

 

 

 

Loans payable

 

88,906

96,149

92,595

Retirement benefits obligations

7

18,469

21,145

26,394

Deferred consideration payable

 

3,384

Other non-current liabilities

 

790

790

814

Provisions

 

2,240

1,905

2,185

Deferred tax liabilities

 

4,058

3,472

3,491

 

 

114,463

126,845

125,479

Total liabilities

 

212,305

220,117

210,509

Net assets

 

107,934

132,893

133,628

Equity

 

 

 

 

Capital and reserves

 

 

 

 

Share capital

 

14,288

13,477

14,244

Other reserves

 

80,504

63,137

77,016

Retained earnings

 

13,142

51,163

42,368

Attributable to shareholders of the parent company

 

107,934

127,777

133,628

Non-controlling interests

 

5,116

Total equity

 

107,934

132,893

133,628

 

These financial statements were approved by the Board of Directors on 7 March 2017.

Condensed Consolidated Cash Flow Statement

 

 

Note

26 weeks to
27 January
2017
 £'000

26 weeks to
29 January
2016
 £'000

52 weeks to
29 July
2016
 £'000

Operating activities

 

 

 

 

Cash generated from operations

8

18,862

13,472

23,650

Interest paid

 

(1,472)

(1,313)

(2,899)

Income taxes received/(paid)

 

1,500

(2,832)

(6,286)

Net cash generated from operating activities

 

18,890

9,327

14,465

 

 

 

 

 

Investing activities

 

 

 

 

Purchase of property, plant and equipment

 

(1,762)

(4,698)

(7,124)

Purchase of other intangibles

 

(226)

(194)

(488)

Proceeds on disposal of property, plant and equipment

 

1,947

2,965

3,315

Acquisition of subsidiaries, net of cash acquired

 

(16,163)

(20,937)

Deferred consideration paid for acquisitions made in prior periods

 

(144)

(1,105)

(5,790)

Net cash used in investing activities

 

(185)

(19,195)

(31,024)

 

 

 

 

 

Financing activities

 

 

 

 

Proceeds on issue of shares

 

439

13,356

Purchase of treasury shares

 

(395)

(395)

Dividends paid

4

(7,777)

(7,515)

(10,934)

(Decrease)/increase in bank loans

 

(5,000)

15,000

10,000

Net cash (used in)/generated from financing activities

 

(12,338)

7,090

12,027

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

6,367

(2,778)

(4,532)

Cash and cash equivalents at beginning of the period

 

11,835

16,392

16,392

Effect of foreign exchange rate changes

 

284

391

(25)

Cash and cash equivalents at end of the period

8

18,486

14,005

11,835

Notes to the Condensed Consolidated Financial Statements

 

1. Basis of preparation

The condensed financial statements have been prepared in accordance with IAS 34 "Interim Financial Statements" and in accordance with the Disclosure and Transparency Rules of the UK's Financial Conduct Authority ("FCA").

The financial information contained in these half year financial statements has been prepared in accordance with the accounting policies set out in the Group's Annual Report and Accounts 2016, prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union commission, and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The half year statements have not been audited or reviewed.

The financial information for the twenty six weeks ended 27 January 2017 and prior half and full year comparatives do not comprise statutory accounts for the purpose of Section 435 of the Companies Act 2006. The abridged information for the fifty two weeks to 29 July 2016 has been extracted from the Group's Annual Report and Accounts 2016 which have been filed with the Registrar of Companies. The Auditor's report on the accounts of the Group for that period was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Sections 498(2) or (3) of the Companies Act 2006.

Going concern

The Directors, having made appropriate enquiries, consider that adequate resources exist for the Group to continue in operational existence for the foreseeable future and that, therefore, it is appropriate to adopt the going concern basis in preparing the combined financial information for the twenty six weeks ended 27 January 2017.

 

2. Segment reporting

The Group manages its business on a market segment basis, based on the Group's internal reporting to the Chief Operating Decision Maker ("CODM"). The CODM has been determined to be the Chief Executive Officer and Chief Financial Officer as they are primarily responsible for the allocation of resources to the segments and the assessment of performance of the segments.

The Strategic Marketing segment comprises of the Group's Digital, Data and Insight businesses. The Marketing Activation segment comprises of the Group's Exhibitions and Events, Point-of-Sale, Print Management and Field Marketing businesses. The Books segment comprises Clays.

Corporate costs are allocated to revenue generating segments as this presentation better reflects their profitability.

Business segments

 

26 weeks to 27 January 2017

 

Strategic Marketing
£'000

Marketing Activation
£'000

Books
£'000


Total
£'000

Revenue

 

 

 

 

External sales

74,748

78,218

42,161

195,127

Group sales

1,822

5,763

58

7,643

Eliminations

(793)

(6,038)

(812)

(7,643)

Total revenue

75,777

77,943

41,407

195,127

 

 

 

 

 

Result

 

 

 

 

Operating profit before Adjusting Items

6,174

1,894

3,208

11,276

Adjusting Items

(8,717)

(23,726)

(3,881)

(36,324)

Statutory loss from operations

(2,543)

(21,832)

(673)

(25,048)

Net pension finance charge

 

 

 

(323)

Other finance costs

 

 

 

(1,472)

Statutory loss before tax

 

 

 

(26,843)

Income tax charge

 

 

 

(1,139)

Statutory net loss for the period

 

 

 

(27,982)

 

 

26 weeks to 29 January 2016  (restated)

 

Strategic Marketing
£'000

Marketing Activation
£'000

Books
£'000


Total
£'000

Revenue

 

 

 

 

External sales

66,429

83,057

36,220

185,706

Group sales

3,587

4,501

6

8,094

Eliminations

(657)

(7,331)

(106)

(8,094)

Total revenue

69,359

80,227

36,120

185,706

 

 

 

 

 

Result

 

 

 

 

Operating profit before Adjusting Items

9,684

3,971

3,766

17,421

Adjusting Items

(13,059)

(5,145)

(257)

(18,461)

Statutory (loss)/profit from operations

(3,375)

(1,174)

3,509

(1,040)

Net pension finance charge

 

 

 

(494)

Other finance costs

 

 

 

(1,313)

Statutory loss before tax

 

 

 

(2,847)

Income tax charge

 

 

 

(2,347)

Statutory net loss for the period

 

 

 

(5,194)

 

 

52 weeks to 29 July 2016 (restated)

 

Strategic Marketing
£'000

Marketing Activation
£'000

Books
£'000


Total
£'000

Revenue

 

 

 

 

External sales

138,745

159,694

69,107

367,546

Group sales

6,987

10,411

17

17,415

Eliminations

(1,577)

(15,298)

(540)

(17,415)

Total revenue

144,155

154,807

68,584

367,546

 

 

 

 

 

Result

 

 

 

 

Operating profit before Adjusting Items

19,354

8,084

5,842

33,280

Adjusting Items

(18,140)

(15,752)

(1,231)

(35,123)

Statutory profit/(loss) from operations

1,214

(7,668)

4,611

(1,843)

Net pension finance charge

 

 

 

(972)

Other finance costs

 

 

 

(2,899)

 

 

 

(5,714)

Income tax charge

 

 

 

(2,391)

Statutory net loss for the period

 

 

 

(8,105)

Geographical segments

The Strategic Marketing, Marketing Activation and Books business segments operate primarily in the UK, deriving more than 18% of their revenue and results from operations and customers located in the UK.

 

3. Adjusting Items

Adjusting Items disclosed on the face of the Condensed Consolidated Income statement are as follows:

 

26 weeks to
27 January
2017
 

26 weeks to
29 January
2016
 

52 weeks to
29 July
2016
 

Expense/(income)

£'000

£'000

£'000

£'000

£'000

£'000

Restructuring items

 

 

 

 

 

 

Redundancies and other charges

359

 

817

 

1,612

 

Costs associated with empty properties

19

 

771

 

976

 

Impairment of tangible assets

5,800

 

-

 

-

 

 

 

6,178

 

1,588

 

2,588

St Ives defined benefits pension scheme costs

 

 

 

 

 

 

Administrative costs

435

 

325

 

582

 

Curtailment credit

-

 

(198)

 

(198)

 

Other

409

 

130

 

327

 

 

 

844

 

257

 

711

Costs relating to acquisitions made in current and prior periods

 

 

 

 

 

 

Amortisation of acquired intangibles

5,047

 

4,079

 

9,237

 

Impairment of goodwill and acquired intangible assets

21,130

 

2,520

 

12,712

 

Costs associated with the acquisition and setup of subsidiaries

-

 

172

 

785

 

Contingent consideration required to be treated as remuneration

3,616

 

5,237

 

8,220

 

(Decrease)/increase in deferred consideration

(34)

 

2,939

 

(781)

 

 

 

29,759

 

14,947

 

30,173

Adjusting Items in expenses

 

36,781

 

16,792

 

33,472

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

 

(457)

 

1,669

 

1,651

Adjusting Items before interest and tax

 

36,324

 

18,461

 

35,123

Net pension finance charge in respect of defined benefits pension scheme

 

323

 

494

 

972

Adjusting Items before tax

 

36,647

 

18,955

 

36,095

Income tax credit

 

(893)

 

(1,036)

 

(3,931)

Adjusted results

 

35,754

 

17,919

 

32,164

 

 

 

 

 

 

 

 

 

 

 

 

Redundancy and restructuring costs of £167,000 and costs relating to Burnley of £19,000 were recorded within the Marketing Activation segment. Redundancy costs of £153,000 were recorded in the Strategic Marketing segment. Restructuring costs of £39,000 were recorded in the Books segment.

As a result of the non-renewal of the HarperCollins contract, the Group recorded an impairment charge of £3,000,000 relating to tangible assets in the Books segment.

A non-cash impairment charge of £23,930,000 was recorded in respect of SP Group's goodwill and tangible assets. This is primarily as a result of the dependency on the grocery retail sector and declining margins.

The gain on disposal of property, plant and equipment of £457,000 relates to the sale of the Group's property at Burnley. This item was recorded in the Marketing Activation segment.

 

4. Dividends

 

per share

26 weeks to
27 January
2017
 £'000

26 weeks to
29 January
2016
 £'000

52 weeks to
29 July
2016
 £'000

Final dividend paid for the 52 weeks ended 31 July 2015

5.55p

7,515

7,515

Interim dividend paid for the 26 weeks ended
29 January 2016

2.35p

3,419

Final dividend paid for the 52 weeks ended 29 July 2016

5.45p

7,777

Dividends paid during the period

 

7,777

7,515

10,934

Declared interim dividend for the 26 weeks ended
27 January 2017 (2016 - 2.35p per share)

0.65p

928

 

5. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following:

Number of shares

 

26 weeks to 27 January 2017

'000

26 weeks to 29 January 2016

'000

52 weeks to 29 July

2016

'000

Weighted average number of ordinary shares for the purposes of basic earnings per share

142,541

131,225

136,633

Effect of dilutive potential ordinary shares:

 

 

 

Share options:

96

2,456

930

Weighted average number of ordinary shares for the purposes of diluted earnings per share

142,637

133,681

137,563

 

Basic and diluted earnings per share

 

26 weeks to
27 January 2017

26 weeks to
29 January 2016

52 weeks to
29 July 2016

 

Earnings
£'000

Earnings
per share
pence

Earnings
£'000

Earnings
per share
pence

Earnings
£'000

Earnings
per share
pence

Earnings/(loss) and basic earnings/(loss) per share

 

 

 

 

 

 

Adjusted earnings and adjusted basic earnings per share

7,773

5.45

12,725

9.70

24,059

17.61

Adjusting Items

(35,754)

(25.08)

(17,919)

(13.66)

(32,164)

(23.54)

Loss and basic loss per share

(27,981)

(19.63)

(5,194)

(3.96)

(8,105)

(5.93)

Earnings/(loss) and diluted earnings/(loss) per share

 

 

 

 

 

 

Adjusted earnings and Adjusted diluted earnings per share

7,773

5.45

12,725

9.52

24,059

17.49

Adjusting Items

(35,754)

(25.07)

(17,919)

(13.40)

(32,164)

(23.38)

Loss on earnings and diluted loss per share

(27,981)

(19.62)

(5,194)

(3.88)

(8,105)

(5.89)

Adjusted earnings is calculated by adding back Adjusting Items, as adjusted for tax, to the profit/(loss) for the period.

 

6. Restatement

Previously the Group reported the employee costs of the Insight businesses, part of Strategic Marketing segment, under administrative expenses.  The Group's accounting policy is to include these types of costs within cost of sales and accordingly the half and full year comparatives have been re-stated to ensure consistency.

The impact of the prior period adjustments on the previously reported Consolidated Income Statement are summarised as follows:

 

 

52 weeks to 29 July 2016

26 weeks to 29 January 2016

 

 

Before Adjustments

Adjustments

Restated

Before Adjustments

Adjustments

Restated

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Adjusted Results:

 

 

 

 

 

 

Cost of sales

249,730

12,738

262,468

125,688

6,180

131,868

Administrative expenses

59,570

(12,738)

46,832

29,634

(6,180)

23,454

 

 

 

 

 

 

 

Statutory Results:

 

 

 

 

 

 

Cost of sales

249,730

12,738

262,468

125,793

6,180

131,973

Administrative expenses

93,042

(12,738)

80,304

46,235

(6,180)

40,055

 

There is no impact on Consolidated Comprehensive Income, Consolidated Statement of Changes in Equity, Consolidated Balance Sheet and Consolidated Cashflow for either the half or full year comparatives.

 

7. Retirement benefits

The net obligation in respect of St Ives plc Retirement Benefits Pension Scheme of £18,469,000 at 27 January 2017 has decreased compared to £26,394,000 as at 29 July 2016. The decrease is primarily due to strong investment performance of the plan assets.

 

8. Notes to the condensed consolidated cash flow statement

Reconciliation of cash generated from operations

 

26 weeks to

27 January

2017

 £'000

26 weeks to

29 January

2016

 £'000

52 weeks to

29 July

2016

 £'000

Loss from continuing operations

(25,048)

(1,040)

(1,843)

 

 

 

 

Adjustments for:

 

 

 

Depreciation of property, plant and equipment

3,630

3,608

7,201

Share of (profit)/losses from joint venture

(122)

104

122

Impairment losses

26,930

2,520

12,712

Amortisation of intangible assets

5,389

4,558

10,016

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

(450)

1,669

1,484

Share-based payment (credit)/charge

(54)

445

(238)

Settlement of share-based payment

195

108

Increase in fair value of derivatives

(175)

Decrease in retirement benefit obligations

(1,145)

(1,373)

(2,278)

Remeasurement of deferred consideration

(34)

2,939

(781)

Increase in contingent consideration required to be treated as remuneration

3,616

5,237

8,220

Increase in provisions

33

86

55

Operating cash inflows before movements in working capital

12,745

18,948

34,603

Decrease/(increase) in inventories

239

(506)

(880)

Increase in receivables

(4,086)

(7,245)

(9,572)

Increase in payables

9,394

3,763

3,985

Increase/(decrease) in deferred income

570

(432)

(906)

Payment of deemed remuneration

(1,056)

(3,580)

Cash generated from operations

18,862

13,472

23,650

Analysis of net debt

 

30 July

2016

£'000

Cash flow

£'000

Exchange differences

£'000

27 January

2017

£'000

Cash and cash equivalents

11,835

6,364

287

18,486

Bank loans

(92,595)

5,000

(1,311)

(88,906)

Net debt

(80,760)

11,364

(1,024)

(70,420)

           

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less. The effective interest rates on cash and cash equivalents are based on current market rates.

 

9. Post-balance sheet events

The Group has classified the investment properties at Roche and Peterborough as assets held for sale in the second half of the year.

 

10. Risks and uncertainties

The Group's principal risks and key mitigating activities in place to address them, as at 29 July 2016, are set out in pages 21 to 23 of the Group's Annual Report and Accounts 2016, a copy of which is available on the Group's website: www.st-ives.co.uk.

The principal risks have been considered by the Board and changes to the risk ratings have been made, since the period ended 29 July 2016, for the following risks.

(i)   Legacy Businesses

This risk covers issues arising within the legacy businesses, Marketing Activation and Books which may distract or inhibit the Board's focus on its strategic objective and in the short term, impact the growth within the Strategic Marketing segment if the Board has to address issues that emerge in these segments.

The inherent risk rating associated with legacy businesses has been increased from medium to high, following a further decline in Marketing Activation and the loss of the HarperCollins contract in Books. A consultation has commenced with employees to reduce employee numbers within both Books and Marketing Activation in response to the reduction in revenues.  In addition, the Board is considering its strategic options in respect of these businesses.  Given the continued uncertainty around these businesses the residual risk rating remains high.

(ii)  Clients

The Group has a variety of key clients in each of its three business segments. Long-term relationships have been fostered with many of these clients over a number of years however competitive pressure may result in the loss of a key client.

 

Whilst the financial impact of these key contracts has not increased, the likelihood has risen since the appetite for clients to carry out tenders has become more apparent (particularly in the Marketing Activation and Books segments), therefore the inherent risk rating associated with this risk has been increased to high. The mitigating activities include encouraging collaborative behaviour across the Group's businesses and creating a commitment to cross-selling that will distinguish the Group's marketing offering from its competitors'; achieving or exceeding service level agreements with clients; broadening the Group's capabilities, providing marketing solutions in support of our clients' marketing strategies; avoiding over reliance on any single client;  implementing bespoke propositions for securing the renewal of key client contracts, providing Group support where appropriate and conducting client satisfaction surveys. Notwithstanding these mitigating activities, the residual risk rating has increased from low to medium.

(iii) Financing

The Group's ability to trade may be compromised by lack of cash funds. The ability to finance working capital and carry out operations is fundamental to the Group. In order to monitor this, the Group conducts 'going concern' reviews twice yearly, longer-term viability assessments on a yearly basis and continually monitors the Group's performance against its banking covenants.  The Group also undertakes monthly reviews of working capital, cash forecasts and headroom on banking covenants and periodically reviews its financial KPIs with its bankers. This inherent risk is consistent with prior years and continues to be high.

During the period the £125 million revolving credit facility was reduced to £95 million supplemented by a term loan of £30 million and the maximum leverage covenant condition (net debt to Adjusted EBITDA) was increased for the remaining duration of the facility (which expires on 23 March 2019). However, as a result of the challenging trading environment, particularly in the Marketing Activation and Books segments (as detailed in the announcements on 19 January and 8 February 2017), the residual risk rating has increased to medium from low.

 

11. Related parties

The nature of related party transactions of the Group has not changed from those described in the Group's consolidated financial statements for the fifty two weeks ended 29 July 2016.

 

12. Responsibility statement

We confirm that, to the best of our knowledge:

·  the condensed set of financial statements has been prepared in accordance with IAS34 "Interim Financial Reporting";

·  the half year management report includes a fair review of the information required by DTR4.2.7R (indication of important events during the first six months of the year and descriptions of principal risks and uncertainties for the remaining six months of the year); and

·  the half year management report includes a fair review of the information required by DTR4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board

 

 

Matt Armitage

Chief Executive

7 March 2017

 

 

 

 

 

 

 

The foregoing contains forward looking statements made by the Directors in good faith based on information available to them up to 7 March 2017. Such statements need to be read with caution due to inherent uncertainties, including economic and business risk factors underlying such statements.


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