TIDMIGR
RNS Number : 2243U
IG Design Group PLC
28 July 2020
EMBARGOED UNTIL 7.00 AM, 28 JULY 2020
IG Design Group PLC
(the "Company", the "Group" or "Design Group")
Results for the year ended 31 March 2020 and Q1 Trading
Update
STRONG 2020 REVENUE GROWTH - ROBUST START TO 2021
IG Design Group plc, one of the world's leading designers,
innovators and manufacturers of Gift Packaging, Celebrations, Craft
& Creative Play, Stationery, Gifting and related product
categories announces its results for the year ended 31 March 2020
and its Q1 2021 trading update.
Financial Highlights for the year ended 31 March 2020
Financial Highlights 2020 2019
------------------------------ ========== ==========
Revenue GBP494.2m GBP448.4m
============================== ========== ==========
Adjusted*
- Profit Before Tax GBP29.1m GBP30.3m
==========
- Diluted Earnings per Share 26.9p 29.1p
------------------------------ ---------- ----------
Reported
============================== ========== ==========
- Profit Before Tax GBP0.3m GBP17.3m
============================== ========== ==========
- Diluted Earnings per Share 16.9p 15.9p
============================== ========== ==========
Year End Net Cash GBP42.3m GBP17.1m
============================== ========== ==========
Full Year Dividend 8.75p 8.50p
============================== ========== ==========
Average Leverage 0.9x 1.3x
============================== ========== ==========
*Adjusted Results are before transaction,
integration/restructuring, Covid-19 and US tariffs costs, LTIP and
acquisition amortisation charges, collectively called Adjusting
Items - for further detail see Alternative Performance Measures
reconciliation within the Detailed Financial Review
-- We ended our 2020 financial year with revenue up 10%
year-on-year at GBP494.2 million and adjusted profit before tax of
GBP29.1 million (2019: GBP30.3 million) - the Directors believe
that Covid-19 impacted Adjusted profit before tax by GBP3.8
million
-- The Board is recommending a final dividend of 5.75 pence
which delivers a full year dividend of 8.75 pence and maintains the
Group's progressive dividend policy
Operational Highlights
-- Our focus on 'Working with the winners' continues to deliver
organic revenue growth in key markets through our attention to
'Design and Innovation' including sustainable product ranges in the
UK and Creative Play and Seasonal Events products in the US
-- We ended the year with our manufacturing facilities in the US
fully integrated into Memphis, including the successful
commissioning of our new printing press despite the operational
challenges resulting from the integration and also from the US
trade dispute with China
-- Transformational acquisition of CSS Industries, Inc. ('CSS')
in the US completed in March 2020 with integration and synergies
delivering ahead of plan - $5 million of annualised savings to date
with more to come in 2021
-- The Group responded quickly to the Covid-19 crisis rapidly
implementing its response plan and despite the initial challenges
we are now fully operational
Q1 2021 Trading Update
-- The 2021 financial year has started strongly against our
Covid-19 forecasts across all regions. Reported revenues are higher
than the prior year benefitting from CSS which was acquired in
March 2020. Like-for-like revenues (excluding CSS) were ahead of
management's Covid-19 adjusted expectations but were down 27.7%
year-on-year reflecting the impact of Covid-19 on the business. CSS
revenues are 11.7% down year-on- year but ahead of our updated
forecasts benefiting from strong demand for Craft product during
lockdown. Despite the lower like for like revenues group Adjusted
profit before tax benefitted from sales margin mix, effective cost
management in the period together with the CSS results which
overall delivered a Group outcome in line with the prior year and
significantly better than our Covid-19 plan
-- A focus on cash management in the first quarter has delivered
a Net Cash position at 30 June 2020 which is significantly ahead of
management's Covid-19 expectations and $63 million better than
prior year, supported by the incremental equity raise in January
2020 as part of the CSS acquisition
-- A strong pipeline of orders in excess of $500 million is
ahead of prior year and substantially underpins the Covid-19
adjusted outlook for the year
-- Revenue will remain ahead of 2020 as a result of the full
year effect of the CSS acquisition, however, there will be a
reduction in Group revenue from our pre Covid-19 expectations for
2021
-- Following our Q1 performance the directors are increasingly
optimistic about the outlook for the full year and also 2022
Paul Fineman, CEO, commented:
" The resilience, adaptability and enterprising nature of our
business has been fully tested during the year by the global
pandemic and unprecedented trade tariffs. Notwithstanding this, we
have delivered good revenue growth and reduced average leverage,
below 1x.
Despite these challenges it has also been a year of exciting
opportunities, including our largest ever acquisition, which
provides significant scope for future expansion as well as
considerable integration and synergy benefits.
More than ever before, our customers value the portfolio of
expertise, products, brands and services that we provide. Our
commitment to providing quality and value, innovation and
compliance as well as our ever- improving sustainability
credentials, have further enhanced our relationships with many of
the world's most successful retailers.
Whilst the period ahead remains uncertain our orderbook exceeds
$500 million and we are confident in not only our resilience, but
our ability to return to significant growth. By 'Working with the
winners' - customers, suppliers, product categories and brands -
our team is well placed to continue to deliver value to
shareholders into the future."
IG Design Group is hosting a webinar for analysts at 09:30 BST
today. If you would like to register please contact
designgroup@almapr.co.uk .
The Company is also hosting a webinar for retail investors on
Friday 31 July at 12:30pm BST. If you would like to attend please
register here https://bit.ly/piw_webinar .
A video overview of the results from the CEO, Paul Fineman, and
CFO, Giles Willits, is available to watch here:
https://bit.ly/IGR_FY20_overview
For further information:
IG Design Group plc 01525 887310
Paul Fineman, Chief Executive
Giles Willits, Chief Financial
Officer
Canaccord Genuity Limited 020 7523 8000
Bobbie Hilliam, NOMAD
Alex Aylen, Sales
Alma PR
Rebecca Sanders-Hewett 020 3405 0205
Susie Hudson designgroup@almapr.co.uk
Sam Modlin
OVERVIEW
This has been an extraordinary year for Design Group with our
significant successes in the period impacted by truly unprecedented
macro level economic, social and operational challenges. In May
2019, trade discussions between the US and Chinese governments
worsened resulting in the imposition of the largest ever
wide-ranging set of trade tariffs across a substantial proportion
of our US business' product ranges which significantly impacted on
the execution of the planned integration of our US manufacturing
facilities into Memphis. Despite this, the Group continued to focus
on its strategy and in January 2020 announced it had agreed to
acquire CSS Industries, Inc. ('CSS') in the US, alongside a GBP120
million share placing. Just after completing this transaction in
March 2020, the world experienced the rapid spread of Covid-19
which had an unprecedented impact on our business and our
teams.
COVID-19
The impact of Covid-19 on the world, our trading partners and
the business has been significant and is envisaged to impact the
Group in some capacity for some time to come. We have taken swift
and decisive actions to ensure the business comes through the
pandemic in robust shape and ready to take on the many
opportunities we continue to see for the Group going forward.
Most importantly, the Board would like to extend our gratitude
to every individual in the Design Group teams around the world. Our
businesses have had to react dynamically as events have unfolded
and our teams have ensured the business remains in good health
while at the same time maintaining the safety of all of our
employees. Specifically, during the crisis our teams have acted
responsibly and professionally to deal with the impact the virus is
having on the Group.
Our reaction to Covid-19
The impact on the Group of Covid-19 started in January 2020 when
it became clear that our factory and many of our suppliers and
distributors in China were going to be closed from February 2020 as
a result of lockdown in regions of China. We quickly focused on
working with customers and suppliers to ensure as best possible the
continuation of supply, however, in March 2020 with the global
'lockdown' in full swing our response intensified with a focus on
three main areas:
- Our employees and operations
- Our customers and suppliers
- Our financial strength
Employees and Operations - O ur main priority remains the health
and wellbeing of our teams around the world. We continue to closely
follow government working protocols regarding self-isolation,
social distancing and personal hygiene in order that everyone
remains safe and well. The vast majority of our office-based teams
continue to work remotely while our warehouse and manufacturing
teams have adapted to ensure that they abide by all the required
procedures.
Customers and Suppliers - As a business that serves over 210,000
stores for over 11,000 customers in over 80 countries worldwide we
have sought to strengthen our relationship with all our trading
partners and have successfully dealt with a mix of situations
including customers who remained open throughout the lockdown
period to those that closed their doors completely. We have
maintained our service to those who remained open, working to adapt
to the new requirements while maintaining an efficient supply chain
and developing new designs and products for the various 2020
seasonal and everyday programmes.
Financial Strength - The Covid-19 crisis hit at a time when the
Group had its highest ever net cash balance of over GBP42 million
and having just completed the CSS acquisition, we also had secured
extended banking facilities of over GBP200 million. Furthermore,
this crisis hit ahead of the peak working capital period and as
such we were able to adjust our plans to ensure our seasonal
working capital cycle matches our updated customer orders and
therefore our seasonal working capital cycle will be lower than in
previous years, despite the addition of CSS.
Our financial priority in March was to produce a set of Covid-19
scenarios which focused on updated sales expectations. In
developing these plans each business unit has taken a view on a
range of outcomes for 2021 based on the impact of Covid-19 in each
region. This includes working with customers to understand their
expectations, and importantly includes confirming orders where
possible for the crucial Christmas 2020 trading period. In
addition, we have focused on implementing strong cost management
across the Group. These actions across the Group included freezing
all annual salary reviews, stopping all new hires, waiving all
existing bonus schemes, reducing all discretionary spend and
ultimately reducing the size of our teams. We accelerated the
process of integrating CSS into our existing US business to ensure
we maximised the synergy opportunities as quickly as possible.
Finally, we implemented additional cash management actions which
aimed to conserve cash through robust working capital plans and a
reduction in our capital investment programme.
Our financial scenarios reflect a material reduction in expected
revenue but importantly continue to deliver a profitable business
that has significant cash headroom and is also positioned to
'bounce-back' when we return to a more normal trading
environment.
Q1 TRADING UPDATE & FULL YEAR OUTLOOK
The 2021 financial year has started strongly against our
Covid-19 forecasts across all regions. Reported revenues are higher
than the prior year benefitting from CSS which was acquired in
March 2020. Like-for-like revenues (excluding CSS) were ahead of
management's Covid-19 adjusted expectations but were down 27.7%
year-on-year reflecting the impact of Covid-19 on the business. CSS
revenues are 11.7% down year-on-year but ahead of our updated
forecasts benefitting from strong demand for Craft product during
lockdown. Despite the lower like-for-like revenues Group Adjusted
profit before tax benefitted from sales margin mix, effective cost
management in the period, together with the CSS results which
overall delivered a Group outcome in line with the prior year and
significantly better than our Covid-19 plan. A focus on cash
management in the first quarter has delivered a net cash position
at 30 June 2020 which is significantly ahead of management's
Covid-19 expectations and $63 million better than prior year,
supported by the incremental equity raise in January and February
2020 as part of the CSS acquisition. As a result, at the end of the
first quarter to 30 June 2020 the Group has significantly improved
its headroom in its banking facilities and covenants.
The CSS integration is well underway. We have fully integrated
the management teams and already delivered $5 million of synergy
savings with more to come in the year.
Looking ahead, with the world set to ease the Covid-19 lockdown
and hoping to avoid a major second wave, we still face a number of
uncertainties including how quickly more normal levels of working
will return and how healthy the global economy will be going
forward. Assessing the potential range of outcomes, the Directors
believe that although revenues will remain ahead of 2020 as a
result of the full year effect of the CSS acquisition, there will
be a reduction in Group revenue from our pre Covid-19 expectations
for 2021. This assumes no significant Covid-19 second wave.
Following our Q1 performance the Directors are increasingly
optimistic about the outlook for the full year. We enter our peak
trading period from July through to November with an orderbook that
substantially covers our Covid-19 adjusted revenue forecasts and is
ahead of last year. However, we remain cautious, recognising there
remain increased uncertainties this year in relation to the
potential for a second Covid-19 wave and the economic outlook post
the virus. As such the Board continues to focus on managing the
business within its banking facilities with the priority being on
maintaining significant covenant headroom across all our potential
scenarios.
Furthermore, assuming a return to more normal sales volumes by
the end of 2021 and based on the anticipated delivery of synergies
following the CSS acquisition and opportunities for further margin
improvement and cost management, the Board would expect significant
year-on-year growth in both revenues and earnings in 2022.
SUMMARY 2020 FINANCIAL RESULTS
During the year Group Revenue increased by 10% to GBP494.2
million (2019: GBP448.4 million) including the effect of nearly one
month of sales from CSS, with Adjusted profit before tax broadly
flat year-on-year at GBP29.1 million (2019: GBP30.3 million). When
comparing our financial results with the prior year it is important
to note the impact in 2020 of the adoption of IFRS16 which reduced
Adjusted profit before tax by GBP0.7 million on a like-for-like
basis compared to the prior year. Adjusted diluted earnings per
share was 26.9 pence (2019: 29.1 pence) which reduced, despite flat
profit levels because of the higher diluted share number following
the share raise in the final quarter of the financial year.
We finished the year with a positive net cash balance of GBP42.3
million (2019: GBP17.1 million) supported by the share placings as
part of the CSS acquisition. Average leverage for the year was 0.9
times (2019: 1.3 times) and once again is a reflection of our focus
on cash management during the 2020 year. Furthermore, following the
CSS acquisition on 3 March 2020 and the associated increase in our
banking facilities we have access to over GBP200 million of debt
facilities with significant headroom.
The Group finished the year with a profit before tax of GBP0.3
million (2019: GBP17.3 million). As can be expected in a year with
the degree of challenges that we have faced and during a period of
such significant strategic development, the Group has incurred
increased disruption, which is reflected in the increased size and
numbers of Adjusting items which together total GBP28.8 million
(2019: GBP13.0 million). The main Adjusting items relate to the
Covid-19 impact, the acquisition of CSS, the impact of US tariffs
with China and the costs associated with the significant
restructure of the US business during the year. Diluted earnings
per share is 16.9 pence (2019: 15.9 pence) reflecting the benefit
of CSS tax credits relating to changes in the US tax rules that
were enacted following acquisition. See the detailed financial
review for more information.
In March 2020, Covid-19 resulted in unshipped customer orders
following lockdown and lost production activity which reduced our
ability to absorb overheads into inventory. The Directors estimate
that the Group was unable to book sales in the year of GBP6.9
million which together with increased costs resulting from lower
overhead inventory absorption hit our Adjusted profit before tax by
an estimated GBP3.8 million.
The Board is recommending a final dividend of 5.75 pence
reflecting the strong financial position of the Group after its
2020 year and its Q1 2021 trading. This delivers a full year
dividend of 8.75 pence and maintains the Group's progressive
dividend policy.
OUR STRATEGY
Despite the challenges of Covid-19 our business continues to be
successful in driving long term growth as a result of our focus on
our three key strategic drivers, which underpin the Group's goals,
these are:
Working with the winners
We are focused on increasing our revenue and profitability
through growth in both existing and new channels and markets by
ensuring we maintain excellent relationships with our key
customers, as well as developing relationships with new customers.
We want to be part of our customers' success stories. As the retail
market evolves and progresses, we work closely with our key
customers with the aim of being their partner of choice going
forward. Our top 10 customers now account for 52% of our global
revenues (2019: 48%).
In order to do this, we need to have the capability to
manufacture and/or source a broad range of products, leveraging
from improved sourcing processes as our business grows. Many of our
customers work across multiple territories and have global
ambitions. As such, our geographic and channel diversity in key
markets is essential to help support our customers as they grow.
Our businesses are experts in their territories and categories and
we ensure that we know what works well for our customers in each of
those markets.
To continue our growth trajectory with our customers, we follow
key market trends including the increase in consumer demand for
mainstream mass and discount retailers, as well as specialist
'experiential' retailers and e-commerce opportunities.
Our focus on working with the winners helps ensure we are
benefitting as our customers continue to grow. But it also requires
us to decide who we will not work with and this has been especially
important during a year that has witnessed challenging retail
markets, with a number of high profile retailers facing financial
troubles.
The CSS acquisition has resulted in a strengthening of our
relationship with Walmart, the largest retailer in the world and
they now account for approximately 22% (2019: 18%) of the Group's
revenue.
Design & innovation
Our customers look to us to be at the forefront of product
design and innovation. This means we look to develop the best
designs for innovative and quality products, while maintaining a
focus on value and consumer appeal.
The Group has succeeded in growing revenues through developing
new and adjacent category products as well as increasing revenues
in existing product areas. The addition of CSS product categories
has strengthened the Group's ability to offer a complete
'one-stop-shop' to customers including products not previously
forming part of the Group's portfolio such as Craft and specialist
packaging for the floral industry. We also continue to diversify
our product range by focusing on occasions other than Christmas and
following the acquisition of CSS, we expect our Everyday and Minor
Seasons business to account for c. 51% of global sales.
Technological development is a key part of this strategy and
this extends to adapting to changes in consumer habits and being
dynamic in providing new channels to purchase our products.
Coupled with innovation in product design, we have also
increased our focus on developing more sustainable products and
improved sourcing, manufacturing and distribution to reduce our
global carbon footprint. We believe this focus is not only the
right strategy to help the environment but can also be a source of
competitive advantage. Recent successes include developing a
recyclable cracker range for customers in the UK, removing plastic
from a selection of product packaging, removing non-recyclable
glitter from a number of wrap, bag and card ranges and reducing the
size of wrap cores to further rationalise shipping volumes and
cost. We are committed to continuously increasing our attention to
the environmental impact of the Group and have established an
Environmental Taskforce that is working with third party specialist
organisations. We wish to ensure that we can be regarded by our
customers as leaders in bringing improved sustainable product
solutions to all product categories in the Group's portfolio.
Efficiency & scale
As we grow we remain intent on driving up operating margins
through investment in processes and people as well as by unlocking
synergies following acquisitions, using our global reach and
capabilities to leverage Group economies of scale.
The year has seen significant capital investment across the
Group totalling GBP11.1 million (2019: GBP7.9 million). Key areas
included investment in a new printing press in the US, further bag
making equipment in the UK to support the growth of our 'not -- for
-- resale ' business, and an automated wrap solution for our
business in the Netherlands. As ever, we look for projects with
compelling payback that help increase our capacity, improve our
efficiency and deliver a better service.
In addition, we are building the capabilities of the team around
the Group. In the US following the acquisition of CSS we integrated
and strengthened the senior management team introducing new roles
including a US Executive Chairman and a Chief Operating Officer.
These new positions help extend the strength of the capability of
our teams, bringing new skills that will ensure we are properly
resourced to deliver our strategy.
Furthermore, the acquisition of CSS will have a transformational
impact on the scale of the Group. CSS is one of the leading
suppliers of Craft products in the US, with long standing
relationships with major US retailers. Following the acquisition in
March 2020, the Group has proceeded quickly with the integration
and we are already seeing the benefits from the synergies and the
increased scale of the overall business.
Shareholder Commitments
Our key strategic priorities all focus on our three commitments
to shareholders which are:
-- double-digit growth in Adjusted diluted earnings per share on
a 3 year CAGR basis - over the past three years we have averaged
growth of 13%, which is lower than hoped due to the impact of
Covid-19
-- maintaining Average leverage between 1.0 times and 2.0 times
- this year saw leverage move below 1.0 times
-- targeting dividend cover of 2.5 times Adjusted diluted
earnings per share - in 2020 our dividend cover was 3.1 times and
we envisage achieving 2.5 times by 2024
REGIONAL HIGHLIGHTS
Overall, the Group has seen growth in both Revenue and Adjusted
operating profit which increased to GBP33.4 million (2019: GBP32.6
million).
Segmental revenue Adjusted operating Adjusted
profit operating
margin
%
Group
revenue 2020 2019 % growth 2020 2019 % growth 2020 2019
======
56% Americas $m 355.9 289.9 23% 20.1 20.0 1% 5.6% 6.9%
======
24% UK GBPm 117.5 127.1 (8%) 6.9 8.1 (15%) 5.9% 6.4%
====== ========= ====== ========= ======
14% Europe EURm 78.3 73.0 7% 11.6 10.0 16% 14.8% 13.7%
====== ========= ====== ========= ======
7% Australia AU$m 60.1 70.3 (15%) 5.5 7.7 (29%) 9.2% 11.0%
====== ========= ====== ========= ======
Elims /
Central
(1%) costs GBPm (6.6) (5.5) 20% (3.2) (4.1) (22%)
====== ========= ====== =========
100% Total GBPm 494.2 448.4 10% 33.4 32.6 2% 6.8% 7.3%
========= ========== ===== ====== ====== ========= ====== ====== ========= ====== ======
Americas
2020 was a transformational year for the Americas business with
revenues representing 56% of Group revenues, but following the
acquisition of CSS the US will account, on a proforma basis, for
over 70% of Group revenues.
The last 24 months have seen a significant change for our US
business. Following the acquisition of Impact Innovations, Inc.
('Impact') in August 2018 we doubled the size of our US operations
and during the 2020 financial year we continued the significant
consolidation and restructure of our printing, production and
distribution facilities in Memphis. In January 2020 we announced
the acquisition of CSS, a deal which again doubled the size of the
US Group. All this while the US and China were engaged in a trade
dispute that brought significant disruption in the form of tariffs
and knock-on operational challenges. Despite these challenges
Revenue grew significantly, up 23% year-on-year to $355.9 million
(2019: $289.9 million), which included $19.9 million of revenues
from CSS for the last month of the financial year following
completion of the deal on 3 March 2020.
Adjusted operating profit at $20.1 million was in line with the
prior year (2019: $20.0 million) and included $4.3 million
contribution from CSS. Adjusted operating margin declined to 5.6%
from 6.9% in 2019 reflecting in part a full year of costs in 2020
from the Impact acquisition as compared to the prior year and also
the impact of Covid-19.
Organic revenue growth was primarily fuelled by a 7% growth in
our Celebrations category and 26% growth in our sale of Craft &
creative play products. Furthermore, during the year we developed
new programmes in our gift and décor product ranges which are to be
rolled out in 2021.
The integration of the Impact business saw a period of
significant change for the Americas group during 2020, specifically
the moving of our converting business from Midway, Georgia to bring
it under the same roof as the printing operations in Memphis,
Tennessee. We moved the machinery in January 2019 and spent the
first quarter of the 2020 financial year effecting the integration
ahead of the peak manufacturing cycle during May through to
October. Unfortunately, while this integration was underway the US
government announced the significant extension of tariffs in
relation to products sourced from China. The impact of this was
that our customers delayed decisions in signing off product designs
and final orders resulting in production in Memphis being
'bottle-necked' into a narrower time period than initially planned.
As a consequence, the integration did not go as smoothly as
expected. The Group has identified Adjusting items of $7.1 million
in relation to the integration, including outsourcing and overtime
costs and additional customer charges. As we look forward to the
current financial year the Memphis facility is operating to plan
and has already successfully fully commissioned its new
state-of-the-art printing press, ensuring the Americas group
delivers on the final phase of the Impact integration and synergies
realisation.
As stated above, the evolution of the US tariffs with China
(s301 tariffs) to 25% in just a few months and, without advance
warning, becoming applicable to more of our product categories,
resulted in margin challenges for customer and supplier contracts
received prior to the imposition of tariffs. As such, it was not
possible to mitigate the incremental cost impact which would
normally be the case as part of the normal annual pricing
discussions. The Group has therefore identified the tariff costs as
an Adjusting item of $4.4 million. Going into 2021 the Group have
had time to work with our customers and suppliers to mitigate the
impact of tariffs through a mix of reshoring production, product
design and finding alternative supply solutions. Importantly, by
satisfying customer requirements, we have further consolidated our
position as a key supplier thereby providing incremental
opportunities for the future.
In March 2020, the Group acquired CSS. This acquisition
significantly enhances the product portfolio of the Americas group
bringing a wide range of complimentary products as well as a new
product category for the Group; Craft (which we have combined our
existing Creative play category). The acquisition doubles the size
of the Americas group and brings with it many benefits, including
providing customers with a substantially enhanced 'one-stop-shop'
through their leading presence within the US craft market. The
acquisition also:
-- reinforces the Group's position as the global industry leader in gift packaging;
-- rapidly scales the Group's 'Everyday' product category,
online revenues and presence within the floral decorative packaging
industry; and
-- substantially increases the manufacturing and distribution capability of the Group.
Furthermore, it is anticipated that operational and financial
synergies of a minimum of GBP10 million per annum by 2024 are
achievable following the acquisition. Since the acquisition
completed in March 2020 we strengthened and integrated our US
senior management team and they are working alongside our third
party project management office to oversee the integration of the
business and the delivery of the synergy plans. In the first month
following acquisition over $5.0 million of annual savings were
achieved through a mix of headcount and public company listing cost
reductions. We have included within 2020 Adjusting items $3.0
million relating to the severance costs associated with the
headcount reductions. The progress in terms of delivering the
synergy plans to date is ahead of schedule.
UK
The UK business accounts for nearly one quarter of the Group's
business and as anticipated Revenues for the UK business were down
on the prior year at GBP117.5 million (2019: GBP127.1 million).
Adjusted operating profit at GBP6.9 million was lower than in 2019
as a result of the impact of Covid-19.
Further unification of our UK businesses continued in 2020 with
a move of our Trade business under one roof into our Newport
Pagnell site during the year. This, together with other required
reorganisation, has resulted in GBP0.4 million of Adjusting items
in the year.
We have continued to invest in our 'not-for-resale' bag
activities with a second production line going live during the
year. We are encouraged by increased demand for these sustainable
products, albeit demand is anticipated to be reduced going forward
as a result of Covid-19. As such, we have impaired the residual
value of the two machines by GBP0.4 million in light of reduced
future cashflows in the coming years and taken the cost of this
impairment through Adjusting items in the year.
Following the exit of the UK from the European Union on 31
January 2020, the group has seen minimal impact to date on the
business. We remain prepared for Brexit in whatever form it will
take and continue to monitor the situation as negotiations in
relation to the final exit deal are concluded.
Europe
Europe had another excellent year with Revenues of EUR78.3
million, 7% up on the prior year (2019: EUR73.0 million) and
Adjusted operating profit growing by 16% to EUR11.6 million
compared to EUR10.0 million in 2019. Adjusted operating margin grew
year-on-year to 14.8% (2019: 13.7%).
The European business continues to benefit from its excellent
trading relationships with key leading and growing retailers across
Europe - as they grow, our business grows with them.
Given the efficiencies that the business in Europe have derived
from their state-of-the-art printing press that came online in
2019, they were able to support the Americas business in the latter
part of the year, printing and shipping gift-wrap product. The
Group will continue to maximise cross-Group opportunities over the
coming years.
In 2020, our European manufacturing facility also upgraded its
converting lines to deliver an automated end-to-end production line
taking the product from conversion all the way to packing. This
facility came online at the end of the financial year and we are
anticipating efficiency benefits from this production process fully
in 2021.
Australia
Our performance in Australia has been in line with expectations
and as previously communicated. Revenues declined 15% year-on-year
to AU$60.1 million compared to AU$70.3 million in 2019. Adjusted
operating profit was AU$5.5 million (2019: AU$7.7 million) with
Adjusted operating margin falling to 9.2% from 11.0% in 2019.
The decline in Revenues and Adjusted operating profit is a
result of lost business with certain national retailers during the
year and the active decision by the Australia team to not continue
to do business with some customers whose recent performance has
been volatile.
OUR PRODUCTS AND BRANDS
Amongst the factors creating our Group's success is our well
diversified, yet complimentary product portfolio, underpinning our
'Working with the winners' strategy. Our range of products enables
us to provide a compelling portfolio of products and services
making us an attractive 'Supplier of choice' for our retail
partners.
Revenue by product 2020 2019
category
==================== ================ ================
Celebrations 75% GBP371.7m 77% GBP345.5m
==================== ==== ========== ==== ==========
Craft & creative
play 7% GBP30.2m 4% GBP16.3m
==================== ==== ========== ==== ==========
Stationery 4% GBP21.3m 4% GBP20.7m
==================== ==== ========== ==== ==========
Gifting 11% GBP54.7m 11% GBP46.1m
==================== ==== ========== ==== ==========
'Not-for-resale'
consumables 3% GBP16.3m 4% GBP19.9m
==================== ==== ========== ==== ==========
Total GBP494.2m GBP448.4m
==================== ==== ========== ==== ==========
Our product offering was further enhanced this year as a result
of the acquisition of CSS, enabling us to introduce a new Craft
product category throughout the Group. This includes needlecraft
and sewing products and a particularly strong position in the
sewing patterns market. CSS is a market leader in the US craft
market as well as being active in complementary Design Group
categories. Design Group can further leverage this whilst
strengthening our 'one-stop-shop' offering. Following the
establishment of the Craft category, the Group has re-evaluated our
product offering as follows:
-- Celebrations including gift packaging, greeting cards, crackers and partyware
-- Craft & creative play is the new category this year and
includes creative play products, sewing patterns, general and kids
craft products, and buttons
-- Gifting includes our design-led giftware products and photo frames
-- Stationery includes home, school and office stationery items
-- 'Not-for-resale' consumables include branded store bags,
point of purchase products and also floral packaging which is a new
product line acquired with CSS
Our design teams pride themselves on creating innovative designs
which are both appealing and affordable to our customers and in
turn, their customers. This core strength is a key focus for the
Group as we believe it underpins our success.
Our focus on product diversification and continued development
of attractive and innovative products has driven growth in the
sales of the Group, across all consumer categories.
By virtue of our focus on design and innovation, this year the
UK team have launched an 'Eco Nature Range' which includes gift
packaging, crackers, stationery and giftware that is proudly 100%
designed and manufactured in the UK. This sustainable range
supports a circular economy using only recycled materials and
resulting in a fully recyclable product range.
Our teams in America have also been demonstrating cutting edge
innovation in response to the global pandemic by using our skills
and materials to produce face masks within our New York facilities,
mask components from Design Group materials (such as ribbon) and
face shields in our factory that produces point of purchase
products. By deploying existing expertise to create new product
ranges in short time scales, we are proud to be contributing to
communities in the face of the Covid-19 crisis.
The Group's 'in-house' manufacturing facilities in the UK, US
and the Netherlands, enable us to have locally produced product in
each of these regions, supporting local economies and reducing
adverse effects on the environment. Overall, 35% of the Group's
revenue was manufactured in-house, up from 30% last year.
Outsourced products are provided by a broad base of carefully
selected and compliant suppliers with the Group being one of the
world's largest buyers across the categories that we sell.
In the last year, we estimate that more than 700 million items
and over 75,000 SKUs, have been delivered to our customers.
DETAILED FINANCIAL REVIEW
The Group financial performance in 2020 has been impacted by a
number of factors which together have had a material impact on the
full year results of the Group. These factors are Adjusting items
and IFRS 16 accounting standard adoption.
As part of the presentation of the results each of these factors
is highlighted to provide a detailed explanation of its impact on
the performance of the business year-on-year. The summary Income
Statement detailed below details the Adjusting items:
2020 2019
Reported Adjusting Adjusted Reported Adjusting Adjusted
Items Items
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 494.2 - 494.2 448.4 - 448.4
Gross profit 75.1 15.8 90.9 82.9 1.7 84.6
Overheads (70.5) 13.0 (57.5) (63.1) 11.1 (52.0)
--------- ---------- --------- --------- ---------- ---------
Operating profit 4.6 28.8 33.4 19.8 12.8 32.6
Finance charge (4.3) - (4.3) (2.5) 0.2 (2.3)
Profit before tax 0.3 28.8 29.1 17.3 13.0 30.3
------------------- --------- ---------- --------- --------- ---------- ---------
Tax 14.5 (20.4) (5.9) (4.0) (3.1) (7.1)
-------------------
Profit after tax 14.8 8.4 23.2 13.3 9.9 23.2
------------------- --------- ---------- --------- --------- ---------- ---------
Revenue for the year of GBP494.2 million grew 10% over the
previous year (2019: GBP448.4 million) of which 7% relates to
organic growth, with the balance relating to CSS post acquisition
sales. At like-for-like foreign exchange rates revenue grew 9%.
Adjusted operating profit increased by 2.4% to GBP33.4 million
(2019: GBP32.6 million) and 3.3% at like -- for -- like exchange
rates. Adjusted operating margin remained largely flat at 6.8%
(2019: 7.3%). Gross margin fell in the year, largely as a result of
customer and product mix to 18.4% (2019: 18.9%). Adjusted overheads
as a percentage of revenue remained constant at 11.6% year-on-year.
Overall Adjusted profit before tax was broadly flat at GBP29.1
million (2019: GBP30.3 million) after taking into account the
impact of IFRS16 which reduced 2020 profit by GBP0.7 million and
despite the impact of Covid-19.
The Group finished the year with a profit before tax of GBP0.3
million (2019: GBP17.3 million). As can be expected in a year with
the degree of challenges that we have faced and during a period of
such significant strategic development, the Group has incurred
increased disruption, which is reflected in the increased size and
numbers of Adjusting items which together total GBP28.8 million
(2019: GBP13.0 million). Further details of the Adjusting items are
detailed below. Adjusted profit after tax was GBP23.2 million
(2019: GBP23.2 million) with profit after tax for the year at
GBP14.8 million (2019: GBP13.3 million).
Impact of Covid-19
In March 2020, Covid-19 resulted in unshipped customer orders as
a result of the lockdown of our facilities across the Group and
lost production activity which reduced our ability to absorb
overheads into inventory. The Directors estimate that the Group was
unable to book sales in the year of GBP6.9 million which together
with increased costs resulting from lower overhead inventory
absorption hit our Adjusted profit before tax by an estimated
GBP3.8 million.
Finance expenses
Finance costs of GBP4.3 million are higher compared to the prior
year of GBP2.3 million (excluding adjusting finance charges). This
primarily reflects the impact of IFRS 16 which added GBP1.6 million
to the full year charge. In addition, arrangement fees of GBP0.3
million were incurred in 2020 relating to the additional facility
taken on for the purposes of the enlarged Group facilities as part
of the CSS acquisition. Adjusting for these factors, the charge
would have been GBP2.4 million which is in line with prior year.
Adjusted interest cover after stripping out IFRS 16 was 12.0 times
in 2020 compared to 14.1 times in the prior year.
Adjusting items
The Group has incurred Adjusting items in the year to 31 March
2020 totalling GBP28.8 million (2019: GBP13.0 million).
Adjusting items 2020 2019
------------------------------------------------ ---------- ---------
Losses/(gains) and transaction costs relating GBP3.3m GBP2.4m
to acquisitions and disposals of businesses
================================================ ========== =========
Acquisition integration and restructuring costs GBP9.4m GBP6.0m
================================================ ========== =========
Impairment of assets GBP9.5m -
================================================ ========== =========
Covid-19 costs GBP0.5m -
================================================ ========== =========
US tariffs GBP3.5m -
================================================ ========== =========
Amortisation of acquired intangibles GBP2.8m GBP1.6m
================================================ ========== =========
LTIP (credit)/charges (GBP0.2m) GBP3.0m
================================================ ========== =========
Total GBP28.8m GBP13.0m
================================================ ========== =========
Adjusting items are material items of unusual or non-recurring
nature which represent gains or losses which are separately
presented by virtue of the nature, size and/or incidence. These
items are as follows:
Losses/(gains) and transaction costs relating to acquisitions
and disposals of businesses - GBP3.3 million
During the year ended 31 March 2020 the Group incurred a net
cost of GBP3.3 million in relation to the acquisition and disposal
of businesses. The main areas of expenditure relate to GBP3.9
million of due diligence, legal and adviser fees associated with
the acquisition of CSS which was completed on 3 March 2020. In
addition, GBP0.9 million of acquisition related employee payments
from the Impact transaction in 2019 which lock in and incentivise
legacy talent.
These costs were offset by a profit of GBP1.5 million relating
to the disposal of our Shaoxing factory facilities in China which
was completed on 24 February 2020. This facility which was acquired
as part of the Impact transaction completed in August 2018 and the
disposal formed part of the planned integration programme.
Acquisition integration and restructuring costs - GBP9.4
million
For the years ended 31 March 2020 and 31 March 2019 the
acquisition integration and restructuring costs relate to the
ongoing UK unification initiative (GBP0.4 million), the integration
of manufacturing facilities in the US, following the acquisition of
Impact, which lead to the combination of printing and converting
processes into one site in Memphis (GBP5.5 million), transition and
retention costs (GBP1.1 million) and costs relating to the CSS
integration (GBP2.4 million).
The costs associated with the Memphis project were calculated by
evaluating the expense associated with the operating challenges in
the manufacturing environment created as a result of the
integration alongside the delays to productions plans as a result
of the rapid development of US tariffs with China and customers
delaying sign off on artwork and packaging. All these costs arise
directly as a result of integrating processes for the first time
during the peak period. The costs include expenditure for one time
outsourcing to meet production demands, additional warehousing to
store inventory due to tariff driven delayed production and
shipping and the subsequent knock-on customer related
penalties.
The CSS integration and restructuring costs were incurred
following the acquisition of CSS and primarily relate to severance
costs of redundant roles in the legacy CSS business.
Covid-19 related costs, including impairment of assets of
GBP10.0 million
As part of the review of the impact of Covid-19 we have
undertaken a detailed review of the potential impact on assets
within the business alongside incremental costs we have incurred as
a result of the virus. The review of receivables, fixed assets and
inventories identified the need for higher than usual
provisions/impairments at the year end as a result of the
virus.
GBP9.5 million of provisions/impairments were identified and are
split as follows; GBP5.9 million of additional inventory provisions
recognising the lower than expected sales activity in 2021, GBP3.1
million in relation to receivables as at 31 March 2020 to reflect
increased credit risk amongst our customer base resulting from
Covid-19 and GBP0.5 million in relation to inventory asset and
fixed asset impairment.
In addition, GBP0.5 million of incremental costs have been
identified relating primarily to direct labour costs that are
considered abnormal following the forced closures of manufacturing
facilities across the Group. Certain of these costs will also
continue into 2021.
US tariffs - GBP3.5 million
US tariff costs incurred in the year had a significant impact on
our business. The rapid evolution of tariffs became applicable to
more of our product categories with no advance warning. The timing
of the introduction of tariffs meant a majority of our purchase
orders had already been agreed with customers and suppliers
effectively creating a situation where the US business was locked
into commitments that could not be renegotiated. This impact is not
repeated going forward as the business is able to mitigate the
effect of tariffs in future years as part of the negotiation of
contracts with customers and suppliers.
LTIP credit - GBP0.2 million
As part of our senior management remuneration, the Group operate
a Long Term Incentive Plan ('LTIP') in the form of options for
ordinary shares of the Group. In accordance with accounting
principles, despite this plan not being a cash cost to the
business, a share -- based payments charge is taken to the income
statement. We consider that these charges and the associated social
security charges do not form part of the underlying operational
costs and therefore include these as Adjusting items. In the year
ended 31 March 2020 there was an IFRS 2 credit due to the lowered
expectations in respect of future schemes vesting.
Amortisation of acquired intangibles - GBP2.8 million
The Group has trade names and brands acquired as part of the
acquisition of The Lang Companies, Inc., Impact Innovations, Inc.,
CSS Industries, Inc. and Biscay Pty Greetings Ltd which are
amortised over their estimated useful lives. Amortisation of GBP2.8
million has been incurred in the year ended 31 March 2020.
Taxation
The Group aims to manage its tax affairs in an open and
transparent manner, including being fully compliant with all
applicable rules and regulations in tax jurisdictions in which it
operates. We have not entered into any tax avoidance or otherwise
aggressive tax planning schemes and the Group continues to operate
its tax affairs in this manner.
The tax credit for the year ended 31 March 2020 is GBP14.5
million compared to GBP4.0 million charge in the prior year. The
significant year-on-year change is driven by the US Coronavirus
Aid, Relief, and Economic Security (CARES) Act which came into
effect on 25 March 2020 which, as part of the stimulus package,
extended the time period for which Net Operating Losses (NOLs)
could be carried back against profits in US businesses. As part of
the acquisition of CSS, the Group inherited substantial NOLs in the
CSS Group which were then able to be carried back against
historical profits. This has resulted in the recognition of a $17
million future cash inflow as a result of the NOL carry back claims
currently being filed. We expect these to be paid during 2021.
The effective tax rate on Adjusted profit before tax is 20.1%
(2019: 23.4%). The reduction is a reflection of the UK tax rate
remaining at 19% rather than reducing to 17% as previously enacted
which has resulted in deferred tax assets being revalued at the
higher rate, the recognition of overseas tax losses in China and
Asia along with the release of an uncertain tax position in
relation to our European business following the adoption of IFRIC
23.
Overall tax paid in comparison to the prior year increased to
GBP4.7 million (2019: GBP3.7 million) largely as a result of the
growth in the Group.
Earnings per share
Adjusted earnings per share are 26.9p (2019: 29.1p) reducing
year-on-year by 8% as a result of the flat profit levels over a
higher diluted share number following the share raise in early 2020
and the impact of Covid-19. Diluted earnings per share are 16.9p
(2019: 15.9p). The reconciliation between Reported and Adjusted
earnings per share can be seen below:
Earnings per share 2020 2019
========================================================== ===========
Earnings attributable to equity holders of GBP14.1m GBP11.9m
the Company
========================================================== =========== ==========
Adjustments
========================================================== =========== ==========
Adjusting items (net of non-controlling interest GBP28.6m GBP12.9m
effect)
========================================================== =========== ==========
Tax charge/(relief) on adjustments (net of (GBP6.5m) (GBP3.0m)
non-controlling interest effect)
========================================================== =========== ==========
Adjusting item - tax credit (US loss carryback) (GBP13.8m) -
========================================================== =========== ==========
Adjusted earnings GBP22.3m GBP21.8m
========================================================== =========== ==========
Weighted average number of shares
==========================================================
Basic weighted average number of shares outstanding 82.6m 73.6m
========================================================== ==========
Dilutive effect of employee share option
plans 0.5m 1.3m
========================================================== =========== ==========
Diluted weighted average ordinary shares 83.1m 74.9m
========================================================== =========== ==========
Basic earnings per share 17.0p 16.2p
========================================================== ==========
Impact of Adjusting items 10.0p 13.4p
========================================================== =========== ==========
Basic adjusted earnings per share 27.0p 29.6p
========================================================== =========== ==========
Diluted earnings per share 16.9p 15.9p
========================================================== =========== ==========
Diluted adjusted earnings per share 26.9p 29.1p
========================================================== =========== ==========
Dividend
The Board are recommending a final dividend of 5.75 pence
reflecting the strong financial position of the Group after its
2020 year and its first quarter trading in 2021. This delivers a
full year dividend of 8.75 pence and maintains the Group's
progressive dividend policy.
Return on capital employed
Improving the Return on capital employed continues to be a key
target for each of the business units. Overall, the Group saw the
Return on capital employed reduce year-on-year to 21.6% in 2020
from 24.3% in 2019 which reflects the higher level of capital
employed following the acquisition of CSS.
Cash flow and net cash
The Group finished the year end with a significantly higher cash
balance compared to 31 March 2019, of GBP42.3 million (2019:
GBP17.1 million) showing cash improvement of GBP25.2 million. This
was primarily a result of the incremental fundraise in the last
quarter of the financial year which supported the acquisition of
CSS. Cash conversion was 84.4% (2019: 130.5%) with Adjusted cash
generated from operations of GBP40.6 million (2019: GBP50.5
million) down year-on-year reflecting working capital movements.
Adjusting items reduced cash generated from operations by a further
GBP13.1 million to GBP27.5 million (2019: GBP44.8 million).
Cashflow 2020 2019
================================================== =========== ===========
Adjusted EBITDA GBP48.1m GBP38.7m
================================================== =========== ===========
Movements in working capital (GBP7.5m) GBP11.8m
================================================== =========== ===========
Adjusted cash generated from operations GBP40.6m GBP50.5m
================================================== =========== ===========
Adjusting items (GBP13.1m) (GBP5.7m)
================================================== =========== ===========
Cash generated from operations GBP27.5m GBP44.8m
================================================== =========== ===========
Capital expenditure (net of disposals (GBP10.7m) (GBP2.6m)
of property, plant and equipment)
================================================== =========== ===========
Business acquired (including cash on acquisition) (GBP87.7m) (GBP65.6m)
================================================== =========== ===========
Tax paid (GBP4.7m) (GBP3.7m)
================================================== =========== ===========
Interest paid (including Adjusting items) (GBP4.0m) (GBP2.1m)
================================================== =========== ===========
Payments of lease liabilities (GBP6.6m) -
================================================== =========== ===========
Dividends paid (including those paid to (GBP7.1m) (GBP5.7m)
non controlling interests)
================================================== =========== ===========
Proceeds from issue of share capital GBP116.9m GBP48.3m
================================================== =========== ===========
FX and other GBP1.6m (GBP0.7m)
==================================================
Movement in net cash GBP25.2m GBP12.7m
================================================== =========== ===========
Opening net cash GBP17.1m GBP4.4m
================================================== =========== ===========
Closing net cash GBP42.3m GBP17.1m
================================================== =========== ===========
Working capital
The net working capital outflow in the year of GBP7.5 million
(2019: inflow of GBP11.8 million) has been impacted by the timing
of the acquisition of CSS in March 2020 in a similar manner to the
effect the Impact acquisition had in the prior year. In 2020 post
acquisition working capital movements in relation to CSS resulted
in a GBP7.5 million cash inflow, while in 2019 the Impact post
acquisition working capital cash inflow was GBP24.6 million.
Stripping out the effect of the acquisitions on working capital
movements there was an underlying outflow of GBP15 million in 2020
(compared to GBP12.8 million in 2019) primarily reflecting the need
for additional working capital to support the growth of the core
businesses.
In the current Covid-19 environment the Group continues to
actively track debtors and credit risk profiles of all of our
customers to ensure we try to mitigate as far as possible any
additional exposure to credit risk. Doubtful debt write off in the
year was less than 0.2% of revenue (2019: 0.1%), a continued
testament to our proactive approach to dealing with credit
risk.
Capital expenditure
During the year we invested GBP11.1 million (2019: GBP7.9
million). The key projects included, a new, state-of-the-art
printing press in the US, the automated converting line project in
the Netherlands, the second bag line in the UK and ongoing costs in
relation to a new ERP system in the Americas operations.
CSS acquisition and associated share capital issue
In March 2020 the Group acquired 100% of the equity of CSS
Industries, Inc. The deal completed for a total consideration of
$122.8 million including the repayment of the CSS debt at the date
of acquisition. The consideration represented $9.40 per share for
CSS shareholders.
The acquisition was funded through the proceeds of an equity
share placing which took place over two tranches in January and
February 2020, in total raising GBP116.9 million of net proceeds.
Full details of the assets acquired including inventory and brands
can be found in note 28 to the consolidated financial
statements.
Average leverage and banking facilities
Average leverage down to 0.9 times (2019: 1.3 times)
Our business is seasonal in nature requiring the build of
inventory and receivables ahead of the peak Christmas trading
period. As a result, despite starting and ending the financial year
with net cash we trade for a period of our financial year with a
net debt position. As such, Average leverage is the key measure the
Group adopts in relation to cash and working capital management. We
seek to maintain our average leverage position in the range between
1.0 times and 2.0 times over the long term. Average leverage for
the year to 31 March 2020 was 0.9 times, down from 1.3 times in the
prior year. This reflects an improvement in the Adjusted EBITDA
compared to the prior year but also a year-on-year reduction in the
average bank debt from GBP48.8 million in 2019 to GBP34.6 million
in 2020.
Our measure of Average leverage excludes the impact of IFRS 16
and therefore we exclude lease liabilities from our measurement of
debt and also reduce Adjusted EBITDA for lease payments. This
mirrors the approach taken by the banks in measuring leverage for
the purposes of the banking facilities and therefore is considered
the most relevant measure for management to adopt.
Banking facilities renewed and extended during the year
On 5 June 2019, the Group entered into a new three year Group
facility with a club of five banks chosen to reflect and support
the geographical spread of the Group. The banks within the club are
HSBC, NatWest, BNP Paribas, Sun Trust and PNC. On 17 January 2020,
the facility was increased to support the acquisition and working
capital requirements of CSS which completed in March 2020.
The facilities, which run to May 2022, comprises:
- a revolving credit facility ('RCF A') of $95.0 million;
- a further flexible revolving credit facility ('RCF B') with
availability varying from month to month of up to GBP130.0 million.
This RCF is flexed to meet our working capital requirements during
those months when inventory is being built within our annual
business cycle and is GBPnil when not required, minimising carry
costs; and
- an invoice financing arrangement in Hong Kong maximum limit
$18.0 million but dependent on level of eligible receivables
In total, the accessible facilities at approximately GBP212.0
million are more than sufficient to cover our peak requirements.
Being partially framed in US dollars the facilities also provide a
hedge against currency movements. The facilities, which do not
amortise with time, include an additional uncommitted amount to
help finance potential acquisitions.
Invoice financing arrangements are secured over the trade
receivables that they are drawn on. The RCF facilities are secured
with a fixed and floating charge over all other assets of the
Group.
There are financial covenants (measured on pre IFRS16 accounting
definitions), tested quarterly, attached to the existing facilities
as follows:
1. interest cover, being the ratio of adjusted earnings before
interest, tax, depreciation and amortisation (EBITDA) as defined by
the banking facility to interest on a rolling twelve month basis;
and
2. leverage, being the ratio of debt to adjusted EBITDA as
defined by the banking facility on a rolling twelve-month
basis.
There is a further covenant tested monthly in respect of the
working capital RCF by which available asset cover must not fall
below agreed levels relative to amounts drawn.
We also have access to supplier financing arrangements from
certain customers which we utilise at certain times of the
year.
Foreign exchange exposure management
Our foreign exchange ('FX') exposure is split into two
areas:
Translational FX exposure - this exposure is the result of the
requirement for the Group to report its results in one currency.
This necessitates the translation of our regional business units
local currency financial results into the Group's adopted reported
currency. The overall impact on revenue and profits from currency
movements in 2020 when compared to 2019 is not significant. Revenue
in 2019 would have been GBP4.9 million higher if translated at 2020
FX rates, with 2019 Adjusted profit before tax GBP0.3 million
higher.
Following the CSS acquisition in March 2020 and the significant
increased concentration of the Group revenues and earnings to the
US dollar it was announced as part of the acquisition that the
Group would be switching the Group's reporting currency from
sterling to US dollars. This will significantly reduce the
potential exposure of the Group to translational currency movements
going forward.
Transactional FX exposure - this FX exposure is managed
carefully by the Group as it can result in additional cash outflows
if not managed appropriately. In response to this risk the Group
adopt an active hedging policy to ensure further foreign exchange
movements remain mitigated as far as possible. In addition, a
reasonable proportion of this hedging is achieved through natural
hedges whereby our purchases and sales in US dollars are offset.
The balance of our hedging is achieved through forward exchange
contracts and similar derivatives.
New accounting standards
IFRS 16 'Leases' is effective for accounting periods beginning
on or after 1 January 2019 and as such the Group have adopted the
standard in the year to 31 March 2020. The Group have used the
modified retrospective approach resulting in a gross right-of-use
asset as at 31 March 2020 of GBP66.7 million and a corresponding
lease liability as at the same date of GBP76.9 million therefore
reducing net current assets by GBP10.2 million. This includes the
right-of-use assets and lease liabilities in relation to CSS which
were GBP31.8 million and GBP37.0 million respectively on
acquisition. The Group has elected not to recognise right-of-use
assets and lease liabilities for short-term leases or low-value
assets and will continue to expense the lease payments associated
with these leases on a straight-line basis over the term of the
lease. The effect of IFRS 16 on our key metrics can be seen
below;
Impact of IFRS 16 on Key Metrics 2020
===================================
Pre IFRS IFRS 16 Adjusted
16 impact
========== ===========
Adjusted EBITDA GBP40.2m GBP7.9m GBP48.1m
========== ========== ===========
Depreciation (including software (GBP7.7m) (GBP7.0m) (GBP14.7m)
amortisation)
===================================== ========== ========== ===========
Adjusted operating profit GBP32.5m GBP0.9m GBP33.4m
===================================== ========== ========== ===========
Finance expenses (GBP2.7m) (GBP1.6m) (GBP4.3m)
===================================== ========== ========== ===========
Adjusted profit before tax GBP29.8m (GBP0.7m) GBP29.1m
===================================== ========== ========== ===========
Adjusted diluted earnings per share 27.6p (0.7p) 26.9p
===================================== ========== ========== ===========
Financial position and going concern basis
The Group's net assets increased by GBP127.5 million to GBP303.1
million at 31 March 2020 (2019: GBP175.6 million) primarily
reflecting the acquisition of CSS within the 2020 financial
year.
In light of the ongoing Covid-19 pandemic, the Directors have
paid particularly close attention to their assessment of going
concern in preparation of these financial statements. The Group is
well capitalised at the year end with a net cash position of
GBP42.3 million (GBP67.1 million of cash and GBP24.8 million of
bank overdraft excluding loan arrangement fees). The Group is
currently ahead of forecasts which were reviewed in detail during
the year end process in light of Covid-19 and the likely change in
consumer behaviours that could drive our customers to change their
spending with us. These forecasts which have been produced and
reviewed in detail by the Board, and take into account the
significant seasonal working capital cycle of the business, have
been sensitised to reflect severe but plausible adverse downturns
in the current assumptions including the potential for a second
wave of the pandemic later in the year. Management has also
produced a maximum stress forecast which has been deliberately
engineered to challenge the Group's liquidity position and covenant
performance (as detailed above in the banking facilities section)
during the forecast period. These forecasts and additional analysis
demonstrated that the Group has sufficient excess headroom for the
Group to meet its obligations as they fall due for a forecast
period of more than twelve months beyond the date of signing these
accounts. As such, the Directors do not see any practical
regulatory or legal restrictions which would limit their ability to
fund the different regions of the business as required to the
extent of the Group's available resources.
Accordingly, the Directors have continued to adopt the going
concern basis of accounting in preparing the financial
statements.
Alternative performance measures
This review includes alternative performance measures ('APMs')
that are presented in addition to the standard IFRS metrics. The
Directors believe that these APMs provide important additional
information regarding the adjusted performance of the business
including trends, performance and position of the Group. APMs are
used to enhance the comparability of information between reporting
periods and segmental business units by adjusting for exceptional
or uncontrollable factors which affect IFRS measures, to aid the
understanding of the Group's performance. Consequently, APMs are
used by the Directors and management for strategic and performance
analysis, planning, reporting and reward setting. APMs reflect the
results of the business excluding Adjusting items, which are items
that are material and of an unusual or non-recurring nature.
The APMs and the definitions used are listed below:
-- Adjusted EBITDA - EBITDA before Adjusting items
-- Adjusted operating profit - Profit before finance charges, tax and Adjusting items
-- Adjusted profit before tax - Profit before tax and Adjusting items
-- Adjusted profit after tax - Profit after tax before Adjusting
items and associated tax effect
-- Adjusted earnings per share - Fully diluted earnings per
share before Adjusting items and associated tax effect
In addition, the Group uses APMs in order to calculate other key
performance metrics including:
-- Average leverage - Average bank debt (being average debt
measured before lease liabilities) divided by Adjusted EBITDA
reduced for lease payments
-- Cash conversion - Adjusted cash generated from operations divided by Adjusted EBITDA.
-- Adjusted operating margin - Adjusted operating profit divided by revenue
-- Return on capital employed - Adjusted operating profit
divided by monthly average net capital employed (excluding cash and
intangibles)
-- Adjusted interest cover - Finance charges divided by Adjusted
profit before tax (excluding IFRS 16)
Adjusting items
Further details of the items categorised as Adjusting items are
disclosed in more detail in note 3.
A full reconciliation between our adjusted and reported results
is provided below:
APM Reconciliation 2020 2019
===================================== =========== ===========
Adjusted EBITDA GBP48.1m GBP38.7m
Adjusting items (GBP25.7m) (GBP11.3m)
EBITDA GBP22.4m GBP27.4m
------------------------------------- ----------- -----------
Adjusted operating profit GBP33.4m GBP32.6m
Adjusting items (GBP28.8m) (GBP12.9m)
Reported operating profit GBP4.6m GBP19.7m
------------------------------------- ----------- -----------
Adjusted profit before tax GBP29.1m GBP30.3m
Adjusting items (GBP28.8m) (GBP13.0m)
Reported profit before tax GBP0.3m GBP17.3m
------------------------------------- ----------- -----------
Adjusted profit after tax GBP23.2m GBP23.2m
Adjusting items (GBP8.4m) (GBP9.9m)
Reported profit after tax GBP14.8m GBP13.3m
------------------------------------- ----------- -----------
Adjusted earnings per share 26.9p 29.1p
Adjusting items (10.0p) (13.2p)
Reported diluted earnings per share 16.9p 15.9p
===================================== =========== ===========
CONSOLIDATED INCOME STATEMENT
YEARED 31 MARCH 2020
2020 2019
Note GBP000 GBP000
----------------------------------------------------------- ---- --------- ---------
Revenue 2 494,234 448,362
Cost of sales (419,131) (365,533)
----------------------------------------------------------- ---- --------- ---------
Gross profit 75,103 82,829
Selling expenses (26,523) (23,095)
Administration expenses (46,409) (40,590)
Other operating income 5 735 620
Profit/(loss) on disposal of property, plant and equipment 188 (6)
Profit on disposal of subsidiary 28 1,486 -
Operating profit 3 4,580 19,758
Finance expenses 6 (4,317) (2,476)
----------------------------------------------------------- ---- --------- ---------
Profit before tax 263 17,282
Income tax credit/(charge) 7 14,547 (4,031)
----------------------------------------------------------- ---- --------- ---------
Profit for the year 14,810 13,251
----------------------------------------------------------- ---- --------- ---------
Attributable to:
Owners of the Parent Company 14,060 11,925
Non-controlling interests 750 1,326
----------------------------------------------------------- ---- --------- ---------
Earnings per ordinary share
Note 2020 2019
-------- ---- ----- -----
Basic 21 17.0p 16.2p
-------- ---- ----- -----
Diluted 21 16.9p 15.9p
-------- ---- ----- -----
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEARED 31 MARCH 2020
2020 2019
GBP000 GBP000
-------------------------------------------------- ------ ------
Profit for the year 14,810 13,251
Other comprehensive income:
Exchange difference on translation of foreign
operations (net of tax) 5,450 240
Recycling translation reserves on disposal of
subsidiary 34 -
Transfer to profit and loss on maturing cash
flow hedges (net of tax) (377) (232)
Net unrealised gain on cash flow hedges (net
of tax) 517 377
--------------------------------------------------- ------ ------
Other comprehensive income for the year, net
of tax items which may be reclassified to profit
and loss in subsequent periods 5,624 385
--------------------------------------------------- ------ ------
Total comprehensive income for the year, net
of tax 20,434 13,636
Attributable to:
Owners of the Parent Company 19,976 12,372
Non-controlling interests 458 1,264
--------------------------------------------------- ------ ------
20,434 13,636
-------------------------------------------------- ------ ------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEARED 31 MARCH 2020
Attributable to the owners of the Parent Company
------------------------------------------------------------
Share
premium
and Non-
capital
-------------
Share redemption Merger Hedging Translation Retained Shareholders' controlling
--------
capital reserve reserve reserve reserve earnings equity interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ------- ---------- ------- ------- ----------- -------- ------------- ----------- --------
At 1 April 2018 3,194 9,815 17,164 (27) 1,305 65,404 96,855 3,661 100,516
Profit for the year - - - - - 11,925 11,925 1,326 13,251
Other comprehensive income - - - 145 302 - 447 (62) 385
--------------------------- ------- ---------- ------- ------- ----------- -------- ------------- ----------- --------
Total comprehensive income
for the year - - - 145 302 11,925 12,372 1,264 13,636
Transactions with owners in
their capacity as owners
Equity-settled share-based
payments (note 23) - - - - - 2,333 2,333 - 2,333
Tax on equity-settled
share-based payments (note
11) - - - - - 764 764 - 764
Recognition of
non-controlling interests
(note 27) - - - - - - - 311 311
Disposal of non-controlling
interests (note 28) - - - - - - - (110) (110)
Shares issued (restated)
(note 20) 641 47,830 15,235 - - - 63,706 - 63,706
Options exercised (note 20) 83 18 - - - (72) 29 - 29
Equity dividends paid (note
22) - - - - - (4,553) (4,553) (1,075) (5,628)
--------------------------- ------- ---------- ------- ------- ----------- -------- ------------- ----------- --------
At 31 March 2019 (restated) 3,918 57,663 32,399 118 1,607 75,801 171,506 4,051 175,557
Impact of adopting IFRS 16
(note 10) - - - - - (1,867) (1,867) (440) (2,307)
--------------------------- ------- ---------- ------- ------- ----------- -------- ------------- ----------- --------
Restated equity at 1 April
2019 3,918 57,663 32,399 118 1,607 73,934 169,639 3,611 173,250
Profit for the year - - - - - 14,060 14,060 750 14,810
Other comprehensive income - - - 140 5,776 - 5,916 (292) 5,624
--------------------------- ------- ---------- ------- ------- ----------- -------- ------------- ----------- --------
Total comprehensive income
for the year - - - 140 5,776 14,060 19,976 458 20,434
Transactions with owners in
their capacity as owners
Equity-settled share-based
payments (note 23) - - - - - (231) (231) - (231)
Tax on equity-settled
share-based payments (note
11) - - - - - 171 171 - 171
Derecognition of
non-controlling interests
(note 27) - - - - - - - (325) (325)
Shares issued (note 20) 864 116,060 - - - - 116,924 - 116,924
Options exercised (note 20) 36 - - - - (36) - - -
Equity dividends paid (note
22) - - - - - (7,104) (7,104) - (7,104)
--------------------------- ------- ---------- ------- ------- ----------- -------- ------------- ----------- --------
At 31 March 2020 4,818 173,723 32,399 258 7,383 80,794 299,375 3,744 303,119
--------------------------- ------- ---------- ------- ------- ----------- -------- ------------- ----------- --------
Merger reserve
The merger reserve comprises premium on shares issued in
relation to business combinations.
Capital redemption reserve
The capital redemption reserve comprises amounts transferred
from retained earnings in relation to the redemption of preference
shares. For ease of presentation, the amount of GBP1.34 million
relating to the capital redemption reserve has been included within
the column of share premium and capital redemption reserve in the
balances at both the beginning and end of each year, with no
movements during the year.
Hedging reserve
The hedging reserve comprises the effective portion of the
cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that qualify for hedge
accounting and have not yet matured.
Translation reserve
The translation reserve comprises all foreign currency
differences arising from the translation of the financial
statements of foreign operations.
Shareholders' equity
Shareholders' equity represents total equity attributable to
owners of the Parent Company.
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2020
Restated(a) Restated(a)
2020 2019 2018
Note GBP000 GBP000 GBP000
---------------------------------------------------- ---- ------- ----------- -----------
Non-current assets
Property, plant and equipment 8 74,695 39,835 35,499
Intangible assets 9 113,309 85,002 36,547
Right-of-use assets 10 66,728 - -
Long-term assets 13 5,019 - -
Deferred tax assets 11 14,624 3,610 2,663
---------------------------------------------------- ---- ------- ----------- -----------
Total non-current assets 274,375 128,447 74,709
---------------------------------------------------- ---- ------- ----------- -----------
Current assets
Inventory 12 114,445 69,571 49,311
Trade and other receivables 13 88,748 49,724 42,386
Income tax receivable 14,820 - -
Derivative financial assets 24 332 129 113
Cash and cash equivalents 14 67,098 85,315 42,196
---------------------------------------------------- ---- ------- ----------- -----------
Total current assets 285,443 204,739 134,006
---------------------------------------------------- ---- ------- ----------- -----------
Total assets 2 559,818 333,186 208,715
---------------------------------------------------- ---- ------- ----------- -----------
Equity
Share capital 20 4,818 3,918 3,194
Share premium 172,383 56,323 8,475
Capital redemption reserve 1,340 1,340 1,340
Merger reserve 32,399 32,399 17,164
Hedging reserve 258 118 (27)
Translation reserve 7,383 1,607 1,305
Retained earnings 80,794 75,801 65,404
---------------------------------------------------- ---- ------- ----------- -----------
Equity attributable to owners of the Parent Company 299,375 171,506 96,855
---------------------------------------------------- ---- ------- ----------- -----------
Non-controlling interests 3,744 4,051 3,661
---------------------------------------------------- ---- ------- ----------- -----------
Total equity 303,119 175,557 100,516
---------------------------------------------------- ---- ------- ----------- -----------
Non-current liabilities
Loans and borrowings 15 (177) 1,421 3,781
Lease liabilities 10 63,241 - -
Deferred income 16 452 751 998
Provisions 17 4,163 2,671 894
Other financial liabilities 18 5,471 1,817 1,440
Deferred tax liabilities 11 1,059 692 373
---------------------------------------------------- ---- ------- ----------- -----------
Total non-current liabilities 74,209 7,352 7,486
---------------------------------------------------- ---- ------- ----------- -----------
Current liabilities
Bank overdraft 14 25,004 65,857 33,165
Loans and borrowings 15 (2) 953 894
Lease liabilities 10 13,705 - -
Deferred income 16 131 99 99
Provisions 17 2,191 1,090 429
Income tax payable 4,399 4,771 3,364
Trade and other payables 19 98,357 58,563 38,757
Other financial liabilities 18 38,705 18,944 24,005
---------------------------------------------------- ---- ------- ----------- -----------
Total current liabilities 182,490 150,277 100,713
---------------------------------------------------- ---- ------- ----------- -----------
Total liabilities 2 256,699 157,629 108,199
---------------------------------------------------- ---- ------- ----------- -----------
Total equity and liabilities 559,818 333,186 208,715
---------------------------------------------------- ---- ------- ----------- -----------
(a) The balance sheet for the year ended 31 March 2018 and 2019
have been restated to present cash balances and overdraft financial
liabilities gross, along with customer program provisions within
trade and other payables (previously netted within trade and other
receivables). See Note 1 for more information.
CONSOLIDATED CASH FLOW STATEMENT
YEARED 31 MARCH 2020
Restated(a)
2020 2019
Note GBP000 GBP000
------------------------------------------------------------------- ---- -------- -----------
Cash flows from operating activities
Profit for the year 14,810 13,251
Adjustments for:
Depreciation and impairment 8 6,994 5,328
Depreciation of right-of-use assets 10 7,014 -
Amortisation of intangible assets 9 3,796 2,309
Finance expenses 6 4,317 2,476
Income tax (credit)/charge 7 (14,547) 4,031
Profit on disposal of subsidiary 28 (1,486) -
Profit on disposal of property, plant and equipment (188) (6)
Loss on disposal of intangible fixed assets 1 331
Equity-settled share-based payments 23 (202) 3,005
------------------------------------------------------------------- ---- -------- -----------
Operating profit after adjustments for non-cash items 20,509 30,725
Change in trade and other receivables 629 25,616
Change in inventory 705 6,508
Change in trade and other payables, provisions and deferred income 5,913 (18,086)
Cash generated from operations 27,756 44,763
Tax paid (4,749) (3,694)
Interest and similar charges paid (3,996) (2,053)
------------------------------------------------------------------- ---- -------- -----------
Net cash inflow from operating activities 19,011 39,016
------------------------------------------------------------------- ---- -------- -----------
Cash flow from investing activities
Proceeds from sale of property, plant and equipment 595 5,312
Acquisition of businesses (net of cash acquired) 28 (87,696) (65,601)
Acquisition of intangible assets 9 (2,997) (2,190)
Acquisition of property, plant and equipment 8 (8,133) (5,699)
Net cash outflow from investing activities (98,231) (68,178)
------------------------------------------------------------------- ---- -------- -----------
Cash flows from financing activities
Proceeds from issue of share capital 20 116,924 48,348
Repayment of secured borrowings 14 (1,505) (2,350)
Net movement in previous credit facilities 37,976 -
Repayment of previous credit facilities (37,976) -
Payment of lease liabilities (6,622) -
Loan arrangement fees 14 (1,234) (30)
Equity dividends paid 22 (7,104) (4,553)
Dividends paid to non-controlling interests - (1,075)
------------------------------------------------------------------- ---- -------- -----------
Net cash inflow from financing activities 100,459 40,340
------------------------------------------------------------------- ---- -------- -----------
Net increase in cash and cash equivalents 21,239 11,178
Cash and cash equivalents at beginning of the year 14 19,458 9,031
Effect of exchange rate fluctuations on cash held 1,397 (751)
------------------------------------------------------------------- ---- -------- -----------
Cash and cash equivalents at end of the year 14 42,094 19,458
------------------------------------------------------------------- ---- -------- -----------
(a) The cash flow for the year ended 31 March 2019 has been
restated to in line with the restatements made within the balance
sheet as described above See Note 1 for more information.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARED 31 MARCH 2020
1 Accounting policies
a. Basis of Preparation
The Financial Statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs), as issued by
the International Accounting Standards Board (IASB), and
interpretations issued by the IFRS Interpretations Committee and
with the Companies Act 2006, as applicable to companies reporting
under IFRS. The Financial Statements have also been prepared in
accordance with IFRSs adopted by the European Union. The Company
has elected to prepare its individual company financial statements
in accordance with Financial Reporting Standard 102 ('FRS
102').
The financial statements are prepared under the historical cost
convention except for derivatives which are stated at fair value
and retirement benefit obligations which are valued in accordance
with IAS 19 Employee Benefits.
The preparation of financial statements that conform with
adopted IFRS requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of income and
expense during the reporting period. Although these estimates are
based on management's best knowledge of the amount, event or
actions, actual results may ultimately differ from those
estimates.
For the purposes of these financial statements 'Design Group' or
'the Group' means IG Design Group plc ('the Company') and its
subsidiaries. The Company's ordinary shares are listed on the
Alternative Investment Market ('AIM').
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised and future periods if
relevant.
The accounting policies used in the preparation of these
financial statements are detailed below. These policies have been
consistently applied to all periods presented.
In the preparation of these financial statements, comparative
amounts have been restated to reflect the following:
-- the shares issued in the year ended 31 March 2019 as
consideration for the acquisition of Impact qualified for merger
relief in accordance with the Companies Act 2006 (Section 612).
Accordingly, for the year ended 31 March 2019, the Group have
restated GBP15.2 million from the share premium reserve to the
merger reserve. This has no overall impact on the total equity and
reserves for the Group;
-- the provisional Impact Innovations Inc. ("Impact")
acquisition accounting (note 28) has been reviewed and hindsight
adjustments made to goodwill (GBP2.0 million increase), intangibles
(GBP0.7 million decrease) and provisions (GBP1.3 million increase).
These have been adjusted in the comparative balance sheet;
trade and other receivable balances have historically included
amounts provided against customer programmes including sell-through
programmes presenting trade receivables on a net basis in the
Group's consolidated balance sheet. These have been updated to
restate the prior year balance sheet to present these balances on a
gross basis within Trade and other payables. Trade and other
receivables have been restated from GBP45.5 million to GBP49.7
million as at 31 March 2019. The corresponding adjustment has also
been made in trade and other payables.
-- cash balances and overdraft financial liabilities have been
historically incorrectly offset within the Group's financial
statements and presented on a net basis within the Group's
consolidated balance sheet. This has been updated to restate the
prior year balance sheet to present the respective balances on a
gross basis. Cash and cash equivalents have been restated from
GBP19.5 million to GBP85.3 million as at 31 March 2019. Additional
detail within the balance sheet shows the bank overdraft amounts as
at 31 March 2019 (GBP65.9 million); and
-- previously, segmental assets and liabilities were incorrectly
presented within the segmental information note (note 2). In order
to correct this, the respective segmental assets and liabilities
have been updated to reflect reallocations from the UK segment to
the central and eliminations segment, and similarly, from the
Australia segment to the US segment to reflect the correct
allocation of assets and liabilities between the Group segments. In
addition, segments have been restated to appropriately reflect
investments held by each segment as well as the gross up of cash
balances detailed above.
The restated segment assets as at 31 March 2019 are as
follows:
Original Restated
balance balance
Segment GBP000 GBP000
----------------------- -------- --------
UK 188,766 100,079
Europe 19,240 36,738
USA 36,306 117,144
Australia 13,776 17,198
Central & eliminations 3,610 62,027
----------------------- -------- --------
Total 261,698 333,186
----------------------- -------- --------
The restated segment liabilities as at 31 March 2019 are as
follows:
Original Restated
balance balance
Segment GBP000 GBP000
----------------------- -------- ---------
UK (28,295) (34,366)
Europe (10,457) (20,136)
USA (35,931) (88,382)
Australia (7,396) (8,284)
Central & eliminations (4,062) (6,461)
----------------------- -------- ---------
Total (86,141) (157,629)
----------------------- -------- ---------
In addition, a number of disclosure notes have been re-presented
to reflect corrected presentation and categorisation. These
include:
-- Operating lease minimum payments as disclosed in note 3 were
disclosed in the prior year incorrectly. The prior year disclosure
has been updated for the purposes of these financial
statements.
-- In the previous financial statements asset, which had been
acquired following the acquisition of The Lang Companies Inc. had
been disposed of using the historic cost and accumulated
depreciation rather than the revised cost and accumulated
depreciation post-acquisition. As such, the brought forward cost
and accumulated depreciation have been restated to reflect the
corrected position. The net book value of these assets remains
unchanged.
-- In the year, software previously categorised as fixtures and
fittings have been reclassified to intangibles.
-- The categorisation of deferred tax balances has been
re-presented for the purposes of brought forward balances in these
financial statements. The overall net deferred tax balances
presented in the balance sheet are not impacted by this
re-presentation.
-- From this financial year, the Group have adjusted their
assumptions as to the shares that are to be included in the
calculation of the weighted average number of shares for diluted
and basic earnings per share purposes. As such the numbers detailed
in respect of 2019 have been re-presented using the same
methodology in order to provide appropriate comparatives.
Going Concern
Note 24 to the financial statements includes the Group's
objectives, policies and processes for managing its capital, its
financial risk management objectives, details of its financial
instruments and hedging activities and exposures to credit, market
and liquidity risk. Cash balances and borrowings are detailed in
notes 14 and 15.
On 5 June 2019, to meet the funding requirements of the Group,
the business refinanced with a banking group comprising HSBC,
NatWest, BNP Paribas, Sun Trust and PNC Bank as part of a three
year deal. This facility was then subsequently amended and extended
on 17 January 2020 with the same banking group to accommodate the
acquisition of CSS Industries Inc. The facilities run to May 2022
and comprise of a revolving credit facility ('RCF') of $95.0
million , a further flexible RCF of up to GBP130.0 million flexible
to meet the Group's working capital requirements during peak
manufacturing, and a maximum limit of $18.0 million invoice
financing arrangement in Hong Kong. We also have access to supplier
financing arrangements from certain customers which we utilise at
certain times of the year. These arrangements are subject to the
continuing support of the customers banking partners and therefore
could be withdrawn at short notice.
The Directors have prepared detailed plans and forecasts for a
period of at least twelve months from the date of signing these
financial statements. The plans reflect the seasonal operating
cycle of the business and assume continuity of supply chain. They
also benefit from the diverse geographic spread of the Group and
the high proportion of revenues generated from retailers who have
remained open during the Covid-19 crisis. The base case forecasts
broadly assumes a first quarter of general lockdown in all
territories with a recovery over the remainder of the year but to a
generally recessionary environment. As noted in the trading update
for quarter one, business has exceeded the base forecast in the
first quarter. The forecasts show the Group have more than
sufficient liquidity. In light of the ongoing Covid-19 pandemic,
these forecasts have been sensitised to reflect severe but
plausible adverse downturns in the current assumptions including
the potential for a second wave of the pandemic later in the year
have been sensitised for reflect adverse downturns in the current
assumptions alongside the potential for a second wave of the
pandemic later in the year. Management has also produced a maximum
stress forecast which has been deliberately engineered to challenge
the Group's liquidity and leverage covenant positions during the
forecast period. Further analysis has been prepared in relation to
the mitigating actions open to the Group in the event of a scenario
which is worse than the sensitivities already modelled. These
mitigating actions include short term sales action, cutting
discretionary spend further, headcount reductions and reduction in
investment such as capex.
These forecasts and additional analysis including mitigating
actions demonstrated that the Group has sufficient excess headroom
for the Group to meet its obligations as they fall due for a
forecast period of more than twelve months beyond the date of
signing these accounts.
Based on these models, and taking into consideration the risks
detailed in note 24, the Directors have a reasonable expectation
that the Company has adequate resources to continue in operational
existence for the foreseeable future, and accordingly have adopted
the going concern basis in preparing the consolidated financial
statements. This disclosure has been prepared in accordance with
the Financial Reporting Council's UK Corporate Governance Code.
Changes in accounting policies
In the current financial year, the Group adopted the following
pronouncements:
IFRS 16 Leases
The Group has adopted IFRS 16 Leases from 1 April 2019. The
Group has decided to adopt the modified retrospective approach on
transition. Under this approach, comparative information is not
restated and the impact of adopting IFRS 16 is presented as an
opening retained earnings adjustment as at 1 April 2019. The net
impact on retained earnings on 1 April 2019 was a decrease of
GBP2.3 million.
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the lessee's incremental borrowing
rate as of 1 April 2019.
Under the modified retrospective approach right -- of -- use
assets are measured at either:
-- their carrying amount as if IFRS 16 had been applied since
the lease commencement date, discounted by the lessee's incremental
borrowing rate as at 1 April 2019. The Group has applied this
methodology to 51 of its leases where sufficient historical
information has been available to facilitate this; or
-- an amount equal to the lease liability, adjusted by the
amount of any prepaid or accrued lease payments. This has been
applied to a small number of property leases where it was not
possible to ascertain sufficient historical data to enable a
retrospective calculation. This method has also been applied to the
majority of the Group's non-property leases, comprising of motor
vehicles, equipment, plant and machinery.
i) Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
-- reliance on previous assessments on whether leases are
onerous - there were no onerous contracts as at 1 April 2019;
-- the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application; and
-- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
The Group has also elected not to reassess whether a contract
is, or contains a lease at the date of initial application.
Instead, for contracts entered into before the transition date, the
Group relied on its assessment made when applying IAS 17 and IFRIC
4 Determining Whether an Arrangement Contains a Lease.
ii) The Group's leasing activities and how these are accounted for
The Group leases various offices, warehouses, equipment and
motor vehicles. Rental contracts are typically made for fixed
periods of one to 20 years but may have extension options as
described below. Lease terms are negotiated on an individual basis
and contain a wide range of different terms and conditions. The
lease agreements do not impose any covenants, but leased assets may
not be used as security for borrowing purposes.
Until 31 March 2019, leases of property, plant and equipment
were classified as either finance or operating leases. Payments
made under operating leases (net of any incentives received from
the lessor) were charged to the income statement on a straight-line
basis over the period of the lease.
From 1 April 2019, leases are recognised as a right-of-use asset
and a corresponding liability at the date at which the leased asset
is available for use by the Group. Each lease payment is allocated
between the liability and finance cost. The finance cost is charged
to the income statement over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the
liability for each period. The right-of-use asset is depreciated
over the shorter of the asset's useful life and the lease term on a
straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
-- variable lease payments that are based on an index or a rate;
-- amounts expected to be payable by the lessee under residual value guarantees;
-- the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option; and
-- payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
lessee's incremental borrowing rate is used, being the rate that
the lessee would have to pay to borrow the funds necessary to
obtain an asset of similar value in a similar economic environment
with similar terms and conditions. The weighted average incremental
borrowing rate applied by the Group upon transition was 3.9%.
Incremental borrowing rates applied to individual leases ranged
between 1.3% and 5.3%.
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement date
less any lease incentives received;
-- any initial direct costs; and
-- restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in the income statement. Short-term leases are leases with
a lease term of twelve months or less. The Group has certain assets
which may include variable lease payments based on usage, although
this is a small proportion of the Group's assets. The variable
lease payments are not material for the Group.
iii) Extension and termination options
Extension and termination options are included in a number of
property and equipment leases across the Group.
These terms are used to maximise operational flexibility in
terms of managing contracts. The majority of extension and
termination options held are exercisable only by the Group and not
by the respective lessor.
In determining the lease term, management considers all facts
and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in
the lease term if the lease is reasonably certain to be extended
(or not terminated).
The assessment is reviewed if a significant event or a
significant change in circumstances occurs which affects this
assessment and that is within the control of the lessee.
Impact on the financial statements
The impact of the change in accounting policy on the balance
sheet (increase/(decrease)) as at 1 April 2019 is as follows:
GBPm
-------------------------- ------
Right-of-use assets 35.5
Deferred tax assets 0.8
Lease liabilities (40.1)
Other liabilities 1.5
Net impact on equity (2.3)
------------------------- ------
b. Basis of Consolidation
Other standards and interpretations
The Group also adopted the following new pronouncements during
2019, which did not have any material impact on the Group's
financial statement:
-- Amendments to IAS 19 Plan Amendment, Curtailment or
Settlement specify that in the event of a plan amendment,
curtailment or settlement during a reporting period, an entity is
required to use updated information to determine current service
cost and net interest for the period following such an event.
-- IFRIC 23 Uncertainty over Income Tax Treatments addresses how
to reflect uncertainty in accounting for income taxes, providing
guidance on considering uncertain tax treatments separately or
together, examination by tax authorities, the appropriate method to
reflect uncertainty and accounting for changes in facts and
circumstances.
-- Amendments to IFRS 3 revising the definition of a business.
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control
exists when Group is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to
affect those returns through its power over the investee. The
financial statements of subsidiaries are included in the financial
statements from the date that control commences until the date that
control ceases.
(ii) Transactions eliminated on consolidation
Intragroup balances and any unrealised gains and losses or
income and expense arising from intragroup transactions are
eliminated in preparing the consolidated financial statements.
(iii) Business Combinations
Business combinations are accounted for using the acquisition
method as at the date on which control is transferred to the
Group.
For acquisitions on or after 1 January 2010, the Group measures
goodwill at the acquisition date as:
-- the fair value of the consideration transferred; plus
-- the recognised amount of any non -- controlling interests in the acquiree; plus
-- if the business combination is achieved in stages, the fair
value of the existing equity interest in the acquiree; less
-- the net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
When the result is negative, a 'bargain purchase' gain is
recognised immediately in the income statement.
Provisional fair values allocated at a reporting date are
finalised within twelve months of the acquisition date.
c. Foreign Currency
Items included in the financial statements of the Group's
subsidiaries are measured using the currency of the primary
economic environment in which the subsidiary operates ('functional
currency'). The consolidated financial statements are prepared in
pounds sterling (functional currency of the parent company).
(i) Foreign currency transactions
Transactions in foreign currencies are recorded at the rate of
exchange at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet
date are translated into sterling at the exchange rate prevailing
at that date and recognised in the income statement unless hedge
accounting criteria apply (see policy for financial
instruments).
(ii) Financial statements of foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation, are
translated into sterling at the exchange rate prevailing at the
balance sheet date. The revenues and expenses of foreign operations
are translated at an average rate for the period where this rate
approximates to the foreign exchange rates prevailing at the dates
of the transactions.
The Company intends to change the presentation currency of the
Group from pound sterling to US dollars effective 1 April 2020.
Following the acquisition of CSS Industries Inc., a significant
majority of the Group earnings is now denominated in US dollars.
Management believes that the presentation currency change will give
investors and other stakeholders a clearer understanding of the
Design Group's financial performance over time. In addition, the
change will reduce the volatility of the Group's earnings due to
foreign exchange movements, in relation to the translation of
foreign currency balances.
(iii) Net investment in foreign operations
Exchange differences on retranslation at the closing rate of the
opening balances of overseas entities are taken to other
comprehensive income, as are exchange differences arising on
related foreign currency borrowings and derivatives designated as
qualifying hedges, to the extent that they are effective. They are
released into the income statement upon disposal or loss of control
and on maturity or disposal of the hedge respectively. Exchange
differences arising from a monetary item receivable from or payable
to a foreign operation, the settlement of which is neither planned
nor likely in the foreseeable future, are considered to form part
of a net investment in a foreign operation and are recognised in
other comprehensive income in the translation reserve. The
cumulative translation differences previously recognised in other
comprehensive income (or where the foreign operation is part of a
subsidiary, the parent's interest in the cumulative translation
differences) are released into the income statement upon disposal
of the foreign operation or on loss of control of the subsidiary
that includes the foreign operation. Other exchange differences are
taken to the income statement.
d. Financial Instruments
Interest bearing loans and borrowings and other financial
liabilities (excluding derivatives) are held at amortised cost,
unless they are included in a hedge accounting relationship.
Derivatives are measured initially at fair value. Subsequent
measurement in the financial statements depends on the
classification of the derivative as follows:
(i) Fair value hedges
Where a derivative is used to hedge the foreign exchange
exposure of a monetary asset or liability, any gain or loss on the
derivative is recognised in the income statement.
(ii) Cash flow hedges
Where a derivative is designated as a hedging instrument in a
cash flow hedge, the change in fair value is recognised in other
comprehensive income to the extent that it is effective and any
ineffective portion is recognised in the income statement. Where
the underlying transaction results in a financial asset,
accumulated gains and losses are recognised in the income statement
in the same period as the hedged item affects profit or loss. Where
the hedged item results in a non-financial asset the accumulated
gains and losses previously recognised in other comprehensive
income are included in the initial carrying value of the asset.
(iii) Unhedged derivatives
Unhedged derivatives are charged/credited to the income
statement.
e. Cash and cash equivalents
Cash and cash equivalents comprise cash balances. Bank
overdrafts repayable on demand and form an integral part of the
Group's cash management and are included as part of cash and cash
equivalents in the statement of cash flows.
f. Loans and borrowings
Loans and borrowings are initially measured at cost (which is
equal to fair value at inception) and are subsequently measured at
amortised cost using the effective interest method.
g. Trade and other receivables
Trade receivables are initially recognised at fair value and
subsequently measured at amortised cost, which is generally
equivalent to recognition at nominal value less impairment loss
calculated using the expected loss model.
The Group applies a simplified model to recognise lifetime
expected credit losses for its trade receivables and other
receivables, including those due in greater than 12 months, by
making an accounting policy election. For any receivables not
expected to be paid, an expected credit loss of 100% is recognised
at the point this expectation arises. For all other receivables,
the expected loss is calculated based on reasonable and supportable
information that is relevant and available without undue cost or
effort. This includes both quantitative and qualitative information
and analysis, based on the Group's historical experience and
informed credit assessment and including forward -- looking
information.
h. Trade and other payables
Trade payables are non-interest bearing and are recognised
initially at fair value and subsequently at amortised cost.
i. Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses. Where parts of an
item of property, plant and equipment or other assets have
different useful lives, they are accounted for as separate items.
The carrying values of property, plant and equipment and other
assets are periodically reviewed for impairment when events or
changes in circumstances indicate that the carrying values may not
be recoverable.
Property, plant and equipment are depreciated over their
estimated remaining useful lives on a straight line basis using the
following estimated useful lives:
Land and buildings -- Freehold land Not depreciated
Land and buildings -- Buildings 25-30 years or life of lease
Plant and equipment 4 -25 years
Fixtures and fittings 3-5 years
Motor vehicles 4 years
The assets' useful lives and residual values are reviewed, and
adjusted if appropriate, at each balance sheet date. Included
within plant and equipment are assets with a range of depreciation
rates. These rates are tailored to the nature of the assets to
reflect their estimated useful lives.
j. Lease liabilities and lease right-of-use assets
Rentals associated with leases that are of low-value or less
than 12 months in length are expensed to the income statement on a
straight line basis. The associated lease incentives are amortised
in the income statement over the life of the lease.
Leases greater than 12 months in length, and those not of
low-value, are recognised as a lease right-of-use asset with the
associated future lease payment terms recognised as a lease
liability. The right-of-use assets and the associated lease
liabilities are recognised by unwinding the future lease payments
at the rate implicit to the lease or, if the rate implicit to the
lease cannot be readily determined, at the relevant incremental
borrowing rate.
The lease right-of-use assets are amortised over their useful
economic lives or the lease term, whichever is shorter. The lease
liabilities are derecognised by applying the future lease
payments.
On acquisition, right-of-use assets and lease liabilities are
recognised in accordance with IFRS 16. The acquired lease liability
is measured as if the lease contract was a new lease at the
acquisition date. The right-of-use asset is measured at an amount
equal to the recognised lease liability. The right-of-use asset is
adjusted to reflect any favourable or unfavourable terms of the
lease relative to market terms.
k. Intangible assets
(i) Goodwill
Goodwill is stated at cost less any impairment losses.
Acquisitions are accounted for using the purchase method. For
acquisitions that have occurred since 1 January 2004, goodwill
represents the difference between the fair value of the assets
given in consideration and the fair value of identifiable assets,
liabilities and contingent liabilities of the acquiree. For
acquisitions made before 1 January 2004, goodwill is included on
the basis of its deemed cost, which represents the amount
previously recorded under UK GAAP.
The Group has expensed costs attributable to acquisitions in the
income statement. Given their one-off nature, these costs are
generally presented within adjusting items.
(ii) Acquired intangible assets
An intangible asset acquired in a business combination is
recognised at fair value to the extent it is probable that the
expected future economic benefits attributable to the asset will
flow to the Group and that its cost can be measured reliably.
Intangible assets principally relate to customer relationships,
which are valued using discounted cash flows based on historical
customer attrition rates, and trade names / brand, which is valued
using an income approach. The cost of intangible assets is
amortised through the income statement on a straight line basis
over their estimated useful economic life and as these are assets
directly attributed to the acquisition of a business, the
amortisation costs are also presented within adjusting items.
(iii) Other intangible assets
Other intangible assets which are not acquired through a
business combination ("non-acquired intangible assets") are
recognised at cost to the extent it is probable that the expected
future economic benefits attributable to the asset will flow to the
Group and that its cost can be measured reliably, and amortised on
a straight line basis over their estimated useful economic
life.
Intangibles are amortised over their estimated remaining useful
lives on a straight line basis as follows:
Goodwill Not amortised
Customer relationships 3-15 years
Trade names / brands 3-5 years
Other intangibles -- software 3-5 years
Customer relationships are wide ranging in useful economic lives
predominantly due to the long relationships with Walmart acquired
as part of the acquisition of Impact Innovations, Inc.
l. Impairment
All assets are reviewed regularly to determine whether there is
any indication of impairment. Goodwill is tested for impairment
annually.
An impairment loss is recognised whenever the carrying amount of
a non-financial asset or the cash generating unit to which it
belongs exceeds its recoverable amount, being the greater of value
in use and fair value less costs to sell, and is recognised in the
income statement. Value in use is estimated based on future cash
flows discounted using a pre-tax discount rate based upon the
Group's weighted average cost of capital.
Financial assets were assessed for impairment using the expected
credit loss model which requires expected credit losses and changes
to expected credit losses at each reporting date to reflect changes
in credit risk since initial recognition.
m. Inventories
Inventories are valued at the lower of cost (on a weighted
average basis) and net realisable value. For work-in-progress and
finished goods, cost includes an appropriate proportion of labour
cost and overheads based on normal operating capacity.
n. Income tax
Income tax in the income statement comprises current and
deferred tax. Income tax is recognised in the income statement
except to the extent that it relates to items recognised in equity
or other comprehensive income.
Current tax is the expected tax payable on the taxable income
for the year using the applicable tax rates enacted or
substantively enacted at the balance sheet date and any adjustment
to tax payable in prior years. Deferred tax is provided, using the
balance sheet liability method, on temporary differences arising
between the tax bases and the carrying amounts of assets and
liabilities in the financial statements. The following temporary
differences are not provided for: initial recognition of goodwill
not deductible for tax purposes, the initial recognition of assets
or liabilities that affect neither accounting nor taxable profit or
loss other than in a business combination, and differences relating
to investments in subsidiaries to the extent that they will not
reverse in the foreseeable future. Deferred tax is determined using
tax rates that are expected to apply when the related deferred tax
asset or liability is settled, using the applicable tax rates
enacted or substantively enacted at the balance sheet dates.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profit will be available against which
the asset can be utilised. Deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefits
will be realised.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
liabilities and when they relate to income taxes levied by the same
tax authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
o. Revenue
Revenue from the sale of goods is recognised in the income
statement net of expected discounts, rebates, refunds, credits,
price concessions or other similar items, when the associated
performance obligation has been satisfied, and control of the goods
has been transferred to the customer.
The Group recognise revenue on sales of Celebration, Craft &
creative play, Stationery, Gifting and 'Not-for-resale' consumable
products across four geographical segments. Typically the products
that we supply form the only performance obligations within a
customer agreement, and although the Group can provide ancillary
services such as merchandising, these are not separately
identifiable obligations on the basis of materiality. Each customer
arrangement/contract is assessed to identify the performance
obligations being provided to the customer. Where distinct
performance obligations are deemed to exist, an element of revenue
is apportioned to that obligation.
Revenue from these sales is recognised based on the price
specified in the contract, net of any estimated volume discounts,
rebates and sell-through provisions. Accumulated experience is used
to estimate and provide for these discounts, using the expected
value method, and revenue is only recognised to the extent that it
is highly probable that a significant reversal will not occur. A
refund liability (included in trade and other payables) is
recognised for these items payable to customers in relation to
sales made until the end of the reporting period. No significant
element of financing is deemed present as the sales are made with
credit terms of 30 - 60 days, which is consistent with market
practice.
A significant part of the Group's businesses sell goods on an
'free-on-board' ('FOB') basis, where the Group as the seller makes
its goods ready for collection at its premises on an agreed upon
sales date and the buyer incurs all transportation and handling
costs and bears the risks for bringing the goods to their chosen
destination. Revenue is recognised on collection by the
customer.
Where the Group operates non FOB terms with customers, revenue
is recognised when the control of the goods has been transferred to
the customer. These terms include consignment stock agreements,
where revenue is recognised upon the customer removing goods from
consignment stock.
p. Finance income and expense
Finance income and expense is recognised in the income statement
as it accrues. Finance expenses comprise interest payable, finance
charges on finance leases, amortisation of capitalised fees, and
unwinding of discounts on provisions. Net movements in the fair
value of derivatives which have not been designated as an effective
hedge, and any ineffective portion of fair value movement on
derivatives designated as a hedge are also included within finance
income or expense.
q. Supplier Financing
The Group are party to supplier financing arrangements with one
of our key customers. This arrangement is considered non-recourse
factoring and on receipt of payment from the banks the associated
trade receivable is derecognised in accordance with IFRS 9.
r. Segment reporting
A segment is identified on the basis of internal reports that
are regularly reviewed by the Board in order to allocate resources
to the segment and assess its performance.
s. Pensions
(i) Defined contribution schemes
Obligations for contributions to defined contribution pension
schemes are expensed to the income statement as incurred.
(ii) Defined benefit schemes
Two pension schemes one of which is in the Netherlands and the
other in the UK are defined benefit schemes.
The Netherlands subsidiary operates an industrial defined
benefit fund, based on average wages, that has an agreed maximum
contribution. The pension fund is a multi -- employer fund and
there is no contractual or constructive obligation for charging the
net defined benefit cost of the plan to participating entities
other than an agreed maximum contribution for the period, that is
shared between employer (4/7) and employees (3/7).
The Dutch Government is not planning to make employers fund any
deficits in industrial pension funds; accordingly the Group treats
the scheme as a defined contribution scheme for disclosure
purposes. The Group recognises a cost equal to its contributions
payable for the period.
Following the acquisition of CSS Industries Inc., on 3 March
2020, the Group also administers a defined benefit scheme in the
UK.
The net obligation for this scheme is calculated by estimating
the amount of the future benefit that employees have earned in
return for their service in the current and prior periods; that
benefit is discounted to determine its present value, and the fair
value of the scheme assets is deducted. The calculation is
performed by a qualified independent actuary.
t. Share-based payments
The cost of equity-settled transactions with employees is
measured by reference to the fair value of the options at the date
on which they are granted. The fair value is determined by using an
appropriate pricing model. The fair value cost is then recognised
over the vesting period, ending on the date on which the relevant
employees become fully entitled to the award. The quantum of awards
expected to vest and the relevant cost charged is reviewed annually
such that at each balance sheet date the cumulative expense is the
relevant share of the expected total cost, pro-rated across the
vesting period.
No expense is recognised for awards that are not expected to
ultimately vest, for example due to an employee leaving or business
performance targets not being met. The annual expense for equity
settled transactions is recognised in the income statement with a
corresponding entry in equity.
Employer's social security charges are accrued, where
applicable, at a rate which management expects to be the prevailing
rate when share -- based incentives are exercised and is based on
the latest market value of options expected to vest or having
already vested.
u. Investment in own shares
The shares held in the Group's Employee Benefit Trust for the
purpose of fulfilling obligations in respect of share option plans
are treated as belonging to the Company and are deducted from its
retained earnings. The cost of shares held directly (treasury
shares) are also deducted from retained earnings.
v. Provisions
A provision is recognised when there is a probable legal or
constructive obligation as a result of a past event and a reliable
estimate can be made of the outflow of resources that will be
required to settle the obligation. If the effect is material,
provisions are determined by discounting the expected future cash
flows at a pre -- tax rate that reflects current market assessments
of the time value of money and, where appropriate, the risks
specific to the liability. Where discounting is used, the increase
in the provision due to the passage of time is recognised as
borrowing costs.
w. Government grants
Government grants are recognised when it is reasonable to expect
that the grants will be received and that all related conditions
will be met, usually on submission of a valid claim for payment.
Government grants in respect of capital expenditure are included
within the carrying amount of the related property, plant and
equipment, and are released to the income statement on a straight
line basis over the expected useful lives of the relevant assets.
Grants of a revenue nature are credited to the income statement so
as to match them with the expenditure to which they relate.
x. Dividends
Dividends are recognised as a liability in the period in which
they are approved by the shareholders of the Company (final
dividend) or paid (interim dividend).
y. Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of an asset that necessarily takes a
substantial period of time to get ready for its intended use or
sale are capitalised as part of the cost of the respective asset.
Costs directly attributable to the arrangement of new borrowing
facilities are included within the fair value of proceeds received
and amortised over the life of the relevant facilities. Other
borrowing costs which can include costs associated with the
extension of existing facilities are expensed in the period they
occur.
Borrowing costs consist of interest and other costs that an
entity incurs in connection with the borrowing of funds.
z. Use of non-GAAP measures
These financial statements include alternative performance
measures ('APMs') that are presented in addition to the standard
GAAP metrics. The Directors believe that these APMs provide
important additional information regarding the underlying
performance of the business including trends, performance and
position of the Group. APMs are used to enhance the comparability
of information between reporting periods and segmental business
units by adjusting for factors which affect IFRS measures, to aid
the understanding of the Group's performance. Consequently, APMs
are used by the Directors and management for strategic and
performance analysis, planning, reporting and reward setting. The
APMs are adjusted EBITDA, adjusted operating profit, adjusted
profit before tax, adjusted profit after tax and adjusted earnings
per share.
The adjusting items are items that are material and in the
judgement of the directors, of an unusual or non-recurring nature.
These items are adjusted to present the performance of the business
in a consistent manner and in line with how the business is managed
and measured on a day-to-day basis. They are gains or costs
associated with events that are not considered to form part of the
core operations, or are considered to be a 'non-recurring' event
(although they may span several accounting periods).
Further detail of adjusting items can be seen in note 3 to the
financial statements.
aa. Like-for-like comparators
Figures quoted at like-for-like exchange rates are calculated by
retranslating the previous year's figures at the current year's
exchange rates.
Critical accounting judgements and estimates
The following provides information on those policies that
management considers critical because of the level of judgement and
estimation required which often involves assumptions regarding
future events which can vary from what is anticipated. The
Directors believe that the financial statements reflect appropriate
judgements and estimates and provide a true and fair view of the
Group's performance and financial position.
Accounting estimates
(i) Business combinations and intangible assets
IFRS 3 requires the identification of acquired intangible assets
as part of a business combination. The methods used to value such
intangible assets require the use of estimates and judgements such
as customer attrition, cash flow generation from the existing
relationships with customers and returns on other assets. Future
results are impacted by the amortisation periods adopted and
changes to the estimated useful lives would result in different
effects on the income statement and balance sheet.
Goodwill is not amortised but is tested annually for impairment,
along with the finite-lived intangible assets and other assets of
the Group's cash generating units. Tests for impairment are based
on discounted cash flows and assumptions (including discount rates,
timing and growth prospects) which are inherently subjective. An
estimate is also required in identifying the events which indicate
potential impairment, and in assessing fair value of individual
assets when allocating an impairment loss in a cash-generating unit
or groups of cash-generating units. The Group performs various
sensitivity analyses in respect of the tests for impairment, as
detailed in note 9.
The useful lives of the Group's finite-lived intangible assets
are reviewed following the tests for impairment annually.
Judgement and estimates may also be required in determining the
fair value of other assets acquired and liabilities (including
contingent liabilities) assumed.
(ii) Taxation
There are many transactions and calculations for which the
ultimate tax determination is uncertain. Estimates are required in
determining the Group's tax assets and liabilities. Deferred tax
assets have been recognised to the extent they are recoverable
based on profit projections for future years. Income tax
liabilities for anticipated issues have been recognised based on
estimates of whether additional tax will be due. Notwithstanding
the above, the Group believes that it will recover tax assets and
has adequate provision to cover all risks across all business
operations . See note 11 for more details.
(iii) Leases and lease right-of-use assets
A key judgement on adoption of IFRS 16 is determining the
incremental borrowing rates to be applied as at 1 April 2019.
Management considers all factors that incorporate the three key
elements: risk-free rate, credit spread and an adjustment to asset
class. Another key judgement in determining the right-of-use asset
and lease liability is establishing whether it is reasonably
certain that an option to extend the lease will be exercised.
Distinguishing whether a lease will be extended or otherwise will
have a material impact on the value of the right-of-use assets and
lease liabilities recognised on the balance sheet, but may not have
a material impact on the income statement.
In determining the lease term, management considers all facts
and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in
the lease term if the lease is reasonably certain to be extended
(or not terminated).
The assessment is reviewed if a significant event or a
significant change in circumstances occurs which affects this
assessment and that is within the control of the lessee.
(iv) Provision for slow moving inventory
The Group has guidelines for providing for inventory which may
be sold below cost due to its age or condition. Directors assess
the inventory at each location and in some cases decide that there
are specific reasons to provide more than the guideline levels, or
less if there are specific action plans in place which mean the
guideline provision level is not required. Determining the level of
inventory provision requires an estimation of likely future
realisable value of the inventory in various time frames and
comparing with the cost of holding stock for those time frames.
Regular monitoring of stock levels, the ageing of stock and the
level of the provision is carried out by the Directors.
In addition, in light of Covid-19, further assessment of the
recoverability of inventory has been undertaken as at 31 March
2020.
(v) Provision for receivables
The Group has guidelines for providing for receivables and at
the end of a financial reporting period receivables are as sessed
for impairment using the expected credit loss model which requires
expected credit losses and changes to expected credit losses to
reflect changes in credit risk since initial recognition.
Determining the level of expected credit loss requires an
estimation based on a number of factors including historical
payment patterns with the Group, alongside external credit risk
ratings and general macroeconomic factors.
In addition, in light of Covid-19, further assessment of the
recoverability of receivables has been undertaken as at 31 March
2020.
(vi) Pension benefits
The present value of the defined benefit pension obligations
depends on a number of factors that are determined on an actuarial
basis using a number of assumptions including the discount rate.
Any changes in these assumptions will impact the carrying amount of
pension obligations. The Group determines the appropriate discount
rate at the end of each year. In determining the appropriate
discount rate, the Group considers the interest rates of
high-quality corporate bonds that are denominated in the currency
in which the benefits will be paid and that have terms to maturity
approximating the terms of the related pension liability. Other key
assumptions for pension obligations are based in part on current
market conditions. Additional information is disclosed in note
23.
Accounting judgements
(i) Adjusting items
Judgement is required to determine whether items should be
included within adjusting items by virtue of their size or
incidence.
Specific judgements have been made in the estimates associated
with adjusting items and further details of the items categorised
as adjusting items and how estimates have been made are disclosed
in note 3.
2 Segmental information
The Group has one material business activity being the design,
manufacture and distribution of Celebration, Craft & creative
play, Stationery, Gifting and 'Not-for-resale' consumable
products.
For management purposes the Group is organised into four
geographic business units.
The results in this note are allocated based on the region in
which the businesses are located; this reflects the Group's
management and internal reporting structure. The Group has a China
factory and Asian procurement operations which are overseen by our
UK operational management team and we therefore continue to include
UK owned and managed Asian operations within the internal reporting
of the UK operations, comprising one operating segment.
Since the acquisition of Impact Innovations, Inc. the Group had
a second China factory (wholly owned and disposed of in the year)
and Asian procurement which form part of the USA's operations and
therefore is included in the overall USA segment.
The acquisition of CSS Industries Inc. has seen additional
entities in various locations around the world including Asia,
Australia, UK, India and Mexico. Management review the results for
CSS as one consolidated unit and this forms part of the USA segment
for the purpose of segmental reporting.
Inter -- segment pricing is determined on an arm's length basis.
Segment results include items directly attributable to a segment as
well as those that can be allocated on a reasonable basis.
Financial performance of each segment is measured on adjusted
operating profit before management recharges. Interest and tax are
managed on a Group basis and not split between reportable segments.
However, the related financial liability and cash has been
allocated out into the reportable segments as this is how they are
managed by the Group.
Segment assets are all non - current and current assets,
excluding deferred tax and income tax, which are shown in the
eliminations column. Inter - segment receivables and payables are
not included within segmental assets and liabilities as they
eliminate on consolidation.
Central
&
UK(a) Europe USA(b) Australia eliminations Group
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------- ---------- -------- -------- --------- --------- ------------ ---------
Year ended 31
March
2020
Revenue - external 113,748 65,797 282,352 32,337 - 494,234
- inter
segment 3,775 2,825 - - (6,600) -
-------------- ------------- -------- -------- --------- --------- ------------ ---------
Total segment
revenue 117,523 68,622 282,352 32,337 (6,600) 494,234
----------------- ---------- -------- -------- --------- --------- ------------ ---------
Segment result before
adjusting
items and management
recharge 6,886 10,147 16,604 2,964 (3,177) 33,424
Adjusting items
(note
3) (28,844)
Operating profit 4,580
Finance expenses (4,317)
Income tax 14,547
----------------- ---------- -------- -------- --------- --------- ------------ ---------
Profit for the
year
ended 31 March
2020 14,810
----------------- ---------- -------- -------- --------- --------- ------------ ---------
Balances at 31
March
2020
Segment assets 107,463 44,715 341,653 17,479 48,508 559,818
--------------- ------------ -------- -------- --------- --------- ------------ ---------
Segment
liabilities (43,246) (23,397) (160,959) (10,300) (18,797) (256,699)
--------------- ------------ -------- -------- --------- --------- ------------ ---------
Capital expenditure additions
- property, plant and
equipment 2,430 2,953 2,607 140 3 8,133
- property, plant and
equipment
on acquisition of business - - 31,695 - - 31,695
- intangible assets 116 54 2,741 19 67 2,997
- intangible assets on
acquisition
of business - - 4,656 - - 4,656
Depreciation 2,739 976 2,391 538 2 6,646
Impairment 348 - - - - 348
Depreciation -
right-of-use
assets 2,059 770 3,332 798 55 7,014
Amortisation 36 29 3,421 310 - 3,796
---------------- ----------- -------- -------- --------- --------- ------------ ---------
(a) Including Asian manufacturing and sourcing.
(b) Including overseas entities for the USA operating segment
Central
&
UK(a) Europe USA (a) Australia eliminations Group
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------ ---------------- -------- -------- -------- --------- ------------ ---------
Year ended 31 March 2019
Revenue - external 123,006 63,188 223,101 39,067 - 448,362
- inter segment 4,112 1,377 - - (5,489) -
----------------------------- ----------------- -------- -------- -------- --------- ------------ ---------
Total segment revenue 127,118 64,565 223,101 39,067 (5,489) 448,362
------------------------------ ---------------- -------- -------- -------- --------- ------------ ---------
Segment result before
adjusting
items and management
recharges 8,073 8,871 15,522 4,278 (4,098) 32,646
Adjusting items (note 3) (12,888)
Operating profit 19,758
Finance expenses (2,318)
Finance expense treated as
an adjusting item (note 3) (158)
Income tax (4,031)
------------------------------ ---------------- -------- -------- -------- --------- ------------ ---------
Profit for year ended 31 March
2019 13,251
------------------------------ ---------------- -------- -------- -------- --------- ------------ ---------
Balances at 31 March 2019
Segment assets (restated)(b) 100,079 36,738 117,144 17,198 62,027 333,186
------------------------------ ---------------- -------- -------- -------- --------- ------------ ---------
Segment liabilities (restated)
(b) (34,366) (20,136) (88,382) (8,284) (6,461) (157,629)
------------------------------ ---------------- -------- -------- -------- --------- ------------ ---------
Capital expenditure additions
- property, plant and equipment 2,635 901 1,780 383 - 5,699
- property, plant and equipment
on acquisition of business - - 9,313 - - 9,313
- intangible assets 285 12 1,893 - - 2,190
- intangible assets on acquisition
of business (restated) (b) - - 18,308 - - 18,308
Depreciation 2,333 920 1,452 623 - 5,328
Amortisation 167 35 1,781 326 - 2,309
------------------------------ ---------------- -------- -------- -------- --------- ------------ ---------
(a) Including Asian manufacturing and sourcing.
(b) For more detail please refer to note 1
-- The Group has one customer that accounts for 22% of the total
Group revenues. In the year ended 31 March 2020 total sales to that
customer were GBP106.6 million (2019: GBP79.1 million). This
customer falls solely within the USA operating segment above. No
other single customer accounts for over 10% of total sales.
-- The assets and liabilities that have not been allocated to
segments consist of deferred tax assets GBP14.6 million (2019:
GBP3.6 million), income tax receivable GBP14.8 million (2019:
GBPnil), income tax payable of GBP4.4 million (2019: GBP4.8
million) and deferred tax liability GBP1.1 million (2019:
GBP692,000).
Geographical information
The Group's information about its segmental assets (non-current
assets excluding deferred tax assets and other long-term assets)
and revenue by customer destination are detailed below:
Non-current assets
--------------------
Restated
2020 2019
GBP000 GBP000
------------ --------- ---------
UK and Asia 57,923 40,539
USA 166,834 62,871
Europe 21,752 16,350
Australia 8,223 5,077
------------ --------- ---------
254,732 124,837
------------ --------- ---------
Revenue by customer destination
2020 2019 2020 2019
GBP000 GBP000 % %
------------------ ------- ------- ---- ----
UK 84,466 97,260 17 22
USA 289,518 235,092 59 53
Europe 66,651 68,314 13 15
Australia 31,941 37,707 7 8
Rest of the world 21,658 9,989 4 2
------------------ ------- ------- ---- ----
494,234 448,362 100 100
------------------ ------- ------- ---- ----
All revenue arose from the sale of goods.
3 Operating expenses and adjusting items
Included in profit are the following charges/(credits):
Restated
2020 2019
Note GBP000 GBP000
-------------------------------------------------- ---- ------- --------
Depreciation of tangible fixed assets 8 6,646 5,328
Depreciation of right-of-use assets 10 7,014 -
(Profit)/Loss on sales of property, plant and
equipment and intangible assets (188) 325
Release of deferred grant income 5 (299) (247)
Amortisation of intangible assets - software 9 990 700
Operating lease payment - minimum lease payment
(restated)(a) - 6,291
Sub-lease rental income 5 (281) (583)
Write down of inventories to net realisable value
(underlying) 12 5,247 4,173
Reversal of previous write downs on inventory 12 (3,885) (478)
Loss on foreign exchange 835 814
Adjusting items 28,844 12,888
-------------------------------------------------- ---- ------- --------
(a) For more detail please refer to note 1
Operating profit analysed as:
Adjusted operating profit 33,424 32,646
Adjusting items (28,844) (12,888)
Operating profit 4,580 19,758
------------------------------- -------- --------
Adjusting items
Year ended 31 March Cost of sales Selling expenses Admin expenses Profit on sale of Other finance Total
2020 business expenses
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Losses/(Gains) and
transaction costs
relating to
acquisitions and
disposals of
businesses(1) 25 - 4,712 (1,486) -- 3,251
Acquisition
integration and
restructuring
costs(2) 5,462 - 3,931 - - 9,393
Impairment of
assets(3) 6,468 3,056 - - - 9,524
Covid-19 costs(4) 265 -- 235 - - 500
US tariffs(5) 3,572 - - - - 3,572
Amortisation of
acquired
intangibles (6) - - 2,806 - - 2,806
LTIP credits(7) - - (202) - - (202)
Adjusting items 15,792 3,056 11,482 (1,486) - 28,844
------------------- ------------- ---------------- -------------- ------------------- ------------------- ------
Year ended 31 March Cost of sales Selling expenses Admin expenses Profit on sale of Other finance Total
2019 business expenses
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Losses/(Gains) and
transaction costs
relating to
acquisitions and
disposals of
businesses(1) - - 2,254 - 158 2 ,412
Acquisition
integration and
restructuring
costs(2) 1,748 222 4,050 - - 6,020
Impairment of
assets(3) - - - - - -
Covid-19 costs(4) - - - - - -
US tariffs(5) - - - - - -
Amortisation of
acquired
intangibles (6) - - 1,609 - - 1,609
LTIP charges(7) - - 3,005 - - 3,005
Adjusting items 1,748 222 10,918 - 158 13,046
------------------- ------------- ---------------- -------------- ------------------- ------------------- ------
Adjusting items are separately presented by virtue of their
nature, size and/or incidence (per each operating segment). These
items are material items of an unusual or non-recurring nature
which represent gains or losses and are presented to allow for the
review of the performance of the business in a consistent manner
and in line with how the business is managed and measured on a
day-to-day basis and allow the reader to obtain a clearer
understanding of the underlying results of the ongoing Group's
operations. They are typically gains or costs associated with
events that are not considered to form part of the core operations,
or are considered to be a 'non-recurring' event (although they may
span several accounting periods).
These losses/(gains) relating to the year ended 31 March 2020
are broken down as follows;
(1) Losses/(Gains) and transaction costs relating to
acquisitions and disposals of businesses
Costs directly associated with acquisitions, including legal and
advisory fees on deals, form part of our reported results on an
IFRS basis. These costs however, in the Board's view, form part of
the capital transaction, and as they are not attributed to
investment value under IFRS 3, they are included as an adjusting
item. Similarly, where acquisitions have employee related payments
(exclusive of LTIPs) which lock in and incentivise legacy talent,
we also include these costs as adjusting items. Furthermore, gains
or losses on the disposal of businesses, including any transaction
costs associated with the disposal are treated as adjusting
items.
During the year ended 31 March 2020 the Group incurred a net
cost of GBP3.3 million in relation to the acquisition and disposal
of businesses. The main areas of expenditure relate to GBP3.9
million of due diligence, legal and adviser fees associated with
the acquisition of CSS which was completed on 3 March 2020 as well
as two small exploratory projects. In addition, GBP0.9 million of
acquisition related employee payments from the Impact transaction
in 2019 which lock in and incentivise legacy talent. These costs
were offset by a profit of GBP1.5 million relating to the disposal
which was completed on 24 February 2020 of our Shaoxing factory
facilities in China. This facility which was acquired as part of
the Impact Innovations transaction completed in August 2018 and the
disposal formed part of the planned integration programme.
During the year ended 31 March 2019 the Group incurred GBP2.4
million in relation to transaction costs. This spend related to due
diligence, legal and adviser fees associated with the acquisition
of Impact which completed on 31 August 2018 along with acquisition
related employee payments from the transaction which lock in and
incentivise legacy talent.
(2) Acquisition integration and restructuring costs
In order to realise synergies from acquisition integration
projects are undertaken that aim to deliver future savings and
efficiencies for the Group. These are projects outside of the
normal operations of the business and typically incur one-time
costs to ensure successful implementation. This is particularly
relevant during a large scale restructuring of manufacturing
facilities that can result in substantial disruption to the normal
operational processes. As such the Board consider it appropriate
that costs associated with projects of this nature be included as
adjusting items. In calculating certain elements of the costs of
disruption it is necessary to make judgements and estimates in
relation to the impact on efficiency.
For the years ended 31 March 2020 and 31 March 2019 the
Acquisition integration and restructuring costs relate to the
ongoing UK unification initiative (GBP0.4 million), the integration
of manufacturing facilities in the USA, following the acquisition
of Impact, which lead to the combination of printing and converting
processes into one site in Memphis (GBP5.5 million), transition and
retention costs (GBP1.1 million) and costs relating to the CSS
integration (GBP2.4 million).
The costs associated with the Memphis project were calculated by
evaluating the true one-time expense associated with the operating
challenges in the manufacturing environment created as a result of
the integration alongside the delays to productions plans as a
result of the rapid development of US tariffs with China (s301
tariffs) and customers delaying sign off on artwork and packaging.
All these costs arise directly as a result of integrating processes
for the first time during the peak period. The costs include
expenditure for one time outsourcing to meet production demands,
additional warehousing to store inventory due to tariff driven
delayed production and shipping and the subsequent knock-on
customer related penalties. As part of the costs there are two
significant areas of judgement relating to incremental overtime
costs and incremental production inefficiencies associated with the
integration. In both cases, prior years have been used to set a
baseline for which incremental costs are measured against.
In addition to the above, GBP2.4m of integration and
restructuring costs were incurred following the acquisition of CSS
during the year. These costs primarily related to severance costs
of redundant roles in the legacy CSS business.
(3) Impairment of assets
In light of the impact of Covid-19 on the business, a review of
inventory, trade receivables and fixed assets at year end has been
undertaken. Inventories have been assessed at the year end for the
net realisable value and an impairment of GBP5.9 million has been
taken in relation to aged and obsolete inventory as a result of
lower sales. Trade receivables have been assessed for their
expected credit loss in line with IFRS 9 and an impairment of
GBP3.1 million has been taken. As our customers are mainly
retailers, and for those who aren't selling "essential items", many
have had to close stores as a result of the various quarantines
around the world - this could have a significant impact on some of
our customers. Using forward looking information including
macro-economic information each Business Unit has assessed any
significant increase in credit risk and measuring any losses with
regards to our year end debtors. Following an assessment of
inventory related assets and certain fixed assets around the Group
and the associated cashflows and useful remaining lives, an
impairment of GBP538,000 has been taken.
(4) Covid-19 related costs
The Covid-19 outbreak has developed rapidly in 2020, with
measures taken around the world to contain the virus affecting
economic activity. The Group has been affected in every territory
in which we operate and the impact on the general economic
environment and the reduced demand of goods from our customers as
well as the closures of our businesses has had a significant
impact. Certain costs relating to direct labour costs that are
considered incremental following abnormal or forced closures of
manufacturing facilities across the Group have been identified that
have impacted the financial results of the business during the
year, equal to GBP0.5 million. These costs will continue into
FY21.
(5) US tariffs
The US tariff with China (s301 tariff) has resulted in costs
incurred in the year which had a significant impact on our business
in this financial year. The rapid evolution of tariffs became
applicable to more of our product categories with no advance
warning. The timing of the introduction of tariffs meant that the
majority of our purchase orders had been agreed with customers and
suppliers effectively creating a situation where the US business
was locked into purchase commitments and sales prices that could
not be renegotiated. This one time impact will not be repeated as
the business will be able to mitigate the effect of tariffs in
future years as part of the negotiation of contracts with customers
and suppliers. As such the impact of tariffs in the financial year
are treated as an adjusting items.
(6) IFRS 2 (LTIP) (credits)/ costs
As part of our senior management remuneration, the Group operate
a Long Term Incentive Plan ('LTIP') in the form of options for
ordinary shares of the Group. In accordance with accounting
principles, despite this plan not being a cash cost to the
business, a share -- based payments charge is taken to the income
statement. We consider that these charges and the associated social
security charges do not form part of the underlying operational
costs and therefore include these as adjusting items.
In the year ended 31 March 2020 there was an IFRS 2 credit due
to the lowered expectations in respect of future schemes vesting.
Please see note 23 for more detail.
(7) Amortisation of acquired intangibles
Under IFRS, as part of the acquisition of a company, it is
necessary to identify intangible assets such as customer
relationships and brands which form part of the intangible value of
the acquired business but are not part of the acquired balance
sheet. These intangible assets are then amortised to the income
statement over an appropriately judged period. These are not
operational costs relating to the running of the acquired business
and are directly related to the accounting for the acquisition.
These include trade names and brands acquired as part of the
acquisition of The Lang Companies Inc., Impact Innovations Inc. and
CSS Industries Inc. in the USA and Biscay Pty Greetings Ltd in
Australia. As such we include these as adjusting items.
In addition, in accordance with IFRS 3, on acquisition,
businesses need to be fair valued, which can result in an uplift to
stock on hand relating to sales orders already attached to the
acquired stock. This uplift will distort the margins associated
with the stock, and typically unwinds quickly as stock is sold soon
after acquisition. The unwind of the stock uplift is included as an
adjusting item.
The cash flow effect on adjusting items
There was GBP12.8 million net outflow on the current year's cash
flow (2019: GBP287,000) which included GBP708,000 (2019:
GBP473,000) of outflow deferred from last year.
Auditors' remuneration:
2020 2019
GBP000 GBP000
------------------------------------------------------- ------ ------
Amounts receivable by auditor and its associates in
respect of:
Audit of these financial statements 715 80
Audit of financial statements of subsidiaries pursuant
to legislation
- Overseas subsidiaries 100 326
- UK subsidiaries 70 66
Other audit related services 45 10
Taxation compliance services 220 26
All other taxation advisory services 34 14
Services relating to corporate finance transactions 547 -
Other services - 10
------------------------------------------------------- ------ ------
Note that prior year remuneration related to the Group's
previous auditors, KPMG LLP.
4 Staff numbers and costs
The average number of persons employed by the Group (including
Directors) during the year, analysed by category, was as
follows:
Number of employees
---------------------
2020 2019
---------------------------- ---------- ---------
Selling and administration 700 641
Production and distribution 1,858 1,723
---------------------------- ---------- ---------
2,558 2,364
---------------------------- ---------- ---------
The aggregate payroll costs of these persons were as
follows:
2020 2019
Note GBP000 GBP000
------------------------------------------------ ---- ------ ------
Wages and salaries 74,092 62,083
Share-based payments - Long Term Incentive Plan 23 (202) 3,005
Social security costs 6,046 4,795
Other pension costs 3,217 3,532
------------------------------------------------ ---- ------ ------
83,153 73,415
------------------------------------------------ ---- ------ ------
5 Other operating income
2020 2019
GBP000 GBP000
--------------------------------------------------- ------ ------
Grant income received 299 247
Sub-lease rentals credited to the income statement 281 583
Other 155 (210)
---------------------------------------------------- ------ ------
735 620
--------------------------------------------------- ------ ------
6 Finance expenses
2020 2019
GBP000 GBP000
------------------------------------------------------- ------ ------
Interest payable on bank loans and overdrafts 1,999 1,754
Other similar charges 297 (74)
Lease liability interest 1,609 -
Unwinding of fair value discounts 69 86
------------------------------------------------------- ------ ------
Interest payable under the effective interest method 3,974 1,766
Derivative financial instruments at fair value through
the income statement 343 552
------------------------------------------------------- ------ ------
4,317 2,318
Adjusting items - 158
------------------------------------------------------- ------ ------
4,317 2,476
------------------------------------------------------- ------ ------
GBP580,000 has been reclassified in the prior year from interest
payable on bank loans and overdrafts to derivative financial
instruments at fair value through the income statement as this is
the charge relating to swaps in the year.
7 Taxation
Recognised in the income statement
2020 2019
GBP000 GBP000
---------------------------------------------------- -------- -------
Current tax (credit)/charge
Current year (11,001) 4,770
Adjustments in respect of previous years (507) 38
---------------------------------------------------- -------- -------
(11,508) 4,808
---------------------------------------------------- -------- -------
Deferred tax (credit)/charge
Origination and reversal of temporary differences (2,603) (617)
Adjustments in respect of previous years (436) (160)
---------------------------------------------------- -------- -------
(3,039) (777)
---------------------------------------------------- -------- -------
Total tax in income statement (14,547) 4,031
---------------------------------------------------- -------- -------
Total tax (credit)/charge on adjusting items
Total tax on profit before adjusting items 5,852 7,094
Total tax on adjusting items (6,589) (3,063)
Adjusting item - tax credit (US tax loss carryback) (13,810) -
Total tax in income statement (14,547) 4,031
---------------------------------------------------- -------- -------
Reconciliation of effective tax rate
2020 2019
GBP000 GBP000
----------------------------------------------------- -------- ------
Profit before tax 263 17,282
----------------------------------------------------- -------- ------
Profit before tax multiplied by the standard rate of
corporation tax rate of 19% in the UK (2019: 19%) 50 3,284
Effects of:
Income not taxable (339) (88)
Expenses not deductible for tax purposes 628 208
Movement in unrecognised tax assets - 296
Effect of tax rate changes (142) 33
Differences between UK and overseas tax rates 453 1,053
Movement in uncertain tax provision (457) (408)
Local tax incentives - (100)
Other items 13 (125)
Adjustments in respect of previous periods (943) (122)
US tax loss carryback(a) (13,810) -
----------------------------------------------------- -------- ------
Total tax in income statement (14,547) 4,031
----------------------------------------------------- -------- ------
(a) Please refer to note 11 for more detail.
8 Property, plant and equipment
Land and buildings Plant and Fixtures Motor
and
--------------------
Freehold Leasehold equipment fittings vehicles Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- --------- --------- --------- -------- -------- --------
Cost
Balance at 1 April 2018
(restated) 20,096 9,633 50,073 4,011 1,254 85,067
Additions 1,078 126 3,712 550 233 5,699
Additions on acquisition
of business 462 - 8,851 - - 9,313
Transfers between fixed
asset categories (57) 83 (43) 17 - -
Transfers to computer
software - - (620) (101) - (721)
Disposals (405) (8,252) (352) (285) (351) (9,645)
Effect of movements in
foreign exchange (127) 636 351 40 (8) 892
---------------------------- --------- --------- --------- -------- -------- --------
Balance at 1 April 2019
(restated) 21,047 2,226 61,972 4,232 1,128 90,605
Additions 598 204 6,683 398 250 8,133
Additions on acquisition
of business (note 28) 16,840 933 13,510 261 151 31,695
Transfers between fixed
asset categories (1,242) - 425 416 401 -
Transfers to computer
software - - - 2,338 - 2,338
Disposals - - (1,176) (170) (125) (1,471)
Disposal of a business
(note 28) - - (389) - - (389)
Effect of movements in
foreign exchange 881 130 1,864 51 (32) 2,894
---------------------------- --------- --------- --------- -------- -------- --------
Balance at 31 March 2020 38,124 3,493 82,889 7,526 1,773 133,805
---------------------------- --------- --------- --------- -------- -------- --------
Depreciation and impairment
Balance at 1 April 2018
(restated) (10,978) (5,059) (30,235) (2,692) (604) (49,568)
Depreciation charge for
the year (769) (414) (3,478) (502) (165) (5,328)
Transfers between fixed
asset categories 6 - 35 (41) - -
Transfers to computer
software - - 170 101 - 271
Disposals 152 3,769 86 248 84 4,339
Effect of movements in
foreign exchange 57 (301) (224) (22) 6 (484)
---------------------------- --------- --------- --------- -------- -------- --------
Balance at 1 April 2019
(restated) (11,532) (2,005) (33,646) (2,908) (679) (50,770)
Depreciation charge for
the year (929) (196) (4,718) (634) (169) (6,646)
Impairment charge for
the year - - (348) - - (348)
Transfers between fixed
asset categories 540 (13) (63) (154) (310) -
Transfers to computer
software - - - (1,768) - (1,768)
Disposal - - 892 69 107 1,068
Disposal of a business
(note 28) - - 281 - - 281
Effect of movements in
foreign exchange (125) (46) (735) (33) 12 (927)
---------------------------- --------- --------- --------- -------- -------- --------
Balance at 31 March 2020 (12,046) (2,260) (38,337) (5,428) (1,039) (59,110)
---------------------------- --------- --------- --------- -------- -------- --------
Net book value
Balance at 31 March 2020 26,078 1,233 44,552 2,098 734 74,695
---------------------------- --------- --------- --------- -------- -------- --------
At 31 March 2019 9,515 221 28,326 1,324 449 39,835
---------------------------- --------- --------- --------- -------- -------- --------
Depreciation is charged to cost of sales, selling costs or
administration costs within the income statement depending on the
department to which the assets relate.
There has been a restatement to correct the prior year cost and
accumulated depreciation of assets which were acquired in previous
acquisitions. The net book values of these assets remain
unchanged.
Security
All freehold properties are subject to a fixed charge in support
of the banking facility.
9 Intangible assets
Computer Trade Customer Other
Goodwill software names relationships intangibles Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- -------- -------- ------- ------------- ----------- --------
Cost
Balance at 1 April 2018 (restated) 43,368 5,174 473 1,294 133 50,442
Additions - 2,190 - - - 2,190
Additions on acquisition
of businesses (restated)
(note 28) 30,046 - 1,154 17,154 - 48,354
Transfer from fixed assets - 721 - - - 721
Disposals (33) (465) - - - (498)
Effect of movements in foreign
exchange 404 202 20 44 - 670
----------------------------------- -------- -------- ------- ------------- ----------- --------
Balance at 1 April 2019 (restated) 73,785 7,822 1,647 18,492 133 101,879
Additions - 2,997 - - - 2,997
Additions on acquisition
of businesses (note 28) 21,957 2,234 2,422 - - 26,613
Transfer from fixed assets - (2,338) - - - (2,338)
Disposals - (249) - - - (249)
Effect of movements in foreign
exchange 2,374 323 134 799 (1) 3,629
----------------------------------- -------- -------- ------- ------------- ----------- --------
Balance at 31 March 2020 98,116 10,789 4,203 19,291 132 132,531
----------------------------------- -------- -------- ------- ------------- ----------- --------
Amortisation and impairment
Balance at 1 April 2018 (restated) (9,694) (3,450) (186) (457) (108) (13,895)
Amortisation charge for the
year - (700) (392) (1,214) (3) (2,309)
Transfers from fixed assets - (271) - - - (271)
Disposals 33 134 - - - 167
Effect of movements in foreign
exchange (475) (57) (11) (26) - (569)
----------------------------------- -------- -------- ------- ------------- ----------- --------
Balance at 1 April 2019 (restated) (10,136) (4,344) (589) (1,697) (111) (16,877)
Amortisation charge for the
year - (990) (1,126) (1,680) - (3,796)
Transfers from fixed assets - 1,768 - - - 1,768
Disposals - 248 - - - 248
Effect of movements in foreign
exchange (354) (95) (41) (72) (3) (565)
----------------------------------- -------- -------- ------- ------------- ----------- --------
Balance at 31 March 2020 (10,490) (3,413) (1,756) (3,449) (114) (19,222)
----------------------------------- -------- -------- ------- ------------- ----------- --------
Net book value
----------------------------------- -------- -------- ------- ------------- ----------- --------
Balance at 31 March 2020 87,626 7,376 2,447 15,842 18 113,309
----------------------------------- -------- -------- ------- ------------- ----------- --------
At 31 March 2019 (restated) 63,649 3,478 1,058 16,795 22 85,002
----------------------------------- -------- -------- ------- ------------- ----------- --------
Computer software relates to purchased software and people costs
associated with the implementation of software.
There has been a restatement to correct the prior year cost and
accumulated depreciation of assets which were acquired in previous
acquisitions and the net book values of these assets remain
unchanged. The acquisition accounting for Impact has been reviewed
and hindsight adjustments have been made to goodwill and
intangibles.
The aggregate carrying amounts of goodwill allocated to each
geographical segment are as follows:
Restated
2020 2019
GBP000 GBP000
------------ ------ --------
UK and Asia 25,600 25,600
Europe 5,378 5,248
USA 54,165 30,046
Australia 2,483 2,755
------------ ------ --------
Total 87,626 63,649
------------ ------ --------
All goodwill balances have arisen as a result of acquisitions
and are not internally generated.
Impairment
The Group tests goodwill each year for impairment, or more
frequently if there are indications that goodwill might be
impaired.
For the purposes of impairment testing, goodwill considered
significant in comparison to the Group's total carrying amount of
such assets has been allocated to the business unit, or group of
business units, that are expected to benefit from the synergies of
the combination, which represents the lowest level within the Group
at which the goodwill is monitored for internal management
purposes, and is referred to below as a cash - generating unit. The
recoverable amounts of cash - generating units are determined from
the higher of value in use and fair value less costs to sell.
The Group has prepared updated forecasts following the outbreak
of the Covid-19 pandemic for each cash generating unit for the
following two years and these have been reviewed by the Board. The
key assumptions in those forecasts are sales, margins achievable
and overhead costs, which are based on past experience and future
expectations. The Group then extrapolates cash flows for the
following three years to determine discounted cash flows for five
years plus a terminal value based on a conservative estimate of
market growth of 1.0% (2019: 0.5%).
Generally the Group's post tax weighted average cost of capital
('WACC') is 6.8% prior to any risk factor, and 7.3% post
application of a 0.5% risk weighting. This has been compared to
other similar companies and is believed to be appropriate.
The cash - generating units used the following pre - tax
discount rates which are derived from an estimate of the Group's
future WACC adjusted to reflect the market assessment of the risks
specific to the current estimated cash flows over the same
period.
Pre-tax discount rates used were:
2020 2019
------------ ----- -----
UK and Asia 8.5% 10.9%
Europe 9.6% 11.7%
USA 9.3% 12.5%
Australia 10.2% 13.4%
------------ ----- -----
All of the cash - generating units' values in use were
determined to be higher than fair value less costs to sell, thus
this was used as the recoverable amount. In all businesses, the
carrying value of the goodwill was supported by the recoverable
amount and there are currently no reasonably foreseeable changes to
assumptions that would give rise to an impairment of the carrying
value.
The Directors do not believe a reasonably possible change to the
assumptions would give rise to an impairment. The Directors have
considered a 2% movement in the discount rate and a flat budget
growth rate assumption in their sensitivity assessment; with these
changes in assumptions there is still significant headroom and no
indication of impairment.
10 Right-of-use assets and lease liabilities
Right-of-use assets
Land and Plant Motor
and Office
buildings machinery vehicles equipment Total
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------- --------- --------- -------- --------- -------
Net book value at 1 April 2019 33,736 984 488 294 35,502
Additions 5,388 167 117 99 5,771
Additions on acquisition of business 31,014 484 93 167 31,758
Disposals (17) - - (17) (34)
Disposal of a business (461) - - - (461)
Depreciation charge (6,209) (410) (281) (114) (7,014)
Effect of movements in foreign
exchange 1,166 29 11 - 1,206
------------------------------------- --------- --------- -------- --------- -------
Net book value at 31 March 2020 64,617 1,254 428 429 66,728
------------------------------------- --------- --------- -------- --------- -------
Income statement
The income statement shows the following amounts relating to
leases:
2020
GBP000
------------------------------------------------ ------
Interest expense (included in finance expenses) 1,609
Depreciation charge 7,014
Expense relating to short-term leases 2,446
------------------------------------------------ ------
Short term lease commitments as at the end of the year for the
coming twelve months are GBP371,000. This is significantly lower
than the expenses in the financial year to 31 March 2020 following
the cessation of a short term property lease in the USA which will
be replaced by a lease with an initial term of six years and an
estimated lease liability on commencement of GBP13.1 million.
Low value lease costs were negligible in the year.
Operating lease (IAS 17) commitments and opening lease
liabilities reconciliation
2020
GBP000
------------------------------------------------------------- ------
Operating lease commitments disclosed as at 31 March 2019
(restated) 41,522
Discounted using the lessee's incremental borrowing rate
of at the date of initial application 34,481
Less: contracts to which the short-term leases exemption
applies (235)
Add/(less): adjustments as a result of a different treatment
of extension and termination options 5,863
------------------------------------------------------------- ------
Lease liability recognised as at 1 April 2019 40,109
------------------------------------------------------------- ------
Of which are:
Current lease liabilities 5,669
Non-current lease liabilities 34,440
------------------------------------------------------------- ------
Total 40,109
------------------------------------------------------------- ------
Lease liabilities as at 31 March 2020 are GBP76.9 million (of
which GBP63.2 million are non-current liabilities and GBP13.7
million are current liabilities). The significant increase in lease
liabilities is as a result of the acquisition of CSS Industries
Inc.
Commitments for minimum lease payments in relation to
non-cancellable operating leases are payable as follows:
2020 2019
GBP000 GBP000
--------------------------- ------ ------
Less than one year 371 6,866
Between one and five years - 16,625
More than five years - 18,031
--------------------------- ------ ------
Total 371 41,522
--------------------------- ------ ------
Segment assets and liabilities
Segment assets and segment liabilities for 31 March 2020 all
increased as a result of the change in accounting policy. The
segments were affected by the change in policy as follows:
2020 2020
Segment Segment
assets liabilities
GBP000 GBP000
----------------------- ------- -----------
UK and Asia 17,006 19,450
Europe 3,700 3,738
USA 41,360 47,808
Australia 4,575 5,868
Central & eliminations 87 82
----------------------- ------- -----------
Total 66,728 76,946
----------------------- ------- -----------
Income from subleasing right-of-use assets
During the year sublease income from right-of-use assets was as
follows:
2020
GBP000
---------------------------------------------------------- ------
Sublease income in the year from subleasing right-of-use
assets 281
---------------------------------------------------------- ------
2020
GBP000
---------------------------------------------------------- ------
Non-cancellable operating lease rentals are receivable as
follows:
Less than one year 310
Between one and five years 327
---------------------------------------------------------- ------
Total 637
---------------------------------------------------------- ------
11 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the
following:
Property, Tax losses Share -- Doubtful Other timing
plant based
and equipment carried payments debts differences(a) Total
and intangible forward GBP000 GBP000 GBP000 GBP000
assets GBP000
GBP000
------------------------- --------------- ---------- -------- -------- -------------- -------
At 1 April 2019 (4,438) 1,874 1,733 1,430 2,319 2,918
(Charge)/credit to
income statement (173) 1,565 (104) 1,676 75 3,039
(Charge)/credit to
equity 6 348 (423) 85 719 735
Acquisitions 5,545 - - - 1,328 6,873
------------------------- --------------- ---------- -------- -------- -------------- -------
At 31 March 2020 940 3,787 1,206 3,191 4,441 13,565
------------------------- --------------- ---------- -------- -------- -------------- -------
Deferred tax liabilities (1,246) - - - (148) (1,394)
Deferred tax assets 2,186 3,787 1,206 3,191 4,589 14,959
------------------------- --------------- ---------- -------- -------- -------------- -------
940 3,787 1,206 3,191 4,441 13,565
------------------------- --------------- ---------- -------- -------- -------------- -------
Property, Tax losses Share - Doubtful Other timing
plant based
and equipment carried payments debts differences(a) Total
and intangible forward GBP000 GBP000 GBP000 GBP000
assets GBP000
GBP000
------------------------- --------------- ---------- -------- -------- -------------- -------
At 1 April 2018 (1,137) 584 1,943 819 81 2,290
(Charge)/credit to
income statement (2,653) 1,103 1,004 611 712 777
(Charge)/credit to
equity (115) 187 (358) 137 (149)
Reclassification (533) - (856) 1,389 -
At 31 March 2019 (4,438) 1,874 1,733 1,430 2,319 2,918
------------------------- --------------- ---------- -------- -------- -------------- -------
Deferred tax liabilities
(restated) (b) (4,443) - - (208) (4,651)
Deferred tax assets
(restated) (b) 5 1,874 1,733 1,430 2,527 7,569
------------------------- --------------- ---------- -------- -------- -------------- -------
(4,438) 1,874 1,733 1,430 2,319 2,918
------------------------- --------------- ---------- -------- -------- -------------- -------
(a) Other timing differences include a deferred tax closing
balance of GBP1.5 million (2019: GBP1.3 million) in respect of
provision for inventory and GBP1.2 million (2019: GBPnil) in
respect of leases.
(b) For more details please refer to note 1
Deferred tax is presented net on the balance sheet in so far as
a right of offset exists. The net deferred tax asset is GBP14.6
million (2019: GBP3.6 million) and the net deferred tax liability
is GBP1.1 million (2019: GBP692,000). Deferred tax assets and
liabilities are treated as non-current as it expected that they
will be recovered or settled more than 12 months after the
reporting date.
The prior year categorisation of deferred tax balances has been
corrected. This has no impact on the total deferred tax balance as
presented on the balance sheet.
In March 2020, the Coronavirus Aid, Relief, and Economic
Security Act was enacted in the US which includes a temporary
relaxation of rules limiting net operating loss deductions. As a
result, existing net operating losses (NOLs) in CSS are being
carried back to claim a refund with a tax value of GBP13.9 million
($17.3 million) for taxes paid in prior years. Given that these
NOLs had limited value at the time of acquisition on 3 March 2020
(primarily as a result of change in ownership rules) and this law
was enacted after the acquisition date, the carryback claim results
in a significant tax credit in the year. This has been included as
an adjusting tax item.
The deferred tax asset in respect of tax losses carried forward
at 31 March 2020 of GBP3.8 million (2019: GBP1.9 million) comprises
UK tax losses of GBP2.0 million (2019: GBP991,000) , US tax losses
of GBP1.8 million (2019: GBP883,000) and Asia tax losses of
GBP109,000 (2019: GBPnil). The majority of the US tax losses may be
carried forward indefinitely. UK and Asia tax losses may be carried
forward indefinitely. The deferred tax assets have been recognised
where the Board considers there is sufficient evidence that taxable
profits will be available against which the tax losses can be
utilised. The Board expects that the tax losses will be recoverable
against future profits. There are unrecognised deferred tax assets
in respect of UK losses of GBP642,000 (2019: GBP574,000), GBPnil
(2019: GBP369,000) in respect of China, and GBPnil (2019:
GBP235,000) in respect of Asia.
Following the CSS acquisition there are temporary differences of
$101.6 million (GBP81.9 million) and unused tax losses of $9.4
million (GBP7.6 million) (with no expiry date) on which deferred
tax assets have not been provided. This excludes the CSS tax losses
that have been carried back as noted above. Deferred tax assets
have not been recognised on these primarily as a result of
restrictions under the US change in ownership rules.
A deferred tax liability of GBP80,000 (2019: GBP237,000) has
been recognised based on the tax cost of remitting earnings from
China. No other deferred tax liability has been recognised on
unremitted earnings of the overseas subsidiaries as if all
unremitted earnings were repatriated with immediate effect, no
other tax charge would be payable. The standard rate of UK
corporation tax will no longer reduce to 17% from 1 April 2020.
These proposed changes, which were substantively enacted in
September 2016, were changed in March 2020 to maintain the UK
corporate tax rate at 19% by a resolution under the Provisional
Collection of Taxes Act 1968. This increased rate has been
reflected in the calculation of deferred tax at the balance sheet
date.
Included within current tax liabilities is GBP4.8 million (2019:
GBP2.7 million) in respect of uncertain tax positions. This
consists of various tax risks of which the majority are
individually are not material. As a result of the acquisition of
CSS Industries Inc. in March 2020, additional liabilities have been
recognised in respect of inherited uncertain tax positions. Of
these liabilities, there is one individual liability that is
material (GBP2.5 million). These risks arise because the Group
operates in a complex multinational tax environment. The position
is reviewed on an ongoing basis and generally these tax positions
are released at the end of the relevant territories' statute of
limitations.
A total tax credit of GBP171,000 (2019: GBP764,000 credit) has
been recognised through the statement of changes in equity in
respect of share -- based payments (consisting of a deferred tax
charge and current tax credit of GBP146,000 (2019: GBP358,000) and
GBP317,000 (2019: GBP1.1 million) respectively). A deferred tax
credit of GBP771,000 has been recognised through the statement of
changes in equity on adoption of IFRS 16 Leases. There are no
deferred tax balances with respect to cash flow hedges.
12 Inventory
2020 2019
GBP000 GBP000
------------------------------ ------- ------
Raw materials and consumables 19,886 19,242
Work in progress 20,179 7,818
Finished goods 74,380 42,511
------------------------------ ------- ------
114,445 69,571
------------------------------ ------- ------
In 2020, materials, consumables, changes in finished goods and
work in progress of GBP361.1 million (2019: GBP323.5 million) were
recognised as an expense during the year and included in cost of
sales.
Due to the impact of Covid-19, inventories have been assessed at
the 2020 year end and an impairment of GBP6.2 million has been
taken to reduce the value of inventories to net realisable value,
this includes GBP0.2m of impairment of consumables. In addition to
this, inventories have been reduced by a further GBP5.2 million
(2019: GBP4.2 million) as a result of write-down to net realisable
value and was recognised as an expense during 2020. This expense
has been reduced by the reversal of previous write downs amounting
to GBP3.9 million (2019: GBP478,000) due to inventory either being
used or sold.
13 Long term assets and Trade and other receivables
Long term assets acquired as part of the acquisition of CSS are
as follows:
2020 2019
GBP000 GBP000
------------------------- ------ ------
Acquisition indemnities 581 -
UK Pension surplus 482 -
Security deposits 877
Insurance related assets 3,079 -
------------------------- ------ ------
5,019 -
------------------------- ------ ------
Acquisition indemnities relate to previous acquisitions made by
CSS and indemnities provided by the seller, security deposits
relate to leased properties, and insurance related assets including
a corporate owned life insurance policy.
Trade and other receivables are as follows:
2020 2019
GBP000 GBP000
------------------------------------------------------------- ------ ------
Trade receivables (restated)(a) 77,716 44,097
Prepayments, other receivables and accrued income (restated) 10,700 4,993
VAT receivable 332 634
------------------------------------------------------------- ------ ------
88,748 49,724
------------------------------------------------------------- ------ ------
(a) For more details please refer to note 1
The Group has receivable financing arrangements in Hong Kong.
None of this facility was drawn at 31 March 2020 (2019:
GBPnil).
Please see note 15 for more details of the banking
facilities.
There are no trade receivables in the current year (2019:
GBPnil) expected to be recovered in more than twelve months.
The Group's exposure to credit and currency risks and provisions
for doubtful debts related to trade and other receivables is
disclosed in note 24.
14 Cash and cash equivalents/bank overdrafts
2020 2019
GBP000 GBP000
-------------------------------------------------- -------- --------
Cash and cash equivalents (restated)(a) 67,098 85,315
Bank Overdrafts (restated) (a) (25,004) (65,857)
-------------------------------------------------- -------- --------
Cash and cash equivalents per cash flow statement 42,094 19,458
-------------------------------------------------- -------- --------
(a) For more details please refer to note 1
Net cash
2020 2019
Note GBP000 GBP000
----------------------------------------- ---- ------ -------
Cash and cash equivalents 42,094 19,458
Bank loans and overdrafts 15 (796) (2,405)
Loan arrangement fees 975 31
----------------------------------------- ---- ------ -------
Net cash as used in the financial review 42,273 17,084
----------------------------------------- ---- ------ -------
The Group's exposure to interest rate risk and sensitivity
analysis for financial assets and liabilities are disclosed in note
24.
The bank loans and overdrafts are secured by a fixed charge on
certain of the Group's land and buildings, a fixed charge on
certain of the Group's book debts and a floating charge on certain
of the Group's other assets. See note 15 for further details of the
Group's loans and overdrafts.
Changes in net cash
Loan Other
assets
Loans arrangement Cash/bank
and
borrowings fees Sub total overdrafts Total
GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------------- ---------- ----------- --------- ---------- ------
Balance at 1 April 2018 (4,780) 105 (4,675) 9,031 4,356
Cash flows 2,350 30 2,380 11,178 13,558
Other changes
Amortisation of loan arrangement
fees - (104) (104) - (104)
Effect of movements in foreign exchange 25 - 25 (751) (726)
---------------------------------------- ---------- ----------- --------- ---------- ------
Balance at 1 April 2019 (2,405) 31 (2,374) 19,458 17,084
Cash flows 1,505 1,234 2,739 21,239 23,978
Changes from financing cash flows
Amortisation of loan arrangement
fees - (290) (290) - (290)
Effect of movements in foreign exchange 104 - 104 1,397 1,501
---------------------------------------- ---------- ----------- --------- ---------- ------
Balance at 31 March 2020 (796) 975 179 42,094 42,273
---------------------------------------- ---------- ----------- --------- ---------- ------
15 Loans and borrowings
This note provides information about the contractual terms of
the Group's interest - bearing loans and borrowings. For more
information about the Group's exposure to interest rate and foreign
currency risk, see note 24.
2020 2019
GBP000 GBP000
-------------------------------------- ------ ------
Non-current liabilities
Secured bank loans 348 1,421
Loan arrangement fees (525) -
-------------------------------------- ------ ------
(177) 1,421
-------------------------------------- ------ ------
Current liabilities
Current portion of secured bank loans 448 984
Loan arrangement fees (450) (31)
-------------------------------------- ------ ------
(2) 953
-------------------------------------- ------ ------
Terms and debt repayment schedule
2020 2019
GBP000 GBP000
-------------------------------- ------ ------
Due within one year:
Bank loans and borrowings 448 984
Due between one and two years:
Secured bank loans 348 984
Due between two and five years:
Secured bank loans - 437
-------------------------------- ------ ------
796 2,405
-------------------------------- ------ ------
Secured bank loans
On 5 June 2019, the Group entered into a new three year Group
facility with a club of five banks chosen to reflect and support
the geographical spread of the Group. The banks within the club are
HSBC, NatWest, BNP Paribas, Sun Trust and PNC.
On 17 January 2020 the facility was increased to support the
acquisition of CSS Industries Inc. on 3 March 2020 and to
accommodate the enlarged Group.
The facilities, which run to May 2022, comprises of:
-- a revolving credit facility ('RCF A') of $95.0 million;
-- a further flexible revolving credit facility ('RCF B') with
availability varying from month to month of up to GBP130.0 million.
This RCF is flexed to meet our working capital requirements during
those months when inventory is being built within our annual
business cycle and is GBPnil when not required, minimising carry
costs; and
-- an invoice financing arrangement in Hong Kong maximum limit
$18.0 million but dependent on level of eligible receivables
In total, the accessible facilities are approximately GBP212.0
million (maximum GBP219.0 million) and are more than sufficient to
cover our peak requirements. Being partially framed in US dollars
they also provide a hedge against currency movements. The
facilities, which do not amortise with time, include an additional
uncommitted amount to finance potential acquisitions.
Invoice financing arrangements are secured over the trade
receivables that they are drawn on. The RCF facilities are secured
with a fixed and floating charge over all other assets of the
Group.
There are financial covenants, tested quarterly, attached to the
existing facilities as follows:
-- interest cover, being the ratio of adjusted earnings before
interest, depreciation and amortisation (EBITDA) as defined by the
banking facility to interest on a rolling twelve--month basis;
and
-- leverage, being the ratio of debt to adjusted EBITDA as
defined by the banking facility on a rolling twelve-month
basis.
Covenants are measured on pre IFRS16 accounting definitions.
There is a further covenant tested monthly in respect of the
working capital RCF by which available asset cover must not fall
below agreed levels relative to amounts drawn.
In January 2018, the Group's Australia business obtained a
secured loan from Westpac of GBP5.1 million (AU$9.0 million). This
is repayable monthly over a five year period. It is subject to a
variable interest rate linked to the Australian base rate. GBP1.5
million was repaid during the year which, along with GBP104,000
exchange movement results in a balance at 31 March 2020 of
GBP796,000 (AU$1.6 million). The Australia business also borrows
from Westpac for financing working capital and the current facility
level is AU$5.0 million from January to June and AU$10.0 million
July to December.
Loan arrangement fees represent the unamortised costs in
arranging the Group facilities. These fees are being amortised on a
straight line basis over the terms of the facilities.
16 Deferred income
2020 2019
GBP000 GBP000
---------------------------------------- ------ ------
Included within non-current liabilities
Deferred grant income 452 751
---------------------------------------- ------ ------
Included within current liabilities
Deferred grant income 99 99
Other deferred income 32 -
---------------------------------------- ------ ------
131 99
---------------------------------------- ------ ------
The deferred grant income is in respect of government grants
relating to the development of the site in Wales. The conditions
for this grant were all fully met in January 2019.
17 Provisions
Property Other Total
GBP000 GBP000 GBP000
---------------------------------------- -------- ------- -------
Balance at 1 April 2019 3,434 327 3,761
Provisions made in the year 8 78 86
Additions of acquisition of business 1,753 2,284 4,037
Disposal of subsidiary (158) - (158)
Provisions released during the year (162) (1,454) (1,616)
Unwinding of fair value discounts 69 - 69
Provisions utilised during the year (26) - (26)
Effect of movements in foreign exchange 149 52 201
---------------------------------------- -------- ------- -------
Balance at 31 March 2020 5,067 1,287 6,354
---------------------------------------- -------- ------- -------
2020 2019
GBP000 GBP000
------------ ------ ------
Non-current 4,163 2,671
Current 2,191 1,090
------------ ------ ------
6,354 3,761
------------ ------ ------
The property provision represents the estimated reinstatement
cost of 13 (2019: six) of the Group's leasehold properties under
fully repairing leases. A professional valuation was performed
during 2016 for one of the leasehold properties and the provision
was reassessed and is stated after discounting. GBP990,000 (2019:
GBP935,000) of the non - current balance relates to a lease
expiring in 2036; the balance relates to items between one and five
years.
As a result of the acquisition of CSS Industries Inc. additional
provisions of GBP4.0 million have been recognised of which GBP1.8
million relates to the reinstatement costs of CSS' leased
properties. GBP2.2 million of other provisions relates to onerous
customer contracts which is a short term provision.
Other provisions are short term and represent management's best
estimate in respect of minor amounts arising in the normal course
of business
The timing of the utilisation of provisions assumes the business
continues to operate based on the most up to date business
plan.
18 Other financial liabilities
2020 2019
GBP000 GBP000
----------------------------------------------------------- ------ ------
Included within non-current liabilities
Other creditors and accruals 5,471 1,817
----------------------------------------------------------- ------ ------
Included within current liabilities
Other creditors and accruals (restated) 38,698 18,942
Interest rate swaps and forward foreign currency contracts
carried at fair value through the income statement - -
Interest rate swaps and forward foreign exchange contracts
carried at fair value through the hedging reserve 7 2
----------------------------------------------------------- ------ ------
38,705 18,944
----------------------------------------------------------- ------ ------
19 Trade and other payables
2020 2019
GBP000 GBP000
----------------------------------------- ------ ------
Trade payables 90,820 57,336
Other payables including social security 7,090 947
VAT payable 447 280
----------------------------------------- ------ ------
98,357 58,563
----------------------------------------- ------ ------
20 Share capital
Authorised share capital at 31 March 2020 and 2019 was GBP6.0
million into 121.0 million ordinary shares of 5p each.
Ordinary shares
-----------------
In thousands of shares 2020 2019
---------------------------------------------------- -------- -------
In issue at 1 April 78,366 63,890
Options exercised during the year 711 1,655
Share issue as part of the consideration for Impact
Innovations, Inc. - 3,017
Share placing 17,290 9,804
---------------------------------------------------- -------- -------
In issue at 31 March - fully paid 96,367 78,366
---------------------------------------------------- -------- -------
2020 2019
GBP000 GBP000
----------------------------------- ------ ------
Allotted, called up and fully paid
Ordinary shares of GBP0.05 each 4,818 3,918
----------------------------------- ------ ------
Of the 96.4 million shares in the Company, 31,000 (2019: 31,000)
are held by the International Greetings Employee Benefit Trust.
No share options were exercised during the year (2019: 200,000
ordinary shares were issued as a result of share option exercises
which generated cash proceeds of GBP28,000).
LTIP options exercised during the year resulted in 711,000
ordinary shares being issued at nil cost (2019: 1.5 million
ordinary shares being issued at nil cost).
In support of the acquisition of CSS Industries, Inc. on 24
January 2020, the Group raised GBP53.4 million after expenses of
GBP1.4 million by way of a share placing of 7.9 million new
ordinary shares at a share price of GBP6.94 per share. On 12
February 2020, the Group raised an additional GBP63.5 million after
expenses of GBP1.7 million by way of a share placing of 9.4 million
new ordinary shares at a share price of GBP6.94 per share.
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company.
21 Earnings per share(a)
2020 2019
Note GBP000 GBP000
------------------------------------------------------------- ----- --------- --------
Earnings
Earnings attributable to equity holders of the
Company 14,060 11,925
Adjustments
Adjusting items (net of non-controlling interest
effect) 28,562 12,891
Tax charge/(relief) on adjustments (net of non-controlling
interest effect) (6,504) (3,016)
Adjusting item - tax credit(a) 7 (13,810) -
------------------------------------------------------------- ----- --------- --------
Adjusted earnings attributable to equity holders
of the Company 22,308 21,800
------------------------------------------------------------- ----- --------- --------
Weighted average number of shares
Basic weighted average number of shares outstanding 82,605 73,610
Dilutive effect of employee share option plans 476 1,269
Diluted weighted average ordinary shares(b) 83,081 74,879
------------------------------------------------------------- ----- --------- --------
Earnings per share (pence)
Basic earnings per share 17.0 16.2
Adjustment 10.0 13.4
------------------------------------------------------------- ----- --------- --------
Basic adjusted earnings per share 27.0 29.6
------------------------------------------------------------- ----- --------- --------
Diluted earnings per share(b) 16.9 15.9
------------------------------------------------------------- ----- --------- --------
Diluted adjusted earnings per share(b) 26.9 29.1
------------------------------------------------------------- ----- --------- --------
Adjusted earnings per share is provided to reflect the
underlying earnings performance of the Group.
In thousands of shares 2020 2019 (a)
------------------------------------------------------ ------ --------
Issued ordinary shares at 1 April 78,366 63,890
Shares held by Employee Benefit Trust - (31)
Shares relating to share options 1,594 2,419
Shares issued as part of the consideration for Impact - 1,761
Shares issued in respect of share placing 2,645 5,571
------------------------------------------------------ ------ --------
Weighted average number of shares at 31 March 82,605 73,610
------------------------------------------------------ ------ --------
(a) Please refer to note 11 for details of the adjusting tax
credit associated with a US loss carry back claim.
(b) From 2020 onwards, the Group have adjusted their assumptions
as to the shares that are to be included in the calculation of the
weighted average number of shares for diluted EPS purposes. As such
the numbers detailed in respect of 2019 have been re-presented
using the same methodology in order to provide appropriate
comparatives.
Diluted earnings per share
The diluted earnings per share is calculated taking into account
LTIP awards whose specified conditions were satisfied at the end of
the year of 476,000 (2019: 1.2 million) share options (including
those under the Executive share options scheme). At 31 March 2020
the diluted number of shares was 83.1 million (2019: 74.9
million).
22 Dividends paid and proposed
A final dividend for year ending 31 March 2019 of 6.00p (for
year ending 31 March 2018: 4.00p) was paid on 16 September 2019. An
interim dividend of 3.00p was paid on 17 January 2020 (2019:
2.50p). The Directors are recommending a final dividend of 5.75p in
respect of the year ended 31 March 2020 (2019: 6.00p). If approved
it will be paid in November 2020 to shareholders on the register at
the close of business on 2 October 2020.
2020 2019
----------------- -----------------
Pence Pence
per share GBP000 per share GBP000
----------------------------------------- --------- ------ --------- ------
Final equity dividend for prior year 6.00 4,732 4.00 2,597
Interim equity dividend for current year 3.00 2,372 2.50 1,956
----------------------------------------- --------- ------ --------- ------
Dividends paid in the year 7,104 4,553
----------------------------------------- --------- ------ --------- ------
2020 2019
----------------- -----------------
Pence Pence
Proposed for approval at Annual General per share GBP000 per share GBP000
Meeting
---------------------------------------- --------- ------ --------- ------
Final equity dividend for the current
year 5.75 5,541 6.00 4,702
---------------------------------------- --------- ------ --------- ------
23 Employee Benefits
Post Employment Benefits
The Group administers a defined benefit pension plan that was
inherited through the acquisition of CSS Industries Inc. and covers
certain employees of a UK subsidiary. The scheme closed to future
accrual on 31 December 2012. This is a separate trustee
administered fund holding the pension scheme assets to meet long
term pension liabilities. The plan assets held in trust are
governed by UK regulations and responsibility for governance of the
plan - including investment decisions and contribution schedules -
lies with the group of trustees. The assets of the scheme are
invested in the SPI With-Profits Fund, which is provided by the
Phoenix Life Limited.
The last triennial valuation performed was in December 2017. A
further actuarial valuation was carried out at 28 February 2020,
just prior to the acquisition of the CSS business by a qualified
actuary, independent of the scheme's sponsoring employer. No
additional valuation was performed at the balance sheet date based
on the assumed immaterial movement between acquisition and year
end.
The major assumptions used by the actuary are shown below.
Present values of defined benefit obligation, fair value of
assets and defined benefit asset (liability)
2020
GBP000
-------------------------------------------------------- -------
Fair value plan of assets 2,442
Present value of defined benefit obligation (1,960)
-------------------------------------------------------- -------
Surplus (deficit) in plan 482
Net defined benefit asset (liability) to be recognised 482
-------------------------------------------------------- -------
Reconciliation of opening and closing balances of the defined
benefit obligation
2020
GBP000
----------------------------------------------- -------
Defined benefit obligation at start of year -
Liabilities acquired in a business combination (1,960)
Defined benefit obligation at end of year (1,960)
----------------------------------------------- -------
Reconciliation of opening and closing balances of the fair value
of plan assets
2020
GBP000
------------------------------------------- ------
Fair value of plan assets at start of year -
Assets acquired in a business combination 2,442
Fair value of plan assets at end of year 2,442
------------------------------------------- ------
Given the timing between acquisition and financial year end, no
amounts have been expensed against group operating profit, nor has
any finance expense been incurred.
The principal assumptions used by the independent qualified
actuaries for the purposes of IAS 19 are as follows:
2020
Increase in salaries -
Increase in pensions -
at RPI capped at 5% 3.50%
at CPI capped at 5% 1.95%
at CPI capped at 2.5% 1.95%
Discount rate 1.70%
Inflation rate - RPI 2.80%
Inflation rate - CPI 1.95%
Due to the timescale covered, the assumptions may not be borne
out in practice.
The life expectancy assumptions (in number of years) used to
estimate defined benefit obligations at the year end are as
follows:
2020
Male retiring today at age 60 26.4
Female retiring today at age 60 28.5
Male retiring in 20 years at age 60 28.0
Female retiring in 20 years at age 60 30.1
Long Term Incentive Plan
On 31 March 2014, the Group announced the introduction of a new
Long Term Incentive Plan ('LTIP'). Under the LTIP, options to
subscribe for ordinary shares of a nominal value of 5p each
('ordinary shares') may be awarded annually to Executive Board
Directors of the Company, Managing Directors and other selected
senior management team members within the Group. Ordinary shares
only vest to the degree that stretching performance conditions are
met. The maximum dilution under the LTIP is 15% over a ten year
period. The scheme rules, which have been agreed by the
Remuneration Committee, include reasonable provisions in the event
of change of control, suitable flexibility to modify performance
targets in specified situations and also a mechanism for claw-back
under certain circumstances. The Board retains the flexibility to
buy ordinary shares through an Employee Benefit Trust to mitigate
future dilution should it need to do so.
The performance period for each award under the LTIP is three
years. The cost to employees of ordinary shares issued under the
LTIP if the performance criteria are met is nil. In principle the
number of ordinary shares to be granted to each employee under the
LTIP will not be more than 325% in value of the relevant employee's
salary base. The maximum opportunity available is up to 175% for
the CEO and for other Executive Directors up to 150% of base
salary. For the 2018-2021 scheme grant B and the 2019-2022 scheme
(for Paul Fineman, Giles Willits, Lance Burn and two other members
of the Executive Committee) there is an outperformance element of
up to 50% of the initial grant.
Vested LTIP schemes - outstanding options
Exercise
Number of price
ordinary shares pence Exercise dates
------------------------- --------------- -------- -------------------
June 2017 - August
2014-2017 LTIP scheme 36,401 nil 2024
June 2018 - January
2015-2018 LTIP scheme 408,236 nil 2028
June 2019 - January
2016-2019 LTIP scheme 438,402 nil 2028
July 2020 - August
2017-2020 LTIP scheme(a) 476,449 nil 2027
------------------------- --------------- -------- -------------------
1,359,488
------------------------- --------------- -------- -------------------
All performance criteria have been met for the above
schemes.
2020 2019
-------------------- ---------------------
Weighted Weighted
average average
exercise Number of exercise Number of
price price
pence options pence options
----------------------------------- --------- --------- -------- -----------
Outstanding at the beginning
of the year nil 1,575,385 nil 2,306,034
Prior year adjustment(a) nil 18,337 - -
Options vesting during the year(b) nil 476,449 nil 723,632
Exercised during the year nil (710,683) nil (1,454,281)
----------------------------------- --------- --------- -------- -----------
Outstanding at the end of the
year nil 1,359,488 nil 1,575,385
----------------------------------- --------- --------- -------- -----------
Exercisable at the end of the
year nil 1,359,488 nil 1,575,385
----------------------------------- --------- --------- -------- -----------
(a) Relates to share options not included in the prior year balance
(b) 76% of the initial award plus dividend shares will formally
vest on 23 July 2020 following the Remuneration and Audit
Committees' approval of the results of the year ended 31 March
2020.
Scheme details for LTIPs in vesting periods during the year
During the financial year to 31 March 2020 there were three LTIP
schemes still within their vesting periods (2019: three).
The award and performance targets for these are in the tables
below.
Awards
2017-2020 2018-2021 2019-2022
------------------- ------------------ ---------
Grant A Grant B Grant A Grant B Grant A
------------------------ --------- -------- --------- ------- ---------
Fair value per share
(GBP) 3.71 4.04 5.55 5.56 6.02
Number of participants 18 2 16 5 30
Initial award 354,638 297,844 151,859 633,372 758,782
Dividend shares 8,963 8,686 2,303 11,841 10,796
Lapses and forfeitures (122,199) (71,483) (29,649) - (8,311)
------------------------ --------- -------- --------- ------- ---------
Potential to vest
as at 31 March 2020 241,402 235,047 124,513 645,213 761,267
------------------------ --------- -------- --------- ------- ---------
Potential to vest
as at 31 March 2019 305,401 304,897 134,154 636,080 -
------------------------ --------- -------- --------- ------- ---------
The LTIP awards 'Grant A' were made in 2017, 2018 and 2019
respectively. The LTIP awards 'Grant B' were made in January 2018
to Paul Fineman in respect of the 2015-2018 and 2016-2019 schemes
and to Paul Fineman and Giles Willits in respect of the 2017-2020
scheme. There was also a 'Grant B' award in respect of the
2018-2021 scheme to Paul Fineman, Giles Willits, Lance Burn and two
other members of the Executive Committee in November 2018.
The grant date fair value of the options granted in the year
assuming they are to vest in full is GBP4.6 million (2019: GBP4.4
million). The exercise price is nil.
Performance targets
Awards are granted with threshold and stretch targets. 25% of
the weighted awards vests if the relevant threshold target is
achieved with straight-line vesting of the balance up to 100% of
the weighted award if the stretch target is achieved.
The 'Grant B' of the 2018-2021 scheme and the 2019-2022 scheme
(for the Executive Board) also includes a super stretch target
which will vest in accordance with the following bands relating to
CAGR(b) in EPS(a) :
-- more than 17% but not more than 20%: 10% x number of shares
in respect of which the base award vests;
-- more than 20% but not more than 22.5%: 22% x number of shares
in respect of which the base award vests;
-- more than 22.5% but not more than 25%: 35% x number of shares
in respect of which the base award vests; and
-- more than 25%: 50% x number of shares in respect of which the base award vests.
Weighting Threshold Stretch Super stretch
----------------- --------- ---------- ------------ -------------
2017-2020 scheme
CAGR(b) 10 CAGR(b) 17.5
EPS(a) 100% % % -
----------------- --------- ---------- ------------ -------------
2018-2021 scheme
EPS(a) CAGR(b) 10 CAGR(b) 17.0 CAGR(b) 25.0
100% % % %
----------------- --------- ---------- ------------ -------------
2019-2022 scheme
EPS(a) CAGR(b) 10 CAGR(b) 17.0 CAGR(b) 25.0
100% % % %
----------------- --------- ---------- ------------ -------------
(a) EPS before Board approved adjusting items.
(b) Compound Annual Growth Rate.
In light of Covid-19 the remuneration committee are reviewing
the schemes that have not yet vested with a view to amending the
performance targets. At the reporting date, no decision on revised
metrics had been made.
Share-based payments charges
The total expense recognised for the year arising from equity --
settled share -- based payments are as follows:
2020 2019
GBP000 GBP000
---------------------------------------------------------- ------ ------
(Credit)/ Charge in relation to the 2016-2019 LTIP
scheme - 637
(Credit)/ Charge in relation to the 2017-2020 LTIP
scheme 382 1,083
(Credit)/ Charge in relation to the 2018-2021 LTIP
scheme (613) 613
(Credit) / Charge in relation to the 2019-2022 LTIP
Scheme - -
---------------------------------------------------------- ------ ------
Equity-settled share-based payments (credit)/charge (231) 2,333
Social security charge on LTIP awards 29 672
---------------------------------------------------------- ------ ------
Total equity-settled share-based payments (credit)/charge (202) 3,005
---------------------------------------------------------- ------ ------
Social security charges on share-based payments
Social security is accrued, where applicable, at a rate which
management expects to be the prevailing rate when share-based
incentives are exercised and is based on the latest market value of
options expected to vest or having already vested.
The total social security accrual outstanding at the year end in
respect of share-based payment transactions was GBP824,000 (2019:
GBP1.1 million).
24 Financial instruments
Derivative financial assets
a) Fair values of financial instruments
The carrying values for each class of financial assets and
financial liabilities in the balance sheet, which are given below,
are not considered to be materially different to their fair
values.
As at 31 March 2020, the Group had derivative contracts, which
were measured at Level 2 fair value subsequent to initial
recognition, to the value of an asset of GBP332,000 (2019:
GBP129,000) and a liability of GBP7,000 (2019: GBP2,000).
Derivative financial instruments
The fair value of forward exchange contracts is assessed using
valuation models taking into account market inputs such as foreign
exchange spot and forward rates, yield curves and forward interest
rates.
Fair value hierarchy
Financial instruments which are recognised at fair value
subsequent to initial recognition are grouped into Levels 1 to 3
based on the degree to which the fair value is observable. The
three levels are defined as follows:
-- Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
b) Credit risk
Financial risk management
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations and arises principally from the Group's
receivables from customers and investment securities.
The Group's exposure to credit risk is managed by dealing only
with banks and financial institutions with strong credit ratings.
The Group's financial credit risk is primarily attributable to its
trade receivables.
The main customers of the Group are large and mid -- sized
retailers, other manufacturers and wholesalers of greetings
products, service merchandisers and trading companies. The Group
has established procedures to minimise the risk of default of trade
receivables including detailed credit checks undertaken before new
customers are accepted and rigorous credit control procedures after
sale. These processes have proved effective in minimising the level
of provisions for doubtful debts required.
The amounts presented in the balance sheet are net of allowances
for doubtful receivables estimated by the Group's management, based
on prior experience and their assessment of the current economic
environment.
Exposure to credit risk
The carrying amount of financial assets represents the maximum
credit exposure. Therefore, the maximum exposure to credit risk at
the balance sheet date was GBP150.2 million (2019: GBP129.7 million
after restatement) being the total of the carrying amount of
financial assets, excluding equity investments above.
The maximum exposure to credit risk for trade receivables at the
balance sheet date by geographic region was:
2020 2019
GBP000 GBP000
--------------- ------ ------
UK and Asia 9,246 8,998
USA (restated) 60,631 25,933
Europe 5,106 5,303
Australia 2,733 3,863
--------------- ------ ------
77,716 44,097
--------------- ------ ------
Credit quality of financial assets and impairment losses
There was no change to the level of provision for doubtful debts
upon the adoption of IFRS 9.
The ageing of trade receivables at the balance sheet date
was:
2020 2019
----------------------------- -----------------------------
Expected Provisions Expected Provisions
for for
loss rate Gross doubtful loss rate Gross doubtful
debts debts
% GBP000 GBP000 % GBP000 GBP000
------------------------ --------- ------ ---------- --------- ------ ----------
Not past due (restated) 8.0 62,707 (5,028) 0.6 35,985 (200)
Past due 0-60 days 11.1 17,988 (1,998) 5.4 6,854 (369)
61-90 days 33.6 1,975 (664) 18.4 1,601 (295)
More than 90 days 64.4 7,687 (4,951) 90.9 5,727 (5,206)
------------------------ --------- ------ ---------- --------- ------ ----------
14.0 90,357 (12,641) 12.1 50,167 (6,070)
------------------------ --------- ------ ---------- --------- ------ ----------
There were no unimpaired balances outstanding at 31 March 2020
(2019: GBPnil) where the Group had renegotiated the terms of the
trade receivable.
Expected credit loss assessment
For the Group's trade receivables, expected credit losses are
measured using a provisioning matrix based on the reason the trade
receivable is past due. The provision matrix rates are based on
actual credit loss experience over the past three years and
adjusted, when required, to take into account current
macro-economic factors. The Group applies experienced credit
judgement that is determined to be predictive of the risk of loss
to assess the expected credit loss, taking into account external
ratings, financial statements and other available information. The
Group's trade receivables are unlikely to extend past twelve months
and as such for the purposes of expected credit loss modelling, the
lifetime expected credit loss impairments recognised are the same
as a 12 month expected credit loss.
There has been no significant credit risk movements since
initial recognition of impairments.
The movement in the allowance for impairment in respect of trade
receivables during the year was as follows:
2020 2019
GBP000 GBP000
---------------------------------------- ------- ------
Balance at 1 April 6,070 804
Charge for the year 6,505 1,697
Unused amounts reversed (1,034) (51)
Acquisition of businesses 1,757 3,724
Amounts written off (953) (407)
Effects of movement in foreign exchange 296 303
---------------------------------------- ------- ------
Balance at 31 March 12,641 6,070
---------------------------------------- ------- ------
The allowance account for trade receivables is used to record
provisions for doubtful debts unless the Group is satisfied that no
recovery of the amount owing is possible; at that point the amounts
considered irrecoverable are written off against the trade
receivables directly.
c) Liquidity risk
Financial risk management
Liquidity risk is the risk that the Group, although solvent,
will encounter difficulties in meeting obligations associated with
the financial liabilities that are settled by delivering cash or
another financial asset. The Group's policy with regard to
liquidity ensures adequate access to funds by maintaining an
appropriate mix of short - term and longer - term facilities, which
are reviewed on a regular basis. The maturity profile and details
of debt outstanding at 31 March 2019 are set out in note 15.
The following are the contractual maturities of financial
liabilities, including estimated interest payments:
Carrying Contractual One year One to Two to More than
two five
amount cash flows or less years years five years
31 March 2020 Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ---- -------- ----------- --------- -------- -------- ----------
Non-derivative financial
liabilities
Secured bank loans
- Australian dollar
(a) 796 (821) (460) (361) - -
Other financial liabilities
(b) 18 44,169 (44,169) (38,699) (5,446) (22) (2)
Lease liabilities (b) 10 76,946 (88,341) (16,247) (14,753) (32,298) (25,043)
Trade payables (b) 19 90,820 (90,820) (90,820) - - -
Other payables (b) 19 7,537 (7,537) (7,537) - - -
Derivative financial
liabilities
Forward foreign exchange
contracts carried at
fair value through
the hedging reserve(b) 7 (3,629) (3,629) - - -
---------------------------- ---- -------- ----------- --------- -------- -------- ----------
220,275 (235,317) (157,392) (20,560) (32,320) (25,045)
---------------------------- ---- -------- ----------- --------- -------- -------- ----------
(a) Nominal interest rate 4.49%.
(b) Measured at Level 2.
Carrying Contractual One year One to Two to More than
two five
amount cash flows or less years years five years
31 March 2019 Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ---- -------- ----------- -------- ------- ------ ----------
Non-derivative financial
liabilities
Secured bank loans
- Australian dollar(a) 2,405 (2,532) (1,069) (1,023) (440) -
Other financial liabilities(b)
(restated) 18 20,759 (20,759) (18,942) (373) (171) (1,273)
Trade payables(b) 19 57,336 (57,336) (57,336) - - -
Other payables(b) 19 1,227 (1,227) (1,227) - - -
Derivative financial
liabilities
Forward foreign exchange
contracts carried at
fair value through
the hedging reserve(b) 2 (248) (248) - - -
------------------------------- ---- -------- ----------- -------- ------- ------ ----------
81,729 (82,102) (78,822) (1,396) (611) (1,273)
------------------------------- ---- -------- ----------- -------- ------- ------ ----------
(a) Nominal interest rate 4.49%.
(b) Measured at Level 2.
The following table shows the facilities for bank loans,
overdrafts, asset -- backed loans and revolving credit
facilities:
31 March 2020 31 March 2019
----------------------------------------- -----------------------------------------
Facility Facility
used used
Carrying contractual Facility Total Carrying contractual Facility Total
amount cash flows unused facility amount cash flows unused facility
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- -------- ----------- -------- -------- -------- ----------- -------- --------
Secured bank
loans 796 (821) - (821) 2,405 (2,532) - (2,532)
Corporate revolving
credit facilities - - (78,246) (78,246) - - (29,602) (29,602)
Receivables
financing - - - - - - (15,967) (15,967)
Bank overdraft - - (3,581) (3,581) - - (3,249) (3,249)
-------------------- -------- ----------- -------- -------- -------- ----------- -------- --------
796 (821) (81,827) (82,648) 2,405 (2,532) (48,818) (51,350)
-------------------- -------- ----------- -------- -------- -------- ----------- -------- --------
The receivables financing facilities are dependent upon the
levels of the relevant receivables.
The major bank facilities vary in the year depending on forecast
debt requirements. The maximum limit across all facilities with the
major bank was GBP219.0 million (2019: GBP139.0 million).
At 31 March 2020 the facility amounted to GBP78.2 million (2019:
GBP45.6 million).
Additional facilities were available at other banks of GBP3.6
million (2019: GBP3.2 million).
On 5 June 2019 we entered into a new three year Group banking
facility, see note 15 for more information.
d) Cash flow hedges
The following derivative financial instruments were designated
as cash flow hedges:
2020 2019
Forward exchange contracts carrying amount GBP000 GBP000
------------------------------------------- ------ ------
Derivative financial assets 332 129
Derivative financial liabilities (7) (2)
------------------------------------------- ------ ------
The Group has forward currency hedging contracts outstanding at
31 March 2020 designated as hedges of expected future purchases in
US dollars and Chinese renminbi and sales in euros for which the
Group has firm commitments, as the derivatives are based on
forecasts an economic relationship exists at the time the
derivative contracts are taken out.
The terms of the forward currency hedging contracts have been
negotiated to match the terms of the commitments. All contracts
outstanding at the year end crystallise within 12 months of the
balance sheet date at average prices of 1.11 for US dollar
contracts (2019: 1.16), 7.09 for Chinese Renminbi contracts (2019:
n/a) and 1.14 for Euro contracts (2019: n/a). At the year end the
Group held $9.6 million (2019: $6.7 million), RMB 31.9 million
(2019: RMB nil) and EUR0.9 million (2019: EURnil) in hedge
relationships.
When assessing the effectiveness of any derivative contracts,
the Group assesses sources of ineffectiveness which include
movements in volumes or timings of the hedged cashflows.
The cash flow hedges of the expected future purchases in 2021
were assessed to be highly effective and as at 31 March 2020 a net
unrealised gain of GBP517,000 (2019: GBP377,000) with related
deferred tax credit of GBPnil (2019: GBPnil) was included in other
comprehensive income in respect of these hedging contracts. Amounts
relating to ineffectiveness recorded in the income statement in the
year was GBPnil (2019: GBP27,000 credit)
e) Market risk
Financial risk management
Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates and equity prices, will
affect the Group's income or the value of its holdings of financial
instruments.
The Group hedges a proportion, as deemed appropriate by
management, of its sales and purchases of inventory denominated in
foreign currency by entering into foreign exchange contracts. Such
foreign exchange contracts typically have maturities of less than
one year.
The Group rarely hedges profit translation exposure, since such
hedges provide only a temporary deferral of the effects of movement
in foreign exchange rates. Similarly, the Group does not hedge its
long - term investments in overseas assets.
However, the Group holds loans that are denominated in the
functional currency of certain overseas entities.
The Group's exposure to foreign currency risk is as follows.
This is based on the carrying amount for monetary financial
instruments, except derivatives, when it is based on notional
amounts.
Sterling Euro US dollar Other Total
31 March 2020 Note GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- ---- -------- -------- --------- ------- --------
Long term assets - - 5,019 - 5,019
Cash and cash equivalents 14 7,988 2,682 50,238 6,190 67,098
Trade receivables 13 7,823 5,090 62,012 2,791 77,716
Derivative financial
assets 198 - - 134 332
Secured bank loans 15 - - - (796) (796)
Bank overdrafts - (10,408) (14,559) (37) (25,004)
Loan arrangement fees 15 975 - - - 975
Trade payables 19 (8,858) (6,335) (73,382) (2,245) (90,820)
Other payables 19 (754) (632) (5,991) (160) (7,537)
-------------------------- ---- -------- -------- --------- ------- --------
Balance sheet exposure 7,372 (9,603) 23,337 5,877 26,983
-------------------------- ---- -------- -------- --------- ------- --------
Sterling Euro US dollar Other Total
31 March 2019 Note GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- ---- -------- ------- --------- ------- --------
Cash and cash equivalents
(restated) 14 65,845 4,922 9,719 4,829 85,315
Trade receivables (restated) 13 7,731 5,403 27,112 3,851 44,097
Other receivables 966 22 1,651 40 2,679
Derivative financial assets 110 - - 19 129
Secured bank loans 15 - - - (2,405) (2,405)
Bank overdrafts (restated) - - (9,539) (56,315) (3) (65,857)
Loan arrangement fees 15 31 - - - 31
Trade payables 19 (10,494) (7,013) (30,378) (9,451) (57,336)
Other payables 19 (541) (409) - (277) (1,227)
----------------------------- ---- -------- ------- --------- ------- --------
Balance sheet exposure 63,648 (6,614) (48,211) (3,397) 5,426
----------------------------- ---- -------- ------- ---------
The following significant exchange rates applied during the
year:
Average rate Reporting date
spot rate
2020 2019 2020 2019
---------- ------ ------ ------- -------
Euro 1.14 1.13 1.12 1.16
US dollar 1.27 1.31 1.24 1.30
---------- ------ ------ ------- -------
Sensitivity analysis
A 10% weakening of the following currencies against sterling at
31 March 2020 would have affected equity and profit or loss by the
amounts shown below. This calculation assumes that the change
occurred at the balance sheet date and had been applied to risk
exposures existing at that date.
This analysis assumes that all other variables, in particular
other exchange rates and interest rates, remain constant. The
analysis was performed on the same basis for 31 March 2019.
Equity Profit/(loss)
--------------
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
---------- ------ ------ ------- ------
Euro (873) 601 22 6
US dollar 2,122 4,775 183 883
---------- ------ ------ ------- ------
On the basis of the same assumptions, a 10% strengthening of the
above currencies against sterling at 31 March 2020 would have
affected equity and profit or loss by the following amounts:
Equity Profit/(loss)
----------------
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
---------- ------- ------- ------ -------
Euro 1,067 (735) (27) (8)
US dollar (2,593) (5,837) (223) (1,079)
---------- ------- ------- ------ -------
Profile
At the balance sheet date the interest rate profile of the
Group's interest-bearing financial instruments was:
2020 2019
Note GBP000 GBP000
--------------------------------- ---- -------- --------
Variable rate instruments
Financial assets (restated) 67,098 85,315
Financial liabilities (restated) (25,800) (68,262)
Loan arrangement fees 975 31
--------------------------------- ---- -------- --------
Net cash 14 42,273 17,084
--------------------------------- ---- -------- --------
A change of 50 basis points (0.5%) in interest rates in respect
of financial assets and liabilities at the balance sheet date would
have affected equity and profit or loss by the amounts shown below.
This calculation assumes that the change occurred at the balance
sheet date and had been applied to risk exposures existing at that
date.
This analysis assumes that all other variables, in particular
foreign currency rates, remain constant and considers the effect on
financial instruments with variable interest rates, financial
instruments at fair value through profit or loss. The analysis is
performed on the same basis for 31 March 2019.
Sensitivity analysis
2020 2019
GBP000 GBP000
--------------- ---------------- ----------------
Equity
Increase 206 85
Decrease - -
Profit or loss
Increase 206 85
Decrease - -
--------------- ---------------- ----------------
f) Capital management
The Board's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the business. The Group is dependent on the
continuing support of its bankers for working capital facilities
and so the Board's major objective is to keep borrowings within
these facilities.
The Board manages as capital its trading capital, which it
defines as its net assets plus net debt. Net debt is calculated as
total debt (bank overdrafts, loans and borrowings as shown in the
balance sheet), less cash and cash equivalents. The banking
facilities with our principal bank have covenants relating to
interest cover, cash flow cover and leverage, and our articles
currently permit borrowings (including letter of credit facilities)
to a maximum of four times equity.
Equity
2020 2019
Note GBP000 GBP000
------------------------------------------------ ---- -------- --------
Net equity attributable to owners of the Parent
Company 299,375 171,506
Net cash 14 (42,273) (17,084)
------------------------------------------------ ---- -------- --------
Trading capital 257 102 154,422
------------------------------------------------ ---- -------- --------
The main areas of capital management relate to the management of
the components of working capital including monitoring inventory
turn, age of inventory, age of trade receivables, balance sheet
reforecasting, monthly profit and loss, weekly cash flow forecasts
and daily cash balances. Major investment decisions are based on
reviewing the expected future cash flows and all major capital
expenditure requires sign off by the Chief Financial Officer and
Chief Executive Officer or above certain limits, by the Board.
There were no major changes in the Group's approach to capital
management during the year. A particular focus of the Group is
leverage measured as the ratio of average monthly net debt to
EBITDA before adjusting items.
25 Capital commitments
At 31 March 2020, the Group had outstanding authorised capital
commitments to purchase plant and equipment for GBP1.9 million
(2019: GBP2.7 million).
26 Related parties
2020 2019
GBP000 GBP000
----------------------------- ------ ------
Sale of goods:
Hedlunds Pappers Industri AB 209 69
Festive Productions Ltd 7 12
Hedlund Import AB 2,225 2,955
S A Greetings (pty) Ltd 169 126
----------------------------- ------ ------
2,610 3,162
----------------------------- ------ ------
Purchase of goods:
Mattr Media Ltd 71 56
----------------------------- ------ ------
71 56
----------------------------- ------ ------
Receivables:
Hedlund Import AB - 29
S A Greetings (pty) Ltd - 31
----------------------------- ------ ------
- 60
----------------------------- ------ ------
Payables:
Mattr Media Ltd 25 -
----------------------------- ------ ------
Balance at 31 March 25 -
----------------------------- ------ ------
Identity of related parties and trading
Hedlund Import AB and AB Alrick-Hedlund are under the ultimate
control of the Hedlund family who are a major shareholder in the
Company. Anders Hedlund is a director of Hedlunds Pappers Industri
AB which is under the ultimate control of the Hedlund family.
Festive Productions Ltd is a subsidiary undertaking of Malios
Holding AG, a company under the ultimate control of the Hedlund
family.
John Charlton is Chairman of SA Greetings (pty) Ltd (South
African Greetings).
During the year the Company paid for marketing services to Mattr
Media Ltd, a company controlled by Joshua Fineman, who is the son
of the Group CEO.
The above trading takes place in the ordinary course of
business.
Other related party transactions
Directors of the Company and their immediate relatives have an
interest in 27% (2019: 34%) of the voting shares of the
Company.
Directors' Remuneration
2020 2019
------------------------------------- ----- -----
Short-term employee benefits 1,407 1,835
Post-employment benefits 8 12
Share-based payments (credit)/charge (17) 1,937
------------------------------------- ----- -----
1,398 3,784
------------------------------------- ----- -----
27 Subsidiary with significant non - controlling interest
The Company has two subsidiary companies which have a material
non-controlling interest, IG Design Group Australia Pty Ltd
('Australia') and Anker Play Products LLC ('APP'). Summary
financial information in relation to Australia and APP is shown
below.
2020 2019
Australia APP Total Australia APP Total
Non-controlling interest - balance GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
sheet as at 31 March
Non-current assets 8,540 191 8,731 4,582 16 4,598
Current assets 9,269 2,514 11,783 10,052 3,219 13,271
Current liabilities (4,997) (2,752) (7,749) (6,755) (2,600) (9,355)
Non-current liabilities (5,325) (62) (5,387) (143) - (143)
2020 2019
Australia APP Total Australia APP Total
Non-controlling interest-comprehensive GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
income for the year ended 31 March
---------
Revenue 32,337 14,979 47,316 39,067 11,078 50,145
Profit after tax 1,500 (731) 769 2,434 531 2,965
Total comprehensive income 1,615 (731) 884 2,229 531 2,760
2020 2019
Australia APP Total Australia APP Total
Non-controlling interest - cash flow GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
for the year ended 31 March
Net increase/(decrease) in cash and
cash equivalents 374 50 424 444 (35) 409
2020 2019
Australia APP Total Australia APP Total
Non-controlling interest GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
1 April 3,740 311 4,051 3,661 - 3,661
Share of profits for the year 750 - 750 1,326 - 1,326
Other comprehensive income 57 - 57 (10) - (10)
(Derecognition)/ recognition of non-controlling
interest - (325) (325) - 311 311
Disposal of Urban Dollar - - - (110) - (110)
Dividend paid to non-controlling interest - - - (1,075) - (1,075)
IFRS 16 retained earnings adjustment (440) - (440) - - -
Currency translation (363) 14 (349) (52) - (52)
31 March 3,744 - 3,744 3,740 311 4,051
28 Acquisitions and disposals of subsidiaries
Acquisitions in the year
On 3 March 2020, the Group acquired 100% of the equity of CSS
Industries, Inc. ("CSS"), a creative consumer products company,
focused on the craft, gift and seasonal categories predominately
within the US.
The acquisition, made through a wholly owned subsidiary of IG
Design Group plc, IG Design Group Americas Inc., was satisfied by
total consideration of GBP95.9 million ($122.8 million), all of
which was paid in cash.
CSS was a NYSE listed designer and manufacturer of craft,
seasonal and gift products. CSS specialises in the creative
development, manufacture and sale of products through a
multi-channel distribution model to a broad base of mass, specialty
and online retailers and distributors. Its core products within
each category are as follows:
-- Craft - sewing patterns, ribbons, trims, buttons, needle arts and kids' crafts;
-- Gift - products designed to celebrate certain life events or
special occasions, with a focus on ribbons, bows, bags and wrap, as
well as stationery, baby gift items, and party and entertaining
products; and
-- Seasonal - holiday gift packaging items including ribbons,
bows, bags, tags and gift card holders, in addition to specific
holiday-themed decorations and activities.
The Directors believe that the acquisition will:
-- broaden the Group's product portfolio and provides its
customers with a substantially enhanced "one-stop-shop" product and
service offering;
-- allow Design Group entry into the craft market and accelerates online revenues;
-- deliver substantial estimated annual synergies of GBP10.0 million by March 2023; and
-- provide for tangible operating synergies through the
combination of the Group's US business with CSS, including
economies of scale, enhanced US manufacturing capacity and combined
US distribution network.
In the period from acquisition to 31 March 2020, CSS contributed
sales of GBP15.9 million to the consolidated Group revenue for the
year ended 31 March 2020 and adjusted profit of GBP3.4 million. If
the acquisition had occurred on 1 April 2019, Group revenue would
have been GBP716.7 million and net adjusted profit before tax would
have been GBP28.9 million.
GBP3.6m of transaction costs were recognised in the consolidated
income statement in adjusting items.
Effect of acquisition of CSS
Provisional
fair values
recognised
on acquisition
GBP000
Property, plant and equipment 31,695
Right-of-use assets 31,758
Intangible assets 4,656
Inventories 44,242
Trade and other receivables 51,013
Doubtful debt provision (1,743)
Cash 8,233
Trade and payables (58,739)
Provisions (4,037)
Income taxes (2,991)
Deferred tax 6,873
Lease liabilities (36,988)
Net identifiable assets and liabilities 73,972
Consideration paid in shares -
Consideration paid in cash 95,929
Total consideration 95,929
Goodwill 21,957
The valuation techniques used for measuring the fair value of
material assets acquired were as follows:
-- property, plant and equipment has been valued using market
comparison and cost techniques. The valuation model considers
market prices for similar items when they are available, and
depreciated replacement costs when appropriate. Depreciated
replacement cost reflects adjustments for physical deterioration as
well as functional and economic obsolescence. The Directors
consider that the property plant and equipment has been fairly
valued using the depreciated replacement cost method although the
assessment is provisional and will be finalised during the look
back period
-- intangible assets are made up of customer relationships which
have been valued using a Multi-period Excess Earnings Method
('MEEM') approach and brands valued using the relief-from royalty
method; and the replacement cost approach has been used to value
the raw materials, intermediary inventory and finished goods
purchased (adjusted for reserves) as at the Valuation Date. WIP and
finished goods manufactured are valued using Net Realisable Value
("NRV") method.
The goodwill recognised above includes certain intangible assets
that cannot be separately identified and measured due to their
nature. This includes control over the acquired business, the
skills and experience of the assembled workforce, the increase in
scale, significant synergies and the future growth opportunities
that the business provide to the Group's operations. The goodwill
is not deductible for tax purposes.
Contingent liabilities of GBP3.6 million were recognised as part
of the business combination relating to reinstatement costs of
leased buildings, potential change of control penalties, potential
environmental claims and potential litigation. The liabilities have
the potential to unwind over one to five years and contain
estimates.
Fair values of assets and liabilities, including property, plant
and equipment, acquired for CSS are provisional and subject to
change as the Group is still permitted to make fair value
adjustments up until 12 months after the date of acquisition.
Disposals in the current year
On 24 February 2020, the Group divested of its operations in
Shaoxing to Chen Yue, a well-known supplier to the Group, and
comprised a sale of 100% of the equity of the company, which was a
direct subsidiary of IG Design Group Americas Inc. After the
release of acquisition risks provisions in the opening balance
sheet relating to commercial and tax issues, the disposal resulted
in a gain before tax of GBP2.0 million, which has been recognised
within adjusting items. Related transaction costs and tax costs of
GBP487,000 were also recognised in the consolidated income
statement in adjusting items.
The disposal proceeds, net liabilities disposed of and gains
arising from the movement in foreign currency exchange from the
divestment of the Shaoxing business were as follows:
GBP000
Property, plant and equipment 108
Right-of-use assets 461
Inventories 635
Trade and other receivables 561
Corporation tax (2,570)
Trade and other payables (444)
Provisions (158)
Lease liabilities (502)
(1,909)
Gain on disposal calculated as:
Disposal proceeds 98
Net liabilities disposed 1,909
2,007
Transaction costs (193)
Tax on sale of business (including Chinese withholding
tax) (294)
Reclassification of gains from movement in foreign
currency exchange (34)
1,486
Disposal proceeds
Satisfied by:
Cash consideration 98
Deferred consideration (98)
Net cash outflow from disposals of businesses -
Acquisitions in the prior year
Impact Innovations Inc.
On 31 August 2018, the Group acquired 100% of the equity of
Impact Innovations Inc. ('Impact'), a leading supplier of gift
packaging and seasonal décor products in the US.
The provisional acquisition accounting as stated in the
financial statements to 31 March 2019 has been reviewed and
measurement period adjustments made to goodwill, intangibles and
provisions. The fair values of the assets and liabilities acquired
have been reconsidered as part of the hindsight period. The changes
made were the creation of additional provisions of GBP1.3 million
and reduction of certain intangible assets (trade name) from GBP1.9
million to GBP1.2 million.
In the period from acquisition to 31 March 2019, Impact
contributed sales of GBP88.7 million to the consolidated Group
revenue for the year ended 31 March 2019. If the acquisition had
occurred on 1 April 2018, Group revenue would have been GBP489.8
million. Following the restructuring of the US business to combine
manufacturing facilities into one operation, it is no longer
possible to separately disclose the profit of the Impact
business.
Adjustment to provisional accounting
Provisional Adjustments Final
fair values within fair values
the
recognised measurement recognised
on acquisition period on acquisition
GBP000 GBP000 GBP000
-------------- ----------- --------------
Property, plant and equipment 9,313 9,313
Intangible assets 19,000 (692) 18,308
Inventories 26,295 26,295
Trade and other receivables 31,966 31,966
Cash 1,208 1,208
Trade and other payables (31,433) (31,433)
Provisions (including taxation) (2,197) (1,312) (3,509)
Net identifiable assets and liabilities 54,152 (2,004) 52,148
Consideration paid in shares 15,385 15,385
Consideration paid in cash 66,809 66,809
Total consideration 82,194 82,194
Goodwill 28,042 2,004 30,046
Fair value adjustments were made to trade names, customer
relationships and inventory.
29 Non-adjusting post balance sheet events
There were no known material non-adjusting events which occurred
between the end of the reporting period and prior to the
authorisation of these financial statements on 27 July 2020.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR MZGZNRNLGGZM
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July 28, 2020 02:00 ET (06:00 GMT)
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