It was with a heavy heart that in early June 2014, I announced
that Rich Eckman, CEO of International Greetings, USA and our
highly respected and capable Board Director, had passed away.
Rich possessed many outstanding qualities, amongst which was the
ability to lead and nurture a first class team and an appetite to
continually 'raise the bar'. It was our pleasure and privilege to
have worked alongside a true gentleman and a very dear
colleague.
Australia
Whilst the Australian economy experienced an overall slowdown
during the year, our revenues, as in 2013, represented 12% of
overall Group sales.
Operational performance was underpinned by the prior year's
investment in our logistics facilities, enabling us to provide
unprecedented levels of order fulfilment to an ever increasing
range of retail customers across the nation.
Revenue by product category, brands and seasons
Our ongoing focus on two main product categories resulted in
sales of gift packaging and greetings related products achieving a
record 70% of Group revenues, whilst stationery and creative play
products delivered 30% of revenues (following our withdrawal from a
non-core category and also as a result of the last quarter's
extreme weather conditions in the USA).
Sales of IG's generic brands achieved 55% of overall revenues,
with customer bespoke brands achieving 45%. The continued success
of our Tom Smith brand, which holds the Royal Warrant for the
supply to the Her Majesty the Queen of Christmas Crackers, was
further enhanced by the granting during the year of an extension of
the Royal Warrant to the Tom Smith brand of gift wrapping
products.
With sales of Everyday products at 44% and Christmas products at
56% of Group revenues, the Group's products are sold in over
100,000 retail stores worldwide.
Our team
I wish to express my sincere thanks and genuine admiration for
our team who have embraced change throughout our Group, whilst
combatting ever demanding market conditions with initiative,
remarkable energy and commitment.
Our strategy
Our strategic objectives are consistently applied and the
foundation for the Group's recent years of ongoing improved
performance. These are:
* nurturing the mutually valuable relationships we
enjoy with our customers, suppliers and stakeholders;
* creating a toolbox of marketing, design, product and
brand category expertise;
* providing best quality, value and service through
optimum product development, manufacturing, sourcing
and supply;
* giving our teams across the world the knowledge and
tools needed to achieve their goals; and
* balancing our business, through sustainable and
growing sales across geographic regions, seasons,
product categories and brands
The future
Having successfully completed the first year of a new three-year
plan, we are in good shape to deliver against our target of overall
double digit cumulative average growth in earnings per share.
We are also very much on course to fulfil our commitment of
reduced debt and leverage below two times debt/EBITDA.
Our Group continues to identify opportunities to grow and looks
forward to the future with increased confidence built on stronger
foundations for improving performance.
Paul Fineman
CEO
Financial review
Key achievements
-- Sales steady year on year, after rationalisation of some non core sales in the UK
-- Gross margin slightly up on prior year at 18.4% (2013: 18.3%), and overheads under control
-- Profit before tax, exceptional items and LTIP charges up 4%
at GBP7.6 million (2013: GBP7.3 million)
-- Fully diluted earnings per share before exceptional items
increased 6.4% to 8.3p (2013: 7.8p)
-- Cash generated from operations up over 100% at GBP15.2 million (2013: GBP7.5 million)
-- Net debt down 12.3% to GBP36.9 million (2013: GBP42.1
million) and leverage down 0.4 times to 2.4 times despite major
capital investment programme of GBP8.3 million (2013: GBP1.9
million)
Group performance
The financial position of the Company has improved materially in
the period though we still battle with headwinds in the economy at
large. The significant investment in Wales in new high-definition
printing is all but complete, with the new presses already fully
operational and the principle operational risks of change now
behind us. Despite this substantial capital investment, which will
yield margin improvements in 2014/15 and beyond, net debt actually
fell substantially to GBP36.9 million (2013: GBP42.1 million),
putting us ahead of plan to achieve our reductions in leverage. Our
key target of earnings per share (fully diluted and stated before
exceptional items) also improved by 6.4% to 8.3p, pleasingly
putting us slightly ahead of our plan.
Continuing operations
Revenues for the year to 31 March 2014 were down slightly from
GBP225.2 million in 2013 to GBP224.5 million in the current year.
However, this masks the effect of foreign exchange rates on
overseas earnings and if this is adjusted, total revenue is up
slightly by 0.4%. Sales in the UK segment fell, partly due to
withdrawal from a non-core product category, while sales in every
other segment grew well: 5-6% in Australia and USA and 16% in
Europe, where it is proving possible to cost effectively add market
share despite very competitive pricing, following the investment in
2012 in a new printing technology, identical to that which we have
now deployed in the UK.
Gross profit margin before exceptional items at 18.4% is very
similar to the prior year (2013: 18.3%). While acceptable, margin
was impacted most particularly by the adverse weather conditions in
the USA in Q4, as the sales of "everyday upscale" product
categories (those most impacted) typically attract a significantly
higher gross margin. Margins in the UK and European segments
developed well reflecting mainly efficiencies, including those
linked to the economies of scale seen in Europe. The Company aims
to improve margins commercially by increasing the balance of own
brand products and non-Christmas business but efficiencies in
sourcing and manufacturing will continue to contribute, especially
following the investment in Wales which will start to show an
effect in 2014/15.
An important dynamic to margin also continues to be the level of
FOB business delivered directly to major customers at ports in
China. This type of business continues to grow especially in the
USA and Australia with the major value chains.
This typically attracts lower gross margins but it is a means of
retaining or winning large volumes of business, in a manner that
avoids other costs and risks associated with domestic delivery;
winning this business can therefore enhance net margins and return
on capital even as gross margins are diluted.
Overheads before exceptional items and LTIP charges have
decreased year-on-year by a net of GBP0.3 million, but are broadly
flat at constant exchange rates. Cost control remains tight and
opportunities to remove or reduce costs are constantly sought out
and new costs are only incurred where actual or prospective value
can be demonstrated.
Operating profit before exceptional items and LTIP charges was
flat at GBP10.7 million reflecting the dynamics described
above.
Operating profit after exceptional items and LTIP charges was
GBP8.8 million (2013: GBP9.1 million)
Exceptional items during the year amounted to GBP2.3 million
before tax (2013: GBP1.6 million). This was entirely in line with
plan and as previously announced these relate entirely to the
investment programme in high definition printing in Wales and the
associated restructuring. Of this charge, GBP0.2 million flowed out
as cash in the year and GBP0.6 million will be paid out by way of
redundancy payments during 2014/15. However, the balance of GBP1.5
million represents accelerated depreciation on assets that become
redundant and superseded bank facility fees written off and there
will be no cash effect at all in respect of these items.
Finance expenses before exceptional items in the year were 8.3%
lower at GBP3.2 million (2013: GBP3.5 million) reflecting the
improved margins negotiated with banks earlier in the year and
slightly lower average indebtedness. Revised and new bank
facilities were put in place to fund the investment in Wales and as
noted above some historical fees relating to the superseded
facility arrangements were written off as exceptional cost. New but
much lower fees were incurred in arranging the revised debt
facilities and these are being amortised appropriately over the
term of the facilities. Notes 8 and 17 to the financial statements
provide further information.
Profit before tax, exceptional items and LTIP charges was up
3.9% to GBP7.6 million (2013: GBP7.3 million).
Profit before tax was down 8.6% to GBP5.2 million (2013: GBP5.7
million) after charging exceptional items of GBP2.3 million (2013:
GBP1.6 million) and LTIP charges of GBP0.1 million (2013: nil).
Taxation
The headline taxation charge has dropped to GBP1.5 million
(2013: GBP1.6 million) or 28.1%. The effective underlying tax
charge on profits before exceptional items is lower at 24.6% (2013:
26.0%) because the exceptional items arising in the UK attract
relief at a lower level than the blended rate for the Group as a
whole.
Actual taxation paid in cash during the year was minimal at
GBP60k (2013: GBP0.9 million) as our business in Australia took tax
relief against the write off of a material bad debt in the prior
year, and profits in other geographies continue to be shielded by
tax losses and similar tax assets brought forward.
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