TIDMIGR
RNS Number : 3733Q
IG Design Group PLC
28 June 2022
EMBARGOED UNTIL 7.00 AM, 28 JUNE 2022
IG Design Group PLC
(the "Company", the "Group" or "Design Group")
Results for the year ended 31 March 2022
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
2022.
Highlights for the year ended 31 March 2022
Financial Highlights FY2022 FY2021(b)
======== ==========
Revenue $965.1m $873.2m
======== ==========
Adjusted(a)
==========
- (Loss) / Profit before tax ($1.3m) $32.8m
==========
- Diluted (loss) / earnings per share (7.7)c 22.2c
--------------------------------------- ======== ==========
Reported
==========
- Profit before tax $2.2m $14.7m
==========
- Diluted (loss) / earnings per share (3.3)c 8.4c
======================================= ==========
Net cash as at the period end $30.2m $76.5m
======================================= ==========
Dividend 1.7c 11.8c
======================================= ==========
Average leverage 1.0x 0.0x
--------------------------------------- -------- ----------
(a) Adjusted Results are before Adjusting Items - for further
detail see Alternative Performance Measures reconciliation within
the Detailed Financial Review
(b) All prior year Adjusted results have been restated
throughout our results to reflect the inclusion of share-based
payment credits/charges within Adjusted metrics
-- Focused on delivering customer commitments, the Group
increased revenues by 11%, demonstrating continued strong demand
for the Group's products
-- A challenging year saw margins and earnings significantly
reduced by unprecedented supply chain cost increases and freight
availability
-- The Group remained net cash positive at year-end, at $30.2
million, with the year-on-year reduction reflecting increased costs
and working capital requirements
-- In line with the Board's previous guidance, no final dividend
is being declared. As a result, the full year dividend remains 1.25
pence (1.7 cents)
-- A recent banking covenant amendment to March 2023, and
facility extension to March 2024, has secured access to financing
to support working capital requirements
-- Board changes include the appointment of Stewart Gilliland as
Non-Executive Chair in September 2021, and subsequently to Interim
Executive Chair in June 2022; Paul Bal as Group CFO; Lance Burn as
Interim Group COO; and Clare Askem and Claire Binyon as independent
Non-Executive Directors
-- The priority of the Group is a recovery in its financial
performance with particular focus on DG Americas, with a change in
leadership, this work is already underway and progress made to
date
Outlook
-- A strong orderbook for FY2023, which is already at 71% of
budgeted revenues (FY2022: 60%), indicates customer relationships
have been sustained with good ongoing demand. The cost environment
remains challenging but where possible cost inflation is being
passed through in pricing for customers, resulting in a slight
operating margin improvement being expected for FY2023
-- Higher financing costs are expected due to revised banking
facilities and the Group maintaining higher working capital as it
seeks to manage the higher cost environment in FY2023
-- Strategy to restore profitable and sustainable growth being developed
Stewart Gilliland, Interim Executive Chair, commented:
" The extent of the impact of the inflation and supply chain
challenges in FY2022 have given us cause to re-examine our
business, and we are therefore laying out today a foundation for a
strategy with a clear focus on restoring profitable and sustainable
growth. While it will no doubt evolve further over the coming
months, the Board and wider management team are fully aligned,
focused on mitigating cost pressures and creating a more resilient
business. This will provide a stronger base on which we can build
in the future.
We have already made some good progress against these goals,
including implementing organisational change, but we know that
there remains much more work to be done. While macro-economic
uncertainty is an unavoidable headwind, there are many elements of
our business that give us confidence. We have a wonderful team,
substantial scale, very strong customer relationships, and have
recently secured an extension to our banking facilities, all of
which gives us the flexibility to implement the changes we need to
make to move forward. Most importantly, our management team truly
believe in Design Group's ongoing potential, and we are committed
to working together to execute our strategic initiatives. "
For further information:
IG Design Group plc 01525 887310
Stewart Gilliland, Interim
Executive Chair
Lance Burn, Interim Chief
Operating Officer
Paul Bal, Chief Financial
Officer
Canaccord Genuity Limited 020 7523 8000
Bobbie Hilliam, NOMAD
Alex Aylen, Sales
Alma PR
Susie Hudson 020 3405 0205
Sam Modlin designgroup@almapr.co.uk
OVERVIEW
The Group has experienced a very challenging FY2022. Despite
continued strong demand from our customers which delivered
double-digit revenue growth of 11% over the prior year, the full
year earnings performance has been significantly impacted by
unprecedented cost headwinds and supply chain availability issues
experienced during the year. Therefore, Group Adjusted operating
margins reduced from 4.3% to 0.4% in the year.
This impact was most significantly felt in DG Americas which
delivered an Adjusted operating loss, despite growing revenues by
7%. As previously announced, in early 2022 the Board took the
decision to change the leadership of DG Americas, with Lance Burn,
who was previously CEO of DG International, also taking on the role
of Group Interim Chief Operating Officer ('COO'), including the
role of Interim CEO of DG Americas.
DG International benefitted from a 16% increase in revenue which
helped offset some of the cost challenges. Adjusted operating
margins for DG International reduced to 6.8%, a 260 bps drop
year-on-year.
The Group has experienced significant cost increases in relation
to freight and raw materials. Freight presented the most
significant challenge across the Group with the scarce availability
of sea containers, driven by increased demand and Covid-19 related
shipping delays, significantly increasing the freight rates paid,
and reducing the Group's operating margin. Freight rates in FY2022
were significantly higher than the prior year with the average rate
paid nearly triple that from the prior year, a situation further
exacerbated by the timing of these increases which limited the
ability of the business to renegotiate pricing with customers to
recover the higher costs. Raw material costs have also increased
significantly during FY2022, as a result of the Group's two major
categories of material purchases, paper and polypropylene (used in
the DG Americas ribbons and bows business) increasing in cost. The
average prices paid for paper increased beyond 50% during the year
and beyond 100% for polypropylene compared to that paid for the
financial year ending March 2020.
The Group's financial performance was further impacted by the
challenges experienced in the labour markets. The 'Great
Resignation' which has been experienced across most economies of
the world following the Covid-19 pandemic, also impacted the Group,
particularly in the UK and the US. This resulted in driving up
labour rates whilst also reducing operating efficiencies. As market
rates increased, reflecting the lower availability of labour in the
market, employee turnover within the Group also increased,
particularly in our manufacturing and distribution facilities. As a
result, the Group responded by increasing wages and salaries in
order to remain competitive in the market and ensure operational
continuity.
The disappointing financial performance in the year overshadows
some notable commercial and operational achievements across the
Group. In the US, DG Americas was again awarded "Supplier of the
Year for Seasonal and Celebrations Products" by Walmart, and
delivered further cost synergies from the acquisition of CSS
Industries, Inc. acquisition and strong growth in certain product
categories. In DG UK, the focus on sustainable product innovation
was recognised by the receipt of Tesco's "Supplier Partner Award
for Sustainability", while DG Europe delivered 26% revenue growth
by working swiftly with customers to address the challenging market
conditions.
On 1 June 2022, the Company signed an amendment to the existing
banking facilities primarily to extend the agreement to March 2024
and replace the existing covenants with two new covenants which run
to March 2023. This was a necessary change, and a result, the
Directors believe the Group has sufficient facilities that secure
funding to support the working capital requirements of the business
through the current financial year. As originally planned, the
Group aims to complete a full refinancing in the second half of
FY2023. More details relating to the amended and restated facility
arrangements are included in the Detailed Financial Review.
BOARD CHANGES
In addition to the leadership change in DG Americas, the Group
has also seen changes at Board level.
In September 2021 Stewart Gilliland, having joined the Board in
July 2021, took over from John Charlton as Chair of the Group's
Board. John stepped down from the Board, and we thank him for his
service to the Board and the Group.
The Group announced in February 2022 that Paul Fineman, was
stepping down from his role as Group CEO, after 14 years in the
role. Paul's contribution to the Group has been significant and the
Board thank him for his committed service and contribution. Also in
February, Executive Board Director Lance Burn, who has been with
the Group for over 10 years, took on the role of Interim Group COO.
This follows his previous role as CEO of DG International.
From June 2022, Stewart has assumed the role of Interim
Executive Chair, pending the appointment of a new Group CEO, for
which the search is underway.
The Group also welcomes Paul Bal who joined the Board in May
2022 following the resignation of Giles Willits in August 2021. The
Board would like to thank Giles for his contribution during his
time with the Group and particularly appreciate him working beyond
his notice period to ensure the Group remained under steady
leadership during this period of transition. Giles steps down from
the Board at the end of June 2022.
In addition, the Group are pleased to welcome two new
independent Non-Executive Directors: Clare Askem, who joined the
Board in July 2021 and Claire Binyon, who joined in June 2022,
replacing Elaine Bond who stepped down from the Board in December
2021. We thank Elaine for her service to the Group.
INCENTIVE SCHEME
On 19 February 2021, the Company put in place a Long-Term
Incentive Value Creation Scheme (the "VCS"). The Remuneration
Committee of the Company, alongside consultation with participants
of the VCS, intends to cancel grants made under the VCS effective
28 June 2022.
The Remuneration Committee no longer believes the VCS aligns to
the interests of employees and shareholders and therefore a more
appropriate incentive scheme will be developed over the coming
months.
OUTLOOK
The challenges faced this year, have caused the Group to review
its priorities, plans and strategy. The sheer scale and speed of
the change in the cost architecture of the Group's product ranges,
particularly in DG Americas, has resulted in the need to challenge
the assumptions that underpin the commercial operations to ensure
that the business going forward is delivering profitable product
ranges based on more sustainable cost structures. As a result, the
Growth Plan announced in June 2021, which set out targets aiming to
double the size of the Group by FY2025 is to be replaced by a
strategy to restore profitable and sustainable growth. This is
explored in more detail in the Strategy section below.
Looking ahead, macroeconomic challenges are expected to continue
in the new financial year bringing further uncertainty. However,
the Board are encouraged by the ongoing strength of the Group's
customer relationships which has delivered an increased orderbook
at over 71%, compared to 60% in the prior year. Operating margins
are forecast to improve gradually over the year, particularly in DG
Americas. However, these gains will be offset by higher finance
charges resulting from increased borrowing costs following the
recent facility amendment and the increased average debt to support
the higher working capital required to deliver the FY2023 seasonal
orderbook
Consequently, as announced in the April 2022 Trading Update the
Group expects to deliver a marginal profit improvement in FY2023,
reflecting progress being made in DG Americas, with the Adjusted
loss before tax expected to be broadly flat on the FY2022 results
and driven primarily by the increased finance costs in the year
ahead. Average debt across the Group is expected to increase to c.
$75-80 million over FY2023, compared with c. $15 million in FY2022
reflecting the expected higher working capital requirements
throughout FY2023 as the Group navigates the outlined challenges.
The Board aspires to return to paying dividends in line with its
historic policy but based on the current outlook for the Group, the
Board does not expect to be in a position to pay a dividend in
relation to the 2023 financial year.
SUMMARY FY2022 FINANCIAL RESULTS
Revenue increased by 11% to $965.1 million (FY2021: $873.2
million). Despite the increase in sales, the supply chain cost
headwinds, most significantly related to freight and raw materials
reduced Adjusted operating margins to 0.4% (FY2021: 4.3%). As a
result, Adjusted loss before tax was $1.3 million compared to the
prior year profit of $32.8 million and Adjusted loss per share was
7.7 cents (FY2021: Adjusted earnings per share of 22.2 cents)
reflecting primarily the decline in adjusted earnings alongside a
non-cash one-time reversal of UK deferred tax assets.
The Group finished the year with a net cash balance of $30.2
million (FY2021: $76.5 million) with average leverage for the year
at 1.0 times (FY2021: 0.0 times) reflecting the reduced EBITDA as
well as the additional working capital requirements in the year to
fund the cost increases.
Adjusting items in FY2022 were a net credit of $3.5 million
(FY2021: charge $18.1 million) reflecting the receipt of insurance
proceeds from the prior year DG Americas IT security incident
alongside reversals of lease impairments following the successful
negotiation of exits and sub-leasing from some of the properties
left vacant as part of the US integration following the acquisition
of CSS. These credits were partially offset by costs associated
with the US integration, expenses incurred in relation to aborted
acquisitions and acquisition amortisation.
The Group ended the year with a profit before tax at $2.2
million (FY2021: $14.7 million) decreased by $12.5 million
year-on-year. Consequently, diluted loss per share was 3.3 cents
(FY2021: diluted earnings per share of 8.4 cents).
In line with the Group's Trading Update in January 2022, the
Board are not recommending a final dividend, and as a result the
full year dividend is 1.25 pence (1.70 cents) comprising only the
interim dividend announced at the half-year and paid in January
2022.
OUR STRATEGY
The experiences of the past year have exposed areas in the Group
to be addressed and strengthened. Our immediate priorities are
building a strong management team, repairing margins and reducing
working capital levels, particularly in DG Americas. However, as
the global business backdrop remains challenging and uncertain, the
Group's medium-to-long term strategy is also being revisited by the
new Board, with the intention of communicating it alongside the
announcement of the FY2023 interim results later in this calendar
year.
A key purpose of the new strategy will be to ensure that the
Group emerges more resilient in its financial performance to the
types of shocks encountered in FY2022, of which some of the impacts
will persist into FY2023. This resilience will also provide a more
secure platform for continued organic growth.
Therefore, it is expected that the strategy will address the
following objectives:
-- reducing complexity and better leveraging expertise and
scale, and improving mix: by reviewing the portfolio of categories,
products, markets and activities in which the Group
participates
-- improving margins: through customer terms, product design,
improved mix and more efficient procurement and processes
-- a more resilient supply chain: through reviewing our sourcing
approach, our supplier and customer terms and our manufacturing
footprint
-- lowering working capital levels: through the various
initiatives already outlined, as well as improved forecasting and
planning processes
-- strong leadership and management teams at all levels of the
Group: by revisiting the organisational design and fostering closer
alignment that better leverages expertise across the Group as well
as the Group's scale
REGIONAL HIGHLIGHTS
Overall, the Group grew revenue 11% with Adjusted operating
profit down to $3.8 million (FY2021: $37.8 million) following the
significant cost headwinds incurred by the Group. The split between
our Americas and International divisions is as follows:
Segmental Revenue Adjusted Operating Adjusted
(Loss)/Profit Operating
Margin
% Group % %
revenue FY2022 FY2021 growth FY2022 FY2021 growth FY2022 FY2021
=======
% %
68% DG Americas $m 659.0 614.0 7% (11.7) 19.9 (159%) (1.8%) 3.2%
=======
32% DG International $m 307.9 265.3 16% 20.8 25.0 (17%) 6.8% 9.4%
======= ======== ======= ======== =======
Elims /
Central
- costs $m (1.8) (6.1) (5.3) (7.1)
======= =======
100% Total $m 965.1 873.2 11% 3.8 37.8 (90%) 0.4% 4.3%
========= ================= ==== ======= ======= ======== ======= ======= ======== ======= =======
Design Group Americas
Our business in the US which makes up nearly 70% of the Group's
total revenues, grew revenue by 7% to $659.0 million (FY2021:
$614.0 million), driven particularly by Celebrations (up 16%),
stationery and goods not-for-resale (up 21%) and creative play (up
78%). These increases were offset by a decline in craft sales
compared to the previous year which had benefitted from the
multiple lockdowns with consumers turning to crafting whilst
spending more time at home. Total DG Americas sales in FY2022 were
slightly ahead of proforma pre-Covid-19 FY2020 sales (i.e.
including CSS FY2020 sales). Despite the sales growth, however, the
DG Americas finished the year generating an Adjusted operating loss
of $11.7 million, significantly down compared to the previous
year's Adjusted operating profit of $19.9 million. This reflects
primarily the significant cost headwinds in freight and raw
material alongside labour wage rate inflation which more than
offsets the actions taken by the business to mitigate the impact of
the costs increases.
Despite the challenges experienced, the consolidation and
integration of the DG Americas business post the acquisition of CSS
at the end of the 2020 financial year continued to progress with
total synergies in excess of the initial estimates. Significant
projects that were undertaken during the year included the
consolidation of our pattern-printing facilities, leading to the
closure of the Manhattan, Kansas site. The Kansas site is
fully-owned by the Group and at the end of the financial year was
in the process of being actively marketed for sale. In April 2022,
the Group completed on the sale for net proceeds of approximately
$6.7 million, delivering a profit on disposal of $4.5 million.
Furthermore, during the year, we were successful in sub-leasing
certain legacy sites that had been exited as part of the CSS
consolidation plan. This included the design office at Budd Lake,
New Jersey where we have sub-let the majority of the property, with
part of the original lease having been cancelled. Additionally, we
agreed a sub-lease for the Plymouth Meeting office (the former
head-office of the CSS business) for a significant proportion of
the rental outflows. The Group also entered an agreement to
sub-lease the Midway, Georgia site, which we exited as part of the
distribution facilities consolidation project. All of these
represent cash savings to the business with regards to rental
outflows going forward.
However, certain other projects, which were anticipated to drive
additional synergies for the Group in FY2022, had to be delayed
because of the operational challenges and are now expected to be
delivered in FY2023.
Further operational progress was also made in relation to the
expansion of the Byhalia, Mississippi site where we have now
combined the DG Americas division's printing, converting and wrap
distribution into one site, with the final phase of this project,
the move of our printing facilities completed in March 2022. This
project will deliver cost efficiencies and aims to remove
completely the need to outsource any of the DG Americas' future
printing requirements. This year saw record levels of in-house
printing volumes, in excess of one billion linear feet of wrap,
with even higher volumes of converting achieved.
DG Americas has won Walmart's "Supplier of the Year for Seasonal
and Celebrations Products" award for the third year, which is the
first time this has been achieved by any of Walmart's suppliers.
This is a very notable achievement highlighting our focus on
customer delivery in the midst of a very challenging year. This
gives us confidence that our strong customer relationships will
help support our focus on restoring profitability in DG
Americas.
As announced in January 2022, following the poor financial
performance of DG Americas during FY2022, the Board decided to
undertake a detailed commercial, operational and organisational
review of that business. This began with an immediate change of
leadership with Lance Burn taking over as Interim CEO of DG
Americas whilst a permanent replacement is found, replacing Gideon
Schlessinger, the former DG Americas CEO who left the Group in
February 2022.
The review has, so far, identified the following three
priorities that aim to drive an improvement in the financial
performance of the DG Americas business back to an operating margin
of c.5-6% by FY2025:
i) balancing customer pricing to supply chain cost inflation
ii) driving immediate and longer-term cost savings
iii) addressing the commercial proposition to align the product
offering to the new price/cost environment by simplifying the
commercial architecture and reducing inventories
As part of this three-step plan one of the first actions has
been a reorganisation of the commercial and operational teams to
simplify our activities in DG Americas. Realigning the commercial
and operational organisation will enable the team to focus
resources to better navigate the short-term challenges expected
over the coming year while also establishing a customer-facing and
integrated organisation able to achieve success in the longer-term.
The reorganisation will deliver significant cost savings in FY2023
but has incurred severance costs in FY2022 which have been treated
as Adjusting items. More information on the restructure costs is
detailed in the Adjusting items section below.
Following the reorganisation, the business has already been
successful in mitigating a significant proportion of the ongoing
cost pressures through discussions with customers while at the same
time delivering operational cost savings such as reducing external
storage and freight-handling expenditure.
Although there is a long way to go to restore the profitability
of the DG Americas business, significant progress has already been
made in the past four months, with further initiatives already
underway, which are set to deliver further value in FY2023 and
beyond.
Post the year end, the Group purchased the remaining 49 per cent
of Anker Play Products, LLC ('APP'), bringing its total ownership
to 100 per cent. This was completed pursuant to the exercise of a
put option by Maxwell Summers, Inc., the holder of the 49 per cent,
which the Group was legally obliged to purchase under the APP
limited liability company agreement dated 30 March 2017.
Design Group International
The DG International business saw strong growth in revenues in
FY2022 across all regions, up 16% year-on-year at $307.9 million
(FY2021: $265.3 million) and up 12% on FY2020 pre-Covid-19 sales.
The most significant improvements were in DG Europe and DG
Australia, demonstrating the 'bounce back' post the impact of
Covid-19 on the prior year. Adjusted operating profit at $20.8
million was down $4.2 million (FY2021: $25.0 million) as
inflationary cost headwinds could not be fully mitigated.
DG UK sales, whilst showing growth year-on-year, were still
behind pre-Covid-19 levels as consumer demand has yet to fully
recover. Freight, raw material and labour costs, resulted in the
UK's Adjusted operating margin halving year-on-year. The focus on
sustainable product ranges saw strong sales of the Eco Nature(R)
brand where sales have grown over 200% compared to FY2021 and we
continue to have an excellent orderbook into FY2023.
DG Europe delivered another good year with revenue up 26% on the
prior year and profit only marginally down despite the cost
inflation pressures experienced.
DG Australia, which of all our regions has had the most
prolonged set of lockdowns as a result of Covid-19, has still grown
sales by 15% over FY2021 and has delivered strong profits despite
the decline in margins. It should also be noted that DG Australia
benefitted from AUD $3.0 million of government assistance in FY2021
but had no assistance in the FY2022 year.
OUR PRODUCTS, BRANDS AND CHANNELS
The Group aims to be our retail partners' 'supplier of choice'
and our diverse product portfolio is a good demonstration of this
in action.
Revenue by product FY2022 FY2021
category
==================== ============== ==============
Celebrations 63% $604.1m 60% $521.6m
==================== ==== ======== ==== ========
Craft & creative
play 16% $154.3m 18% $155.3m
==================== ==== ======== ==== ========
Stationery 4% $44.8m 4% $34.6m
==================== ==== ======== ==== ========
Gifting 10% $94.4m 12% $104.8m
==================== ==== ======== ==== ========
'Not-for-resale'
consumables 7% $67.5m 6% $56.9m
==================== ==== ======== ==== ========
Total $965.1m $873.2m
==================== ==== ======== ==== ========
Despite the supply chain cost challenges experienced during the
year, the Group saw growth in the Celebrations category as families
and friends came back together to celebrate life's special
occasions. This was also highlighted by the growth in the
'not-for-resale' consumables category which includes paper retail
bags as the retail market re-opened fully.
During the pandemic, the advantage of our well-diversified
product portfolio was evident as our 'stay-at-home' products in the
Craft & creative play category kept families and individuals
entertained throughout lockdowns. It was therefore not a surprise
to see Craft & creative play volumes normalise compared to the
higher levels experienced in the prior year. In particular, the
Group saw a reduction in Craft revenues being partly offset by
growth in Creative play, predominantly through our APP venture.
Furthermore, as many families had been spending more time in their
homes during the pandemic, sales of home accessories which are
included in the Gifting category, had surged in FY2021, and now
normalised in FY2022, post the pandemic.
Revenue by customer FY2022 FY2021
channel
===================== ============== ==============
Value & Mass 67% $643.9m 66% $576.4m
===================== ==== ======== ==== ========
Specialist 15% $144.4m 17% $153.2m
===================== ==== ======== ==== ========
Independents 16% $156.5m 14% $121.0m
===================== ==== ======== ==== ========
Online 2% $20.3m 3% $22.6m
===================== ==== ======== ==== ========
Total $965.1m $873.2m
===================== ==== ======== ==== ========
The channels through which we sell are broadening. However, the
majority of our sales remain through the Value and Mass channel
which includes the world's biggest retailers, positioning us well
for any downturn in consumer sentiments. We continue to strengthen
our relationship with some of our biggest customers, including
Walmart who accounted for over 20% of revenues during the year and
once again have awarded us "Supplier of the Year for Seasonal and
Celebrations Products" for a third year. Overall, our top 20
customers account for 68% of the Group's sales (FY2021: 67%).
Revenue by season FY2022 FY2021
=================== ============== ==============
Christmas 40% $390.9m 43% $375.4m
=================== ==== ======== ==== ========
Minor seasons 7% $65.8m 7% $59.7m
=================== ==== ======== ==== ========
Everyday 53% $508.4m 50% $438.1m
=================== ==== ======== ==== ========
Total $965.1m $873.2m
The Group has significantly changed the mix of its sales since
the CSS acquisition, which introduced a portfolio more based on
Everyday. FY2022 has shown a continuation in that trend. This
diversified mix of seasons helps alleviate the pressures on
seasonal working capital requirements.
Revenue by brand FY2022 FY2021
======================== ============== ==============
Licensed 9% $84.2m 12% $104.8m
======================== ==== ======== ==== ========
Customer own brand
/ Bespoke 48% $459.8m 48% $418.1m
======================== ==== ======== ==== ========
Design Group / Generic
brand 43% $421.1m 40% $350.3m
======================== ==== ======== ==== ========
Total $965.1m $873.2m
======================== ==== ======== ==== ========
A review of revenues by brand type highlights a margin-enhancing
movement from Licensed products to Design Group / Generic brand
products. In part this was due to the reduction in new licenses
available during FY2022, but it also reflected our creative teams'
focus on the innovative design and development of new and exciting
products.
SUSTAINABILITY
During FY2021, the Board launched the Group's sustainability
framework 'helping design a better future', which defined the
Group's approach by identifying three pillars that will deliver a
more sustainable future. These three pillars are People, Product
and Planet.
The Group's sustainability strategy is underpinned by our
overall aim to minimise our impact on the environment by constantly
challenging ourselves to find ways in which we can use our scale
and people to influence and drive positive, proactive change. We
understand that our impact and responsibilities extend beyond our
immediate surroundings, into the lives of our employees, the
environment, and our local and global communities. We continue to
believe we have a moral as well as a commercial necessity to strive
for the highest standards of ethical behaviour and to innovate to
reduce the environmental impact of our operations to protect and
preserve our planet, for this and future generations.
Over the past year we have continued to refine the Group's
approach to sustainability and the associated key performance
indicators ('KPIs'). During the year, the Board have spent time
finalising our Sustainability KPIs and are pleased to report our
performance against these and the progress the Group has made
during the year as seen in the Group's FY2022 financial statements.
We recognise that we are still at the early stages of our
sustainability journey but as we move forward, we are focusing on
further expanding the number of metrics we monitor whilst also
looking to set targets by which to measure our success.
People - Our people are key to the business and in the
challenging times we are facing, it is even more important to
ensure that we are recognising and investing in the many talented
individuals and teams across the Group.
Notable achievements in FY2022 include training opportunities
such as our leadership development programmes for emerging leaders
in DG UK and DG Americas and a women's development network
providing training opportunities for aspiring female leaders in DG
Americas. DG UK has trained mental health first aiders across the
business and run a monthly health programme with both mental and
physical challenges for employees to get involved with.
Product - There is no question that the nature of our products
requires us to be innovative in our design to create more
sustainable collections to promote to our customers and theirs.
Notable achievements in FY2022 include DG UK winning Tesco's
Supplier Partner Award for Sustainability for the supply of our Eco
Nature(R) products, with selected lines rolled out in 750 stores
nationwide following the successful trial last year. The
development of our first to market shrink-free wrapping paper,
which eliminates plastic waste through the use of recyclable paper
labels, is another success story in the UK with Sainsburys using
only shrink-free gift wrap ranges for Christmas 2021.
Planet - This year the Group formally recognised Climate Change
as a principal risk (formerly an emerging risk) as we know we have
a responsibility to protect and preserve our planet and its
environment.
Notable achievements in FY2022 include DG Europe being awarded a
climate neutral status on their gift wrap collections following
investment in innovative Smartwrap(TM) technology. This, coupled
with DG UK and DG Europe powering their manufacturing, warehousing,
and office facilities with 100% renewable electricity, drives us
forward on our journey towards net zero emissions.
DETAILED FINANCIAL REVIEW
The Group's financial results summarised below now include the
credit/charge associated with share-based payments, both within the
reported and the adjusted results. They are no longer treated as an
Adjusting Item. The prior year has been restated to include the
impact of this change in accounting presentation.
FY2022 FY2021
Reported Adjusting Adjusted Reported Adjusting Adjusted
Items Items
$m $m $m $m $m $m
Revenue 965.1 - 965.1 873.2 - 873.2
Gross profit 122.2 (2.5) 119.7 153.8 (1.0) 152.8
Overheads (114.5) (1.4) (115.9) (133.9) 18.9 (115.0)
--------- ---------- --------- --------- ---------- ---------
Operating profit 7.7 (3.9) 3.8 19.9 17.9 37.8
Finance charge (5.5) 0.4 (5.1) (5.2) 0.2 (5.0)
--------- ---------- --------- --------- ---------- ---------
Profit/(loss)
before tax 2.2 (3.5) (1.3) 14.7 18.1 32.8
Tax (2.5) (0.8) (3.3) (4.3) (4.5) (8.8)
--------- ---------- ---------
(Loss)/profit
after tax (0.3) (4.3) (4.6) 10.4 13.6 24.0
------------------ --------- ---------- --------- --------- ---------- ---------
Revenue for the year ended 31 March 2022 grew 11% to $965.1
million (FY2021: $873.2 million) driven by strong demand from
customers post Covid-19, with proforma sales up 7% on FY2020.
Constant currency Group revenues grew 10% year-on-year. Adjusted
operating profit saw a significant decrease year-on-year to $3.8
million (FY2021: $37.8 million) reflecting the impact of
significant cost headwinds incurred by the Group which reduced
Adjusted gross margin to 12.4% (FY2021: 17.5%). Adjusted overheads
as a percentage of revenue decreased back to pre-pandemic levels at
12.0% (FY2021: 13.2%). Adjusted operating margin at 0.4% (FY2021:
4.3%) was down significantly year-on-year reflecting the lower
gross margins. Overall Adjusted loss before tax was $1.3 million
(FY2021: profit before tax $32.8 million).
The Group finished the year with a reported profit before tax of
$2.2 million (FY2021: $14.7 million). This is higher than the
Adjusted loss before tax, reflecting the Adjusting items net credit
in the current year of $3.5 million compared to $18.1 million net
charge in the prior year. Further details of the Adjusting items
are detailed below.
Adjusted loss after tax was $4.6 million (FY2021: Adjusted
profit after tax of $24.0 million) with loss after tax for the year
at $0.3 million (FY2021: profit after tax of $10.4 million).
Finance expenses
Finance costs were marginally higher than the prior year at $5.5
million (FY2021: $5.2 million) resulting from higher underlying
finance costs at $2.0 million (FY2021: $1.7 million) which
reflected the increase in working capital during the year. The IFRS
16 related lease liability interest was in line with the prior year
at $3.5 million, of which $0.4 million (FY2021: $0.2 million) was
treated as an Adjusting item as it related to exited properties as
part of the DG Americas integration.
Adjusting items
Adjusting items are material items of an unusual or
non-recurring nature which represent gains or losses which are
separately presented by virtue of their nature, size and/or
incidence. The Group's Adjusting items in the year to 31 March 2022
result in a net credit of $3.5 million compared to a net charge of
$18.1 million in the prior year. The main items relate to the
receipt of insurance proceeds relating to the FY2021 IT security
incident, along with the reversal of asset impairments netted
primarily against aborted acquisition costs incurred during the
year. The treatment of share-based payment credits/charges has
changed in the year such that they no longer form part of Adjusting
items, with the comparatives restated. Details of all Adjusting
items are included below:
Adjusting items FY2022 FY2021
------------------------------------------------- ========
Losses/(gains) and transaction costs relating
to acquisitions and disposals of businesses $3.7m $0.3m
================================================= ========
Acquisition integration and restructuring costs ($1.7m) $15.4m
================================================= ======== ========
(Reversal of impairment)/impairment of assets ($2.6m) ($5.8m)
================================================= ======== ========
Incremental Covid-19 costs - $1.5m
================================================= ======== ========
IT security incident (income)/costs ($5.7m) $2.2m
================================================= ======== ========
Amortisation of acquired intangibles $2.8m $4.5m
================================================= ======== ========
Total (credit)/charge ($3.5m) $18.1m
================================================= ======== ========
Losses/(gains) and transaction costs relating to acquisitions
and disposals of businesses - $3.7 million (FY2021: $0.3
million)
In the year, the final tranche of acquisition-related employee
payments of $0.3 million which locked-in and incentivised legacy
talent relating to the Impact Innovations Inc. acquisition in 2019
were incurred as we passed the three-year anniversary of the
transaction. There will be no further costs associated with these
incentive payments.
The balance of these costs in the year have been incurred on
potential M&A projects before the decision not to proceed was
taken. These all related to advisor costs associated with the
relevant projects.
Acquisition integration and restructuring costs - credit $1.7
million (FY2021: charge $15.4 million)
In order to realise synergies from acquisitions, 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 their successful implementation. As such the costs
associated with projects of this nature are included as Adjusting
items. The costs incurred in FY2022 relate to the following DG
Americas restructuring initiatives:
Site closures - A s announced in previous years, CSS was
acquired with a large portfolio of owned and leased sites, and part
of the integration project included an assessment of the
requirement for these sites as the Group consolidated its
footprint. As sites were vacated and closed, the lease assets
associated with those properties were impaired in the event that no
prospective sub-tenants could be found. In addition, there were
provisions for costs of moving and consolidating sites. These costs
were all treated as Adjusting items in the prior year.
In the current year, however, we have successfully negotiated
the return of part of the lease associated with the Budd Lake, New
Jersey property as well as sub-let both the Midway, Georgia
property and the Plymouth Meeting, Pennsylvania property which were
impaired in the acquisition balance sheet of CSS. This has resulted
in a write- back of the impairments previously taken in respect of
these properties totalling $2.8 million in the year. All sub-lease
income is also treated as an Adjusting item.
All costs (including rates and utilities) associated with the
continuation of being responsible for a property no longer in the
Group's use are taken as an Adjusting item, with a provision made
on vacating. In the event of any sub-letting (for example with the
Plymouth Meeting site), this provision has been released back to
Adjusting items once the responsibility for the costs passes to the
new tenants.
In the year costs were incurred in relation to the closure of
the Manhattan, Kansas site also inherited as part of the CSS
acquisition, and the consolidation of those operations into the
Neenah, Wisconsin site. The facility in Kansas was a legacy
McCalls' facility for which the Group holds the freehold title, and
Neenah was a legacy Simplicity facility which is leased and run by
a third party (The Outlook Group). The costs include severance
costs, incentive payments to critical workforce to remain with the
business during transition, inventory write-off and destruction,
fixed asset disposal costs and labour and freight costs associated
with the move to Neenah.
The Kansas property was being actively marketed since the
decision to vacate the site was made. In April 2022, the sale of
the site was completed, resulting in an approximate accounting gain
of c$4.5 million, which will be accounted for in FY2023 Adjusting
items.
Wrap manufacturing consolidation - Costs have been incurred in
the year relating to the project to move wrap manufacturing (both
printing and converting) from the Memphis site to Byhalia,
consolidating all wrap manufacturing under one roof.
DG Americas review - The Group has already started to implement
plans in relation to the review of the US business, and therefore
costs such as staff severance and incremental costs associated with
the travel and accommodation of the Interim DG Americas CEO have
been treated as Adjusting items.
(Reversal of impairment)/impairment of assets - credit $2.6
million (FY2021: credit $5.8 million)
In light of the impact of Covid-19 on the business, a review of
inventory, trade receivables and fixed assets was undertaken as at
31 March 2020 at the onset of the pandemic. Inventories were
assessed at 31 March 2020 for their net realisable value, and an
impairment of $7.4 million was taken. Similarly trade receivables
were assessed for their expected credit loss in line with IFRS 9
and an impairment of $3.8 million was taken. Finally, the UK's bag
line machines were impaired based on expected future cash flows
associated with the 'not-for-resale' business. The assessment has
been continued throughout FY2021 and into FY2022.
During the FY2022 year, the $2.6 million credit relates solely
to reversal of previous impairments no longer required.
Incremental Covid-19 costs - $nil (FY2021: $1.5 million)
As a result of the Covid-19 outbreak the Group was affected in
every region. Certain direct labour costs that related to Covid-19
and were incremental in FY2021, of $1.5 million, were included in
Adjusting items. The most significant element of these costs relate
to additional 'hazard pay' labour costs across our manufacturing
facilities in the USA and Mexico in order to ensure our employees
returned to work. No such costs have been incurred in FY2022.
IT security incident (income)/costs - credit $5.7 million
(FY2021: charge $2.2 million)
The IT security incident which occurred in DG Americas in FY2021
resulted in one-off costs being incurred during FY2021 which were
treated as Adjusting items to the value of $2.2 million. This did
not include lost profits resulting from downtime in the business.
During FY2022 two insurance pay-outs were received, totalling $5.7
million (net of a small amount relating to advisor costs associated
with the claim) which have been recognised as Adjusting items.
Amortisation of acquired intangibles - $2.8 million (FY2021:
$4.5 million)
Under IFRS, as part of the acquisition of a company, it is
necessary to identify intangible assets such as customer lists and
brands which form part of the intangible value of the acquired
business but which are not part of the acquired balance sheet.
These intangible assets are then amortised to the income statement
over their useful economic lives. These are not considered
operational costs relating to the running of the acquired business
and are directly related to the accounting for the acquisition.
These include tradenames and brands acquired as part of the
acquisition of Impact Innovations Inc. and CSS Industries Inc. in
the USA. As such we include these as Adjusting items. Note that the
trade names acquired as part of the acquisition of Biscay Pty
Greetings Ltd in Australia were fully amortised in the prior
year.
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 Group's Adjusted tax charge for the year is $3.3 million
(FY2021: $8.8 million) despite the losses incurred in the year. A
significant element of this charge relates to the de-recognition of
brought forward deferred tax assets relating to the UK business.
The de-recognition has occurred as a result of the assessment of
future taxable profits, resulting from growing costs in the plc
business, against which the asset could unwind. The remainder
relates to a tax charge on the profitable businesses offset by a
tax credit associated with losses generated in the year in the
USA.
Tax paid in the year was $5.2 million (FY2021: $2.2 million).
This is $3.0 million higher than the prior year reflecting higher
profits in the Group's tax-paying jurisdictions as well as catch up
payments in both Australia and Europe which were required in
relation to FY2021 where taxable profits were better than
originally anticipated and associated cash tax payments were
estimated.
(Loss) / Earnings per share
Adjusted loss per share at 7.7 cents (FY2021: Adjusted earnings
per share 22.2 cents) is lower year-on-year driven by the
significantly lower Adjusted earnings attributable to equity
holders of the Company primarily reflecting the one-time non-cash
reversal of deferred tax assets in the year. Diluted loss per share
at 3.3 cents (FY2021: diluted earnings per share of 8.4 cents) are
marginally better than Adjusted reflecting the Adjusting items
credit in the FY2022 year. The reconciliation between reported and
Adjusted loss per share is shown below:
(Loss) / Earnings per share FY2022 FY2021
=============================================== =========
(Loss) / Earnings attributable to equity
holders of the Company ($3.3m) $8.2m
=============================================== ========= ========
Adjustments
===============================================
Adjusting items (net of non-controlling
interest effect) ($3.5m) $18.2m
=============================================== ========
Tax charge/(relief) on adjustments (net
of non-controlling interest effect) ($0.8m ) ($4.6m)
=============================================== ========= ========
Adjusted (loss) / earnings ($7.6m) $21.8m
=============================================== ========= ========
Weighted average number of shares
===============================================
Basic weighted average number of shares
outstanding 98.1m 97.7m
=============================================== ========
Dilutive effect of employee share option
plans 0.1m 0.4m
=============================================== ========= ========
Diluted weighted average ordinary shares 98.2m 98.1m
=============================================== ========= ========
(Loss) / Earnings per share
===============================================
Basic (loss) / earnings per share (3.3c) 8.4c
=============================================== ========
Adjustment (4.4c) 13.9c
=============================================== ========= ========
Basic Adjusted (loss) / earnings per share (7.7c) 22.3c
=============================================== ========= ========
Diluted (loss) / earnings per share (3.3c) 8.4c
=============================================== ========= ========
Diluted Adjusted (loss) / earnings per
share (7.7c) 22.2c
=============================================== ========= ========
Dividend
The Board are not recommending a final dividend in light for the
Group's second half trading performance. As a result, the full year
dividend is 1.68 cents (1.25 pence) (FY2021: 11.8 cents, 8.75
pence) based on the interim dividend which was paid in January
2022.
Return on capital employed
Improving the return on capital employed continues to be a key
target for each of the business units, however given the challenges
faced this year, the Group saw the return on capital employed
reduce year-on-year to 1.3% (FY2021: 15.8%) reflecting the reduced
profitability and increased working capital requirements.
Cash flow and net cash
The Group ended the year with its net cash balance at $30.2
million (FY2021: $76.5 million). The decrease in cash year-on-year
is a direct result of the reduced EBITDA contribution and the
increased working capital outflow resulting in Adjusted cash
generated from operations significantly lower at $5.8 million
(FY2021: $68.4 million).
Cash flow FY2022 FY2021
================================================== =========
Adjusted EBITDA $38.3m $73.3m
================================================== ========= =========
Add back for share-based payment (credit)/charge ($0.8m) $4.2m
==================================================
Movements in working capital ($31.7m) ($9.1m)
================================================== ========= =========
Adjusted cash generated from operations $5.8m $68.4m
================================================== ========= =========
Adjusting items ($6.2m) ($0.7m)
================================================== ========= =========
Cash generated from operations ($0.4m) $67.7m
================================================== ========= =========
Capital expenditure (net of disposals of
property, plant and equipment) ($8.3m) ($8.1m)
================================================== ========= =========
Tax received/(paid) ($5.2m) ($2.2m)
================================================== ========= =========
Interest paid (including Adjusting items) ($4.2m) ($4.3m)
================================================== ========= =========
Payments of lease liabilities ($16.8m) ($15.9m)
================================================== ========= =========
Dividends paid ($12.6m) ($11.3m)
================================================== ========= =========
FX and other $1.2m ($1.8m)
==================================================
Movement in net cash ($46.3m) $24.1m
================================================== ========= =========
Opening net cash $76.5m $52.4m
================================================== ========= =========
Closing net cash $30.2m $76.5m
================================================== ========= =========
Working capital
The working capital cash outflow in the year is driven primarily
by the inventory-build of $56.9 million as the Group managed the
increasing raw material cost, particularly in the last quarter of
FY2022, and built volume to ensure availability. As a result, raw
materials held at the end of the year were 62% higher in value than
the prior year-end. Finished goods at the end of the year were 31%
higher than the prior year primarily reflecting the increased cost
to purchase or manufacture finished goods.
More than ever, the Group continues to actively track debtors
and credit risk profiles of all of our customers 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 (FY2021: 0.5%),
reflecting our continued proactive approach to mitigating credit
risk exposure.
Capital expenditure
Capital expenditure in the year remained in line with the prior
year at $8.3 million (FY2021: $8.1 million). There were no
significant capital projects in the year to 31 March 2022. Capital
expenditure in FY2023 is expected to remain in line with the
current year.
Average leverage
Average leverage is a key measure for the Group measuring the
seasonality of our working capital demands across the business and
the need to ensure the Group manages its peak funding requirements
within its bank facility limits. As at 31 March 2022 average
leverage was 1.0 times, up from 0.0 times in the prior year. This
reflects the decline in Adjusted EBITDA compared to the prior year
and an increase in average debt from $2.2 million in FY2021 to
$17.2 million in FY2022.
Our measure of average leverage excludes lease liabilities from
our measurement of debt and we reduce Adjusted EBITDA for lease
payments. This mirrors the approach taken by our 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
The Group maintains its banking facilities through a club of
five banks chosen to reflect and support the geographical spread of
the Group. The banks within the club are: HSBC, NatWest, Citigroup
(who replaced BNP Paribas), Truist Bank (as successor by merger to
SunTrust Bank) and PNC.
As previously announced, on 1 June 2022 the Company extended the
term of its existing banking agreement to 31 March 2024. As part of
this extension, covenants have been revised for the period to 31
March 2023. The amended facilities comprise:
-- A revolving credit facility ('RCF A') which has reduced from $95.0 million to $90.0 million
-- A further flexible revolving credit facility ('RCF B') with
availability varying from month to month of up to a maximum level
of GBP92.0 million (reduced from a maximum level of GBP130.0
million)
The Group also have access to invoice financing in Hong Kong
with a maximum limit of $18.0 million, depending on the level of
eligible receivables alongside local overdraft facilities. In
total, accessible bank finance facilities are considered sufficient
to cover the Group's peak requirements.
The revised covenants (measured on pre IFRS 16 accounting
definitions), which operate for a maximum period to 31 March 2023
are as follows:
-- Minimum Adjusted earnings before interest, depreciation and
amortisation (Adjusted EBITDA), as defined by the banking facility,
measured quarterly at the end of June, September, December and
March, which requires the Group to be within $10.0 million of its
Adjusted EBITDA budget at each quarter end, based on the last
twelve-month EBITDA performance at each measurement point; and
-- Minimum liquidity level, which requires the Group to maintain
a minimum of $35.0 million headroom to the maximum available
facility on a monthly basis
The amendment also stipulates that any dividends to be paid by
the Group during the remaining term of the agreement will require
majority lender approval. Banking and legal fees associated with
the amendment and extension of the facility totalled c.$1
million.
From April 2023 the Group will revert to the previous covenants
which are as follows:
-- Interest cover, being the ratio of Adjusted 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.
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.
The Group intends to complete a more comprehensive refinancing
exercise in the second half of FY2023.
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 Group's reporting currency is US dollars in light of
the fact that a significant proportion of the Group's revenues and
profits are in US dollars. There remains a smaller part of the
Group whose functional currency is something other than US dollar.
However, the overall impact on revenue and profits from currency
movements in FY2022 when compared to FY2021 is not significant
relative to the balances. Revenue in FY2021 would have been $5.0
million higher if translated at FY2022 FX rates, with FY2021
Adjusted profit before tax $0.1 million higher.
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
adopts an active hedging policy to ensure 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.
Financial position and going concern basis
The Group's net assets decreased by $22.3 million to $369.7
million at 31 March 2022 (FY2021: $392.0 million) primarily
reflecting the reduced cash held at the end of the year given the
higher working capital requirements in the last quarter resulting
from inventory build and ongoing cost pressures.
As at the 31 March 2022 balance sheet date, in light of the
FY2022 results and the outlook for FY2023, the Directors have paid
particularly close attention to their assessment of going concern
in preparation of these financial statements. The Group is
appropriately capitalised at the year end with a net cash position
of $30.2 million ($50.2 million of cash and $20.4 million of bank
overdraft excluding loan arrangement fees).
Going concern forecasts have been produced using the Group's
FY2023 and FY2024 budgets and plans. These forecasts which have
been produced and reviewed in detail by the Board and take into
account the seasonal working capital cycle of the business, have
been sensitised to reflect severe but plausible adverse downturns
in the current assumptions including a miss in achieving the DG
Americas FY2023 plan as well as increased inflationary pressures in
the DG International business, beyond those risks already factored
into the budgets and plans. The base forecasts and additional
sensitivity analysis have been tested against the amended banking
covenants to March 2023 described above as well as beyond this time
point as and when the covenants revert back to the original
covenants. The 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 and will also be compliant with all
covenants within this time frame and beyond. 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 as the Group has sufficient 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 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 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/(loss) - Profit/(loss) before
finance charges, tax and Adjusting items
-- Adjusted profit/(loss) before tax - Profit/(loss) before tax and Adjusting items
-- Adjusted profit/(loss) after tax - Profit/(loss) after tax
before Adjusting items and associated tax effect
-- Adjusted (loss)/earnings per share - Fully diluted
(loss)/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 - Adjusted operating profit divided
by finance charges (excluding IFRS 16 and one-time interest
income)
Adjusting Items
Further details of the items categorised as Adjusting items are
disclosed in more detail in note 3. Note that all prior year
comparatives have been restated to include the share-based payments
credit/charge within adjusted metrics.
A full reconciliation between our adjusted and reported results
is provided below:
APM Reconciliation FY2022 FY2021
============================================= ======== =========
Reported operating profit $7.7m $19.9m
Depreciation and impairment of property,
plant and equipment $13.4m $13.6m
Depreciation and impairment of right-of-use
assets $15.3m $24.0m
Acquisition amortisation $2.8m $4.5m
Amortisation of software $3.0m $3.8m
--------------------------------------------- -------- ---------
EBITDA $42.2m $65.8m
--------------------------------------------- -------- ---------
Adjusted EBITDA $38.3m $73.3m
Adjusting items $3.9m ($7.5m)
EBITDA $42.2m $65.8m
--------------------------------------------- -------- ---------
Adjusted operating profit $3.8m $37.8m
Adjusting items $3.9m ($17.9m)
Reported operating profit $7.7m $19.9m
--------------------------------------------- -------- ---------
Adjusted (loss) / profit before tax ($1.3m) $32.8m
Adjusting items $3.5m ($18.1m)
Reported profit before tax $2.2m $14.7m
--------------------------------------------- -------- ---------
Adjusted (loss) / profit after tax ($4.6m) $24.0m
Adjusting items $4.3m ($13.6m)
Reported (loss) / profit after tax ($0.3m) $10.4m
--------------------------------------------- -------- ---------
Adjusted (loss) / earnings per share (7.7c) 22.2c
Adjusting items 4.4c (13.8c)
Reported diluted (loss) / earnings per
share (3.3c) 8.4c
============================================= ======== =========
Statement of directors' responsibilities in respect of the
financial statements
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the Group financial statements in accordance with
International Accounting Standards in conformity with the
requirements of the Companies Act 2006 and the company financial
statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 102 "The Financial Reporting Standard applicable in
the UK and Republic of Ireland", and applicable law).
Under company law, directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
profit or loss of the Group for that period. In preparing the
financial statements, the directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable international accounting standards
in conformity with the requirements of the Companies Act 2006 have
been followed for the Group financial statements and United Kingdom
Accounting Standards, comprising FRS 102 have been followed for the
Company financial statements, subject to any material departures
disclosed and explained in the financial statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Company
will continue in business.
The directors are also responsible for safeguarding the assets
of the Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's and
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that the financial statements comply with the
Companies Act 2006.
The directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors' confirmations
The directors consider that the annual report and the financial
statements and accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the group's and company's position and
performance, business model and strategy.
Each of the directors, whose names and functions are listed in
the Board of Directors confirm that, to the best of their
knowledge:
-- the group financial statements, which have been prepared in
accordance with UK-adopted international
accounting standards, give a true and fair view of the assets,
liabilities, financial position and loss of the group;
-- the company financial statements, which have been prepared in
accordance with United Kingdom Accounting Standards, comprising FRS
102, give a true and fair view of the assets, liabilities and
financial position of the company; and
-- the Chief Financial Officer's Review includes a fair review
of the development and performance of the business and the position
of the group and company, together with a description of the
principal risks and uncertainties that it faces.
In the case of each director in office at the date the
directors' report is approved:
-- so far as the director is aware, there is no relevant audit
information of which the group's and company's auditors are
unaware; and
-- they have taken all the steps that they ought to have taken
as a director in order to make themselves aware of any relevant
audit information and to establish that the group's and company's
auditors are aware of that information.
CONSOLIDATED INCOME STATEMENT
YEARED 31 MARCH 2022
2022 2021
Note $000 $000
-------------------------------------------------- ---- --------- ---------
Revenue 2 965,093 873,216
Cost of sales (842,926) (719,396)
-------------------------------------------------- ---- --------- ---------
Gross profit 122,167 153,820
Selling expenses (48,305) (43,909)
Administration expenses (66,604) (93,659)
Other operating income 5 870 4,066
Loss on disposal of property, plant and equipment (436) (256)
Loss on disposal of subsidiary - (208)
-------------------------------------------------- ---- --------- ---------
Operating profit 3 7,692 19,854
Finance expenses 6 (5,491) (5,179)
-------------------------------------------------- ---- --------- ---------
Profit before tax 2,201 14,675
Income tax charge 7 (2,517) (4,234)
-------------------------------------------------- ---- --------- ---------
(Loss)/profit for the year (316) 10,441
-------------------------------------------------- ---- --------- ---------
Attributable to:
Owners of the Parent Company (3,277) 8,207
Non-controlling interests 2,961 2,234
-------------------------------------------------- ---- --------- ---------
(Loss)/earnings per ordinary share
Note 2022 2021
-------- ---- ------ ----
Basic 21 (3.3c) 8.4c
-------- ---- ------ ----
Diluted 21 (3.3c) 8.4c
-------- ---- ------ ----
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEARED 31 MARCH 2022
2022 2021
$000 $000
---------------------------------------------------------------------- ----- --------
(Loss)/profit for the year (316) 10,441
Other comprehensive (expense)/income:
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit pension and health benefit schemes (715) (32)
Items that may be reclassified subsequently to profit or loss
---------------------------------------------------------------------- ----- --------
Exchange difference on translation of foreign operations (net of tax) 8,686 (15,769)
Transfer to profit and loss on maturing cash flow hedges (net of tax) (301) 863
Net unrealised gain/(loss) on cash flow hedges (net of tax) 686 (1,269)
---------------------------------------------------------------------- ----- --------
9,071 (16,175)
---------------------------------------------------------------------- ----- --------
Other comprehensive income/(expense) for the year, net of tax 8,356 (16,207)
---------------------------------------------------------------------- ----- --------
Total comprehensive income/(expense) for the year, net of tax 8,040 (5,766)
Attributable to:
Owners of the Parent Company 5,173 (9,081)
Non-controlling interests 2,867 3,315
---------------------------------------------------------------------- ----- --------
8,040 (5,766)
---------------------------------------------------------------------- ----- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEARED 31 MARCH 2022
Attributable to the owners of the Parent
Company
-------------------------------------------------------------
Share
premium
and capital Non-
-------------
Share redemption Merger Hedging Translation Retained Shareholders' controlling
--------
capital reserve reserve reserve reserve earnings equity interests Total
$000 $000 $000 $000 $000 $000 $000 $000 $000
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
At 1 April
2020 5,974 215,417 40,175 320 (4,389) 113,703 371,200 4,643 375,843
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
Profit for
the year - - - - - 8,207 8,207 2,234 10,441
Other
comprehensive
(expense)/income - - - (406) (16,850) (32) (17,288) 1,081 (16,207)
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
Total
comprehensive
(expense)/income
for the year - - - (406) (16,850) 8,175 (9,081) 3,315 (5,766)
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
Transactions
with owners
in their
capacity
as owners
Equity-settled
share-based
payments
(note 23) - - - - - 3,668 3,668 - 3,668
Tax on
equity-settled
share-based
payments
(note 11) - - - - - 214 214 - 214
Recognition
of
non-controlling
interests
(note 27) - - - - - - - 539 539
Options exercised
(note 20) 34 - - - - (34) - - -
Equity dividends
paid (note
22) - - - - - (11,288) (11,288) - (11,288)
Exchange
differences
on opening
balances 659 23,725 4,425 - - - 28,809 - 28,809
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
At 31 March
2021 6,667 239,142 44,600 (86) (21,239) 114,438 383,522 8,497 392,019
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
Attributable to the owners of the Parent
Company
-------------------------------------------------------------
Share
premium
and capital Non-
-------------
Share redemption Merger Hedging Translation Retained Shareholders' controlling
--------
capital reserve reserve reserve reserve earnings equity interests Total
$000 $000 $000 $000 $000 $000 $000 $000 $000
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
At 1 April
2021 6,667 239,142 44,600 (86) (21,239) 114,438 383,522 8,497 392,019
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
(Loss)/profit
for the year - - - - - (3,277) (3,277) 2,961 (316)
Other
comprehensive
income/(expense) - - - 385 8,780 (715) 8,450 (94) 8,356
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
Total
comprehensive
income/(expense)
for the year - - - 385 8,780 (3,992) 5,173 2,867 8,040
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
Transactions
with owners
in their
capacity
as owners
Equity-settled
share-based
payments
(note 23) - - - - - 241 241 - 241
Derecognition
of deferred
tax asset
- share-based
payments
(note 11) - - - - - (1,179) (1,179) - (1,179)
Derecognition
of deferred
tax asset
- IFRS 16
(note 11) - - - - - (346) (346) - (346)
Options exercised
(note 20) 13 - - - - (13) - - -
Equity dividends
paid (note
22) - - - - - (9,274) (9,274) (3,365) (12,639)
Option over
non-controlling
interest
(note 18) - - - - - (3,069) (3,069) - (3,069)
Exchange
differences
on opening
balances (307) (10,999) (2,051) - - - (13,357) - (13,357)
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
At 31 March
2022 6,373 228,143 42,549 299 (12,459) 96,806 361,711 7,999 369,710
----------------- ------- ----------- ------- ------- ----------- -------- ------------- ----------- --------
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 $1.8 million
relating to the capital redemption reserve has been included within
the column of share premium and capital redemption reserve in the
balances at the end of the year (2021: $1.8 million). The only
movement in this balance relates to foreign exchange.
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. Share capital, share premium, capital
redemption reserve, merger reserve and hedging reserve are
translated into US dollars at the rates of exchange at each balance
sheet date and the resulting cumulative exchange differences are
included in other reserves.
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2022
2022 2021
Note $000 $000
---------------------------------------------------- ---- -------- --------
Non-current assets
Property, plant and equipment 8 78,911 88,203
Intangible assets 9 107,398 114,874
Right-of-use assets 10 86,731 95,380
Long-term assets 13 5,105 5,721
Deferred tax assets 11 16,317 18,357
----------------------------------------------------- ---- -------- --------
Total non-current assets 294,462 322,535
----------------------------------------------------- ---- -------- --------
Current assets
Asset held for sale 8 2,150 -
Inventory 12 230,885 176,165
Trade and other receivables 13 127,850 129,219
Income tax receivable 1,234 2,368
Derivative financial assets 24 316 207
Cash and cash equivalents 14 50,179 132,760
----------------------------------------------------- ---- -------- --------
Total current assets 412,614 440,719
----------------------------------------------------- ---- -------- --------
Total assets 2 707,076 763,254
----------------------------------------------------- ---- -------- --------
Equity
Share capital 20 6,373 6,667
Share premium 226,382 237,296
Capital redemption reserve 1,761 1,846
Merger reserve 42,549 44,600
Hedging reserve 299 (86)
Translation reserve (12,459) (21,239)
Retained earnings 96,806 114,438
----------------------------------------------------- ---- -------- --------
Equity attributable to owners of the Parent Company 361,711 383,522
----------------------------------------------------- ---- -------- --------
Non-controlling interests 7,999 8,497
----------------------------------------------------- ---- -------- --------
Total equity 369,710 392,019
----------------------------------------------------- ---- -------- --------
2022 2021
Note $000 $000
------------------------------ ---- ------- -------
Non-current liabilities
Loans and borrowings 15 (20) (103)
Lease liabilities 10 80,215 94,582
Deferred income 16 523 486
Provisions 17 5,016 5,742
Other financial liabilities 18 21,557 15,526
Deferred tax liabilities 11 381 2,115
------------------------------- ---- ------- -------
Total non-current liabilities 107,672 118,348
------------------------------- ---- ------- -------
Current liabilities
Bank overdraft 14 20,380 57,033
Loans and borrowings 15 (340) (620)
Lease liabilities 10 19,628 19,340
Deferred income 16 465 424
Provisions 17 1,342 1,617
Income tax payable 7,359 10,061
Trade and other payables 19 143,318 120,763
Other financial liabilities 18 37,542 44,269
------------------------------- ---- ------- -------
Total current liabilities 229,694 252,887
------------------------------- ---- ------- -------
Total liabilities 2 337,366 371,235
------------------------------- ---- ------- -------
Total equity and liabilities 707,076 763,254
------------------------------- ---- ------- -------
The consolidated financial statements were approved by the Board
of Directors on 27 June 2022 and were signed on its behalf by:
Giles Willits
Director
CONSOLIDATED CASH FLOW STATEMENT
YEARED 31 MARCH 2022
2022 2021
Note $000 $000
------------------------------------------------------- ---- -------- --------
Cash flows from operating activities
(Loss)/profit for the year (316) 10,441
Adjustments for:
Depreciation and (reversal of impairment)/impairment
of property, plant and equipment 8 13,378 13,535
Depreciation and (reversal of impairment)/impairment
of right-of-use assets 10 15,284 24,047
Amortisation of intangible assets 9 5,817 6,918
Finance expenses 6 5,491 5,179
Income tax charge 7 2,517 4,234
Loss on disposal of a business - 208
Loss on disposal of property, plant and equipment 436 165
Loss on disposal of intangible fixed assets - 106
Equity-settled share-based payments - (income)/expense 23 (848) 4,192
------------------------------------------------------- ---- -------- --------
Operating profit after adjustments for non-cash
items 41,759 69,025
Change in trade and other receivables (994) (11,914)
Change in inventory (58,096) 1,772
Change in trade and other payables, provisions
and deferred income 21,237 (4,504)
------------------------------------------------------- ---- -------- --------
Cash generated from operations 3,906 54,379
Tax (paid)/received (5,205) 14,353
Interest and similar charges paid (4,626) (4,082)
------------------------------------------------------- ---- -------- --------
Net cash (outflow)/inflow from operating
activities (5,925) 64,650
------------------------------------------------------- ---- -------- --------
Cash flow from investing activities
Proceeds from sale of property, plant and
equipment 131 147
Acquisition of intangible assets 9 (381) (1,000)
Acquisition of property, plant and equipment 8 (8,140) (7,390)
------------------------------------------------------- ---- -------- --------
Net cash outflow from investing activities (8,390) (8,243)
------------------------------------------------------- ---- -------- --------
Cash flows from financing activities
Repayment of secured borrowings 14 - (1,158)
Lease liabilities principal repayments 10 (20,717) (19,184)
Loan arrangement fees 14 (494) -
Equity dividends paid 22 (9,274) (11,288)
Dividends paid to non-controlling interests (3,365) -
------------------------------------------------------- ---- -------- --------
Net cash outflow from financing activities (33,850) (31,630)
------------------------------------------------------- ---- -------- --------
Net (decrease)/increase in cash and cash
equivalents (48,165) 24,777
Cash and cash equivalents at beginning of
the year 14 75,727 52,197
Effect of exchange rate fluctuations on cash
held 2,237 (1,247)
------------------------------------------------------- ---- -------- --------
Cash and cash equivalents at end of the
year 14 29,799 75,727
------------------------------------------------------- ---- -------- --------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARED 31 MARCH 2022
1 Accounting policies
a. Basis of preparation
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into UK law and became UK-adopted
International Accounting Standards ('UK IFRS'), with future changes
being subject to endorsement by the UK Endorsement Board. The Group
transitioned to UK IFRS in its consolidated financial statements on
1 April 2021. This change constitutes a change in accounting
framework. However, there is no impact on recognition, measurement
or disclosure in the period reported as a result of the change in
framework. The consolidated financial statements have been prepared
in accordance with UK IFRS and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those
standards.
The preparation of financial statements that conform with
adopted UK 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.
The estimates and underlying assumptions are reviewed on an ongoing
basis (see Critical accounting judgements and estimates section
below) . Revisions to accounting estimates are recognised in the
period in which the estimate is revised and future periods if
relevant.
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 accounting policies used in the preparation of these
financial statements are detailed below. These policies have been
consistently applied to all financial years presented.
The financial information set out in this document does not
constitute statutory accounts for IG Design Group plc for the year
ended 31 March 2022 but is extracted from the Annual Report and
Financial Statements. The Annual Report and Financial Statements
2022 will be delivered to the Registrar of Companies in due course.
The auditors' report on those accounts was unqualified and neither
drew attention to any matters by way of emphasis nor contained a
statement under either Section 498(2) of Companies Act 2006
(accounting records or returns inadequate or accounts not agreeing
with records and returns), or section 498(3) of Companies Act 2006
(failure to obtain necessary information and explanations).
Re-presentation of Adjusting items
Share based payments
The treatment of share-based payment credits/charges has changed
in the year such that they no longer form part of Adjusting items
in line with best practice guidance. The comparative figures
relating to Adjusting items have been restated to exclude
share-based payments where necessary in these financial
statements.
Restatement of comparative amounts
Financial instruments
There has been a restatement between gross trade receivables and
provision for doubtful debts of $6.6 million in note 24, Financial
Instruments, due to misclassification in the prior year's data.
Presentation currency
The presentation currency of the Group is US dollars.
The functional currency of the Parent Company remains as pound
sterling as it is located in the United Kingdom and substantially
all of its cash flows, assets and liabilities are denominated in
pound sterling, as well as its share capital. As such, the Parent
Company's functional and presentational currency differs to that of
the Group's reporting currency.
Seasonality of the business
The business of the Group is seasonal and although revenues
accrue relatively evenly in both halves of the year, working
capital requirements including inventory levels increase steadily
in the first half from July and peak in October as manufacturing
and distribution of Christmas products builds ahead of shipping.
The second half of the year sees the borrowing of the Group decline
and move to typically a cash positive position as the Group
collects its receivables through January to March.
Going concern
Information regarding the financial position of the Group, its
cash flows, liquidity position and borrowing facilities are
described in the detailed financial review above. 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, Citigroup (who replaced BNP Paribas), Truist Bank (as
successor by merger to SunTrust Bank) 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. ('CSS'). The
facilities were then further extended in May 2021.
In June 2022, the facilities were amended and extended through
to March 2024. The amendment to the terms of the banking agreement
comprise of a revolving credit facility ('RCF') of $90.0 million
(reduced from $95.0 million) and a further flexible RCF of up to
GBP92.0 million (reduced from a maximum level of GBP130.0 million)
to meet the Group's working capital requirements during peak
manufacturing and selling season. The financial covenants were also
amended - see note 14 for more details on these.
We also have access to supplier financing arrangements from
certain customers which we utilise at certain times of the year.
The largest of these supplier financing arrangements are subject to
the continuing support of the customers' banking partners and
therefore could be withdrawn at short notice.
The Group financial statements have been prepared on a going
concern basis as the Directors have a reasonable expectation that
the Group has adequate resources to continue trading for a period
of at least 12 months from the date of this report based on an
assessment of the overall position and future forecasts for the
going concern period. This assessment has also considered the
overall level of Group borrowings and covenant requirements, the
flexibility of the Group to react to changing market conditions and
ability to appropriately manage any business risks.
The Directors have prepared detailed plans and forecasts from
the date of signing these financial statements up to 30 June 2023.
These forecasts reflect the fact that the Group continued to
generate strong sales growth this year, albeit there were
significant cost pressures in the supply chain impacting
profitability that are assumed to continue in the going concern
period. They also reflect the seasonal operating cycle of the
business and a recovery associated with the DG Americas plan.
These forecasts have been sensitised to reflect severe but
plausible adverse downturns in the current assumptions.
Specifically, the severe but plausible downside scenario has taken
account of the following risks:
-- A range of pressures which could affect the attainment of the
DG Americas plan including inflation in various parts of the
business, sales shortfalls, sales timing and a disruption event
such as a short term manufacturing disruption leading to increased
temporary labour costs; and
-- Additional inflationary pressure in the DG International
business, noting that the potential risks in a severe but plausible
downside scenario are not considered to be as significant as in the
DG Americas business.
In the severe but plausible scenario modelled, there remains
significant headroom in our forecast liquidity and sufficient
headroom under the covenant requirements for both the amended
covenants to March 2023 and the reverted covenants from June 2023
onwards.
Based on this assessment, the Directors have formed a judgement
that there is a reasonable expectation the Group will have adequate
resources to continue in operational existence for the foreseeable
future.
Changes in accounting policies
There have been no changes to accounting policies during the
year.
Other standards and interpretations
The Group also adopted the following new pronouncements at the
start of the year, which did not have any material impact on the
Group's financial statements:
-- Amendments to IFRS 16 Leases - Covid-19-Related rent concessions
-- Amendments to IFRS 4 Insurance Contracts - deferral of IFRS 9
-- Amendments to IFRS 7, IFRS 4 and IFRS 16 interest rate benchmark reform - phase 2
Certain new accounting standards and interpretations have been
published that are not yet effective and have not been early
adopted by the Group. These standards are not expected to have a
material impact on the entity in the current or future reporting
periods and on foreseeable future transactions.
b. Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control
exists when the 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.
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 presented in
US dollars.
(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 the functional currency of the entity 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 US dollars 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.
(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 and put options over
non-controlling interests) 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
The movements in the fair value of unhedged derivatives are
charged/credited to the income statement.
The potential cash payments relating to put options issued by
the Group over the non-controlling interest of subsidiary companies
acquired are measured at estimated fair value and accounted for as
financial liabilities. Subsequent to initial recognition, any
changes to the carrying amount of non-controlling interest put
option liabilities are recognised through equity.
e. Cash and cash equivalents
Cash and cash equivalents comprise cash balances. Bank
overdrafts that are repayable on demand and form an integral part
of the Group's cash management 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 twelve 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
- 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.
Where the Group identifies assets held for sale, they are held
at the lower of current value and fair value less costs to
sell.
j. Lease liabilities and lease right-of-use assets
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.
Leases greater than twelve 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.
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 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.
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.
Rentals associated with leases that are of low value or less
than twelve 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.
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.
Right-of-use assets are impaired in line with the impairment
accounting policy below.
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 are 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 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
Computer software 3-5 years
Trade names 3-5 years
Customer relationships 3-15 years
Other intangibles 3-5 years
Customer relationships are wide ranging in useful economic
lives, from shorter relationships derived from smaller acquisitions
to the long relationship with Walmart acquired as part of the
acquisition of Impact Innovations, Inc. ('Impact').
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 ('CGU') 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 are 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.
The reversal of an impairment loss should be recognised if there
has been a change in the estimates used to determine the asset's
recoverable amount since the last impairment test was carried out.
Impairment losses relating to goodwill are not permitted to be
reversed.
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. For
acquisitions, inventory acquired will be assessed for fair value in
accordance with IFRS 3 and if applicable an uplift applied to stock
on hand relating to sales orders already attached to the acquired
stock. The unwind of the uplift in value is treated as an Adjusting
item.
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 date.
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 impaired 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 recognises revenue on sales of Celebrations, Craft
& creative play, Stationery, Gifting and 'Not -- for -- resale'
consumable products across two reporting 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. 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 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 based on sales made in the 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 a
'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. In this situation, 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, interest on lease liabilities,
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 is party to supplier financing arrangements with one
of its 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, 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.
In the event that any scheme is cancelled the Group recognises
immediately the amount that otherwise would have been recognised
for services received over the remainder of the vesting period. The
Group calculates this charge based on the number of the awards
expected to achieve the performance conditions immediately before
the award was cancelled.
Employer 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 those already
vested.
Deferred tax assets are recognised in respect of share-based
payment schemes.
u. Investment in own shares
The shares held in the Group's Employee Benefit Trust (IG
Employee Share Trustee Limited) 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, other than those associated with
Covid-19, are credited to the income statement so as to match them
with the expenditure to which they relate. Covid-19 related grants
are recognised gross in either other operating income or cost of
sales.
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/(loss),
Adjusted profit/(loss) before tax, Adjusted profit/(loss) after tax
and Adjusted earnings/(loss) per share.
Adjusting items are items that are material and/or, 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) including fair value adjustments to acquisitions.
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 prior year figures at the current year 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.
The following are the critical judgements, apart from those
involving estimations (which are dealt with separately below), that
the Directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in the financial statements.
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.
Accounting estimates
(i) Intangible assets
Goodwill is not amortised but is tested annually for impairment,
along with the finite-lived intangible assets and other assets of
the Group's CGUs. Tests for impairment are based on discounted cash
flows and assumptions (including discount rates 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 CGU or groups of CGUs. 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 that they are recoverable
based on profit projections for future years. Management make a
judgement in respect of the length of future cash flows against
which to assess the future taxable profits and this aligns to other
assessments that use similar forecasts including impairment. 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 certain tax
assets within the Group and has adequate provision to cover all tax
risks across all business operations. See note 11 for more
details.
(iii) Lease asset impairments
The Group has impaired the right -- of -- use assets in respect
of several properties that the Group has exited as part of the
ongoing integration following the CSS acquisition. This is based on
the properties themselves being a CGU in line with IAS 36 as they
are being actively marketed for sub-tenants. The impairments are
assessed at each reporting date and if necessary reversed should
there be available sub-tenants for the properties, or an early
termination had been agreed with the landlord.
As at 31 March 2022, the Group had offers agreed with
sub-tenants on two of the seven properties that had been impaired
and a portion of another property which terminated the lease
earlier than the expiry date. This resulted in $2.5 million of
impairment reversal in the year. For the remaining properties the
Group had no offers from potential sub-tenants and given that this
position is expected to continue for the foreseeable future, these
leased properties remain impaired in full. As at 31 March 2022, if
there was a reversal of the remaining impaired right-of-use assets,
the right-of-use assets would increase by $6.5 million (2021: $13.1
million).
(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.
The 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. This is not a precise estimate and is based on best data at
the time of recognition. Regular monitoring of stock levels, the
ageing of stock and the level of the provision is carried out by
the Directors to reassess this estimate. The assumptions made in
relation to the current period are consistent with those in the
prior year. As at 31 March 2022, inventory provisions were $38.4
million against a gross inventory value of $269.3 million (2021:
$46.3 million provision, $222.5 million gross inventory value).
This provision estimate is subject to potential material change,
for example if market conditions change because expected customer
demand fluctuates, or shipping delays reduce our ability to deliver
on time and in full. A 10% change in the provision would create a
difference of approximately $4.0 million (2021: $4.0 million).
2 Segmental information
The Group has one material business activity, being the design,
manufacture and distribution of Celebrations, Craft & creative
play, Stationery, Gifting and 'Not-for-resale' consumable
products.
The business operates under two reporting segments which are
reported to, and evaluated by, the Chief Operating Decision Makers
for the Group. The DG Americas segment includes overseas operations
in Asia, Australia, UK, India and Mexico, being the overseas
entities of US companies. The DG International segment comprises
the consolidation of the separately owned UK, European and
Australian businesses.
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
DG DG and
Americas(a) International eliminations Group
$000 $000 $000 $000
----------------------------------------- ----------- ------------- ------------ ---------
Year ended 31 March 2022
Revenue - external 658,953 306,140 - 965,093
- inter-segment 16 1,725 (1,741) -
----------------------------------------- ----------- ------------- ------------ ---------
Total segment revenue 658,969 307,865 (1,741) 965,093
----------------------------------------- ----------- ------------- ------------ ---------
Segment (loss)/profit before adjusting
items and management recharge (11,738) 20,836 (5,290) 3,808
Adjusting items (note 3) 5,667 1,570 (3,353) 3,884
----------------------------------------- ----------- ------------- ------------ ---------
Operating (loss)/profit (6,071) 22,406 (8,643) 7,692
Finance expenses (5,105)
Finance expenses treated as an Adjusting
item (note 3) (386)
Income tax (2,517)
----------------------------------------- ----------- ------------- ------------ ---------
Loss for the year ended 31 March
2022 (316)
----------------------------------------- ----------- ------------- ------------ ---------
Balances at 31 March 2022
Segment assets 451,270 237,625 18,181 707,076
----------------------------------------- ----------- ------------- ------------ ---------
Segment liabilities (212,083) (100,500) (24,783) (337,366)
----------------------------------------- ----------- ------------- ------------ ---------
Capital expenditure additions
- property, plant and equipment 5,237 2,860 43 8,140
- intangible assets 223 158 - 381
- right-of-use assets 4,331 4,850 - 9,181
Depreciation - property, plant and
equipment 7,803 5,891 11 13,705
Reversal of impairment - property,
plant and equipment - (327) - (327)
Amortisation - intangible assets 5,634 183 - 5,817
Depreciation - right-of-use assets 12,406 5,352 18 17,776
Impairment - right-of-use assets - - 22 22
Reversal of impairment - right-of-use
assets (2,514) - - (2,514)
----------------------------------------- ----------- ------------- ------------ ---------
(a) Including overseas entities for the Americas operating segment.
Central
DG DG and
Americas(a) International eliminations Group
$000 $000 $000 $000
----------------------------------------------------------------- ----------- ------------- ------------ ---------
Year ended 31 March 2021
Revenue - external 613,909 259,307 - 873,216
- inter-segment 66 5,995 (6,061) -
----------------------------------------------------------------- ----------- ------------- ------------ ---------
Total segment revenue 613,975 265,302 (6,061) 873,216
----------------------------------------------------------------- ----------- ------------- ------------ ---------
Segment profit/(loss) before adjusting items and management
recharge(b) 19,934 24,968 (7,072) 37,830
Adjusting items(b) (note 3) (18,599) 628 (5) (17,976)
----------------------------------------------------------------- ----------- ------------- ------------ ---------
Operating profit 1,335 25,596 (7,077) 19,854
Finance expenses (5,016)
Finance expenses treated as an Adjusting item (note 3) (163)
Income tax (4,234)
----------------------------------------------------------------- ----------- ------------- ------------ ---------
Profit for the year ended 31 March 2021 10,441
----------------------------------------------------------------- ----------- ------------- ------------ ---------
Balances at 31 March 2021
Segment assets 469,192 230,590 63,472 763,254
----------------------------------------------------------------- ----------- ------------- ------------ ---------
Segment liabilities (216,940) (86,553) (67,742) (371,235)
----------------------------------------------------------------- ----------- ------------- ------------ ---------
Capital expenditure additions
- property, plant and equipment 4,589 2,711 90 7,390
- intangible assets 963 37 - 1,000
- right-of-use assets 30,207 2,733 - 32,940
Depreciation - property, plant and equipment 7,760 5,774 1 13,535
Amortisation - intangible assets 6,510 408 - 6,918
Depreciation - right-of-use assets 12,739 5,265 74 18,078
Impairment - right-of-use assets 5,969 - - 5,969
----------------------------------------------------------------- ----------- ------------- ------------ ---------
(a) Including overseas entities for the Americas operating segment.
(b) The prior year comparatives above have been re-presented.
For more detail please refer to note 1.
-- The Group has one customer that accounts for 23% (2021: 24%)
of the total Group revenues. In the year ended 31 March 2022 total
sales to that customer were $223.9 million (2021: $211.9 million).
This customer falls solely within the DG Americas 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 include deferred tax assets of $16.3 million (2021: $18.4
million), income tax receivable of $1.2 million (2021: $2.4
million), income tax payable of $7.4 million (2021: $10.1 million)
and deferred tax liabilities of $381,000 (2021: $2.1 million).
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
--------------------
2022 2021
$000 $000
----------------- --------- ---------
DG Americas 166,823 184,331
DG International 106,217 114,126
----------------- --------- ---------
273,040 298,457
----------------- --------- ---------
Revenue by customer destination
2022 2021 2022 2021
$000 $000% %
------------------ ------- ------- --- ----
Americas 665,059 621,734 69 71
UK 112,539 97,383 12 11
Rest of the world 187,495 154,099 19 18
------------------ ------- ------- ---- ----
965,093 873,216 100 100
------------------ ------- ------- ---- ----
All revenue arose from the sale of goods.
3 Operating expenses and Adjusting items
Included in the income statement are the following
charges/(credits):
2022 2021(a)
Note $000 $000
---------------------------------------------------- ---- ------- -------
Depreciation of tangible fixed assets 8 13,705 13,535
Reversal of impairment of tangible fixed
assets 8 (327) -
Depreciation of right-of-use assets 10 17,776 18,078
(Reversal of impairment)/impairment of right-of-use
assets 10 (2,492) 5,969
(Profit)/loss on sales of property, plant
and equipment and intangible assets (436) 256
Release of deferred grant income 5 17 (130)
Amortisation of intangible assets - software 9 2,980 3,840
Sub-lease rental income 5 (752) (559)
Write down of inventories to net realisable
value 12 18,285 19,623
Reversal of previous write downs of inventory 12 (6,219) (4,472)
Loss/(income) foreign exchange 602 (483)
---------------------------------------------------- ---- ------- -------
(a) The prior year comparatives above have been re-presented to
include Adjusting items in the various categories.
2022 2021(a)
$000 $000
------------------------------ ----- --------
Operating profit analysed as:
Adjusted operating profit 3,808 37,830
Adjusting items 3,884 (17,976)
------------------------------ ----- --------
Operating profit 7,692 19,854
------------------------------ ----- --------
(a) The prior year comparatives above have been re-presented.
For more detail please refer to note 1.
Adjusting items
Loss
Cost Other on disposal Other
of Selling Admin operating of finance
sales expenses expenses income plant expenses Total
Year ended 31 March
2022 $000 $000 $000 $000 $000 $000 $000
------------------------------------ ------- -------- -------- ---------- ------------ -------- -------
Losses/(gains) and
transaction costs
relating to acquisitions
and disposals of businesses(1) - - 3,710 - - (15) 3,695
Acquisition integration
and restructuring
costs/(income)(2) (980) - (1,336) (124) 348 401 (1,691)
(Reversal of impairment)/impairment
of assets(3) (1,544) (1,112) - - - - (2,656)
Incremental Covid-19
costs(4) - - - - - - -
IT security incident
(income)/costs(5) - - (5,683) - - - (5,683)
Amortisation of acquired
intangibles(6) - - 2,837 - - - 2,837
------------------------------------ ------- -------- -------- ---------- ------------ -------- -------
Adjusting items (2,524) (1,112) (472) (124) 348 386 (3,498)
------------------------------------ ------- -------- -------- ---------- ------------ -------- -------
Other
Cost of Selling Admin Loss on finance
sales expenses expenses disposal expenses Total
Year ended 31 March 2021 $000 $000 $000 $000 $000 $000
------------------------------------------------------------ ------- -------- -------- -------- -------- -------
Losses/(gains) and transaction costs relating to
acquisitions and disposals of
businesses(1) - - 74 208 - 282
Acquisition integration and restructuring costs/(income)(2) 993 (162) 14,402 91 163 15,487
(Reversal of impairment)/impairment of assets(3) (3,709) (2,100) - - - (5,809)
Incremental Covid-19 costs(4) 603 - 913 - - 1,516
IT security incident costs(5) 1,107 - 1,093 - - 2,200
Amortisation of acquired intangibles(6) - - 4,463 - - 4,463
Adjusting items(a) (1,006) (2,262) 20,945 299 163 18,139
------------------------------------------------------------ ------- -------- -------- -------- -------- -------
(a) The prior year comparatives above have been re-presented.
For more detail please refer to note 1.
Adjusting items are separately presented by virtue of their
nature, size and incidence. 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) including fair
value adjustments to acquisitions.
These losses/(gains) relating to the year ended 31 March 2022
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 Long Term Incentive Plans) 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.
In the year, the Group has incurred expenditure relating to
acquisitions totalling $3.7 million, of which $113,000 related to
previous acquisitions and the balance relates to aborted
acquisitions. In addition, the final tranche of acquisition related
employee payments which lock in and incentivise legacy talent
relating to the Impact Innovations Inc. transaction in 2019 have
been incurred ($278,000) as we celebrate our third anniversary of
the acquisition.
In the year to 31 March 2021 an additional $208,000 of
transaction costs associated with the disposal on 24 February 2020
of Zhejiang Shaoxing Royal Arts and Crafts Co. Ltd ('Shaoxing')
were incurred along with expenditure in relation to other potential
acquisitions reviewed in that year.
(2) Acquisition integration and restructuring costs/(income)
In order to realise synergies from acquisitions, 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. As such, the Board
considers it is appropriate that costs associated with projects of
this nature be included as Adjusting items.
The main activity in the year related to the integration of CSS
into the enlarged DG Americas business.
The CSS business includes a large portfolio of owned and leased
sites, and part of the integration project includes the
consolidation of these locations. As certain sites were closed and
exited since acquisition, in the absence of being able to sub-lease
or break leases this resulted in impairments of lease assets in the
prior financial year. In the year we were able to partially exit
some of the property we lease in Budd Lake, New Jersey as well as
sub-lease our sites in Plymouth Meeting, Philadelphia and Midway,
Georgia. This has resulted in a reversal of the lease asset
impairments and associated provisions for costs to run the exited
sites of $2.8 million going through Adjusting items. Ongoing costs
including associated right-of-use asset depreciation and lease
liability interest relating to all of the properties we have exited
continue to be treated as Adjusting items.
In respect of the remaining vacant leased properties, marketing
for sub-tenancy is ongoing. As at 31 March 2022, the Group has had
no offers from potential subtenants and given that in the
Directors' opinion there is no realistic prospect of subleasing in
the foreseeable future, these leased properties remain impaired in
full. As at 31 March 2022, if there was a reversal of the remaining
right-of-use assets, the right-of-use assets would increase by $6.5
million (2021: $13.1 million).
Other costs associated with the ongoing consolidation of
operations around the Group, have been incurred including the
enlarged printing and converting business moving from Memphis to a
larger facility in Byhalia, Mississippi that also houses
distribution. In addition, costs associated with the exit of the
owned property in Manhattan, Kansas to consolidate our pattern
printing facilities into one site have been incurred. The total
costs associated with this integration was $1.1 million.
The remaining costs incurred in the year relate to severance
costs associated with the wider DG Americas restructure
programme.
The main costs in the year to 31 March 2021 also related to the
integration of CSS into the enlarged DG Americas business. These
included integration consultancy expenditure, severance and
temporary labour costs, as the newly integrated team structures
following the acquisition were established, and the impact of the
impairment of the lease assets and costs associated with the
closure of excess sites.
The tax refund as a result of the US Covid-19 Coronavirus Aid,
Relief and Economic Security ('CARES') Act attracted interest
income which was recognised in Adjusting items in the prior
year.
Furthermore, in the UK and Australia, as a result of Covid-19,
workforce restructuring costs were treated as Adjusting items in
the year to 31 March 2021.
(3) (Reversal of impairment)/impairment of assets
In light of the impact of Covid-19 on the business, a review of
inventory, trade receivables and fixed assets was undertaken as at
31 March 2020 at the onset of the pandemic. Inventories were
assessed at 31 March 2020 for the net realisable value and an
impairment of $7.4 million was taken. Similarly trade receivables
were assessed for their expected credit loss in line with IFRS 9
and an impairment of $3.8 million was taken. Finally the UK's bag
line machines were impaired based on expected future cash flows
associated with the 'not-for-resale' business.
During the year, the $2.7 million credit relates solely to
reversal of impairments no longer required.
As at 31 March 2022, for inventory, $1.6 million of the
impairment brought forward has been utilised (based on sell-through
of the impaired products), with $1.2 million being reversed through
Adjusting items as the inventory has been sold or committed to sale
at a higher than expected price. As at 31 March 2022, $362,000
remains reserved for inventory that will be scrapped post year
end.
Similarly for trade receivables, $332,000 in total has been
utilised, and $1.1 million reversed as it is no longer required as
the reserved customers have been able to pay. As at 31 March 2022,
a very small amount remains ($43,000) relating to specific debtors
that have been put into administration.
The UK bag line machines were reassessed in accordance with IAS
36 to determine whether the impairment has decreased or no longer
exists. In light of the expected future sales increases in the
'not-for-resale' business in the UK, a reversal of the impairment
has been put through Adjusting items as at 31 March 2022. The
reversed amount of $327,000 is based on the net book value of the
assets as at the reversal date.
As at 31 March 2021, $2.4 million of the trade receivables
impairment was reversed as it was no longer required and following
a review of sell-through rates in respect of inventory, $4.0
million was released. These releases were partially offset by
$599,000 of additional Covid-19 related impairment charges taken
during the year.
(4) Incremental Covid-19 costs
The Covid-19 outbreak developed rapidly in 2020 and continued
into 2021, with measures taken around the world to contain the
virus affecting economic activity. The Group was 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 incremental costs relating to the
pandemic equal to $1.5 million were included in Adjusting items in
the year to 31 March 2021. The most significant element of these
costs relate to additional 'hazard pay' labour costs across our
manufacturing facilities in the USA and Mexico in order to ensure
our employees returned to work. In addition to this the business
incurred direct incremental costs of $0.6 million.
In addition, laws were passed in India and Mexico that meant no
workforce reductions were allowed during closed/lockdown periods
which meant higher employee costs were being incurred than
ordinarily would have in that situation. This resulted in the
business incurring direct incremental costs of labour whilst not
producing anything and incurring periods of significant downtime.
When employees returned to work post lockdown labour costs were
paid again once production started, effectively doubling the costs
to produce.
(5) IT security incident (credits)/costs
The IT security incident which occurred in DG Americas in
October/November 2020 resulted in one-off costs being incurred
during the year ended 31 March 2021 which were treated as Adjusting
items at the time to the value of $2.2 million. This did not
include the lost profits incurred as a result of downtime in the
business for which an insurance claim was made. During the year
insurance pay-outs were received from two different insurers,
totalling $5.7 million. This has been taken to Adjusting items net
of a small amount relating to advisor costs associated with the
claim.
(6) Amortisation of acquired intangibles
Under IFRS, as part of the acquisition of a company, it is
necessary to identify intangible assets such as customer lists and
trade names 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
their useful economic lives. 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
tradenames and brands acquired as part of the acquisition of Impact
and CSS in the USA. As such we include these as Adjusting items.
Note that the trade names acquired as part of the acquisition of
Biscay Pty Greetings Ltd in Australia were fully amortised in the
prior year.
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 ($1.4 million)
associated with the CSS acquisition was included as an Adjusting
item, consistent with the treatment adopted with the Impact
acquisition. This fully unwound as at 31 March 2021.
The cash flow effect of Adjusting items
There was $6.2 million net outflow in the current year cash flow
(2021: $666,000 restated) relating to Adjusting items. $3.3 million
of the current year's outflow was deferred from the prior year. In
the prior year the net outflow included an inflow relating to the
US tax NOL refunds received in the year, as well as an outflow of
$6.4 million deferred from the year before.
Auditor's remuneration:
2022 2021
$000 $000
---------------------------------------------------------------------- ----- ----
Amounts receivable by auditor and its associates in respect of:
Audit of these financial statements 1,021 947
Audit of financial statements of subsidiaries pursuant to legislation
- Overseas subsidiaries 87 182
- UK subsidiaries 103 88
Other audit related services 80 65
Taxation compliance services - 498
All other taxation advisory services - 114
---------------------------------------------------------------------- ----- ----
4 Staff numbers and costs
The average monthly number of persons employed by the Group
(including Directors) during the year, analysed by category, was as
follows:
Number of employees
---------------------
2022 2021(a)
---------------------------- -------- -----------
Selling and administration 1,264 1,244
Production and distribution 2,051 2,349
Temporary and agency staff 747 574
---------------------------- -------- -----------
4,062 4,167
---------------------------- -------- -----------
(a) Production and distribution numbers in the prior year have
been re-presented for 500 temporary employees included within them
relating to our Huizhou manufacturing site. The prior year has also
been re-presented to show temporary and agency employees across the
Group.
The aggregate payroll costs of these persons were as
follows:
2022 2021(a)
Note $000 $000
------------------------- ---- ------- -------
Wages and salaries 159,197 149,732
Share-based payments 23 (848) 4,192
Social security costs 14,123 13,114
Other pension costs 3,300 2,835
Temporary employee costs 20,057 10,311
------------------------- ---- ------- -------
195,829 180,184
------------------------- ---- ------- -------
(a) Wages and salaries in the prior year have been re-presented
to exclude temporary employee costs included within them ($2.7
million) relating to our Huizhou manufacturing site. The prior year
has also been re-presented to show the total costs associated with
all temporary and agency employees across the Group.
For information on Directors' remuneration please refer to the
section titled 'Directors' remuneration' within the Directors'
remuneration report within the Group's audited financial
statements.
5 Other operating income
2022 2021
$000 $000
---------------------------------------------- ---- -----
Grant income (17) 130
Sub-lease rental income 628 559
Government assistance 125 3,263
Other 10 114
---------------------------------------------- ---- -----
Other operating income before Adjusting items 746 4,066
Adjusting items (note 3) 124 -
---------------------------------------------- ---- -----
870 4,066
---------------------------------------------- ---- -----
6 Finance expenses
2022 2021
$000 $000
---------------------------------------------------------------------------- ----- -----
Interest payable on bank loans and overdrafts 598 569
Other similar charges 1,352 1,036
Lease liability interest 3,078 3,334
Unwinding of fair value discounts 80 79
---------------------------------------------------------------------------- ----- -----
Interest payable under the effective interest method 5,108 5,018
Derivative financial instruments at fair value through the income statement (3) (2)
---------------------------------------------------------------------------- ----- -----
Finance expenses before Adjusting items 5,105 5,016
Adjusting items (note 3) 386 163
---------------------------------------------------------------------------- ----- -----
5,491 5,179
---------------------------------------------------------------------------- ----- -----
7 Taxation
Recognised in the income statement
2022 2021
$000 $000
-------------------------------------------------- ------- -------
Current tax charge/(credit)
Current year 3,898 6,077
Adjustments in respect of previous years (12) (73)
-------------------------------------------------- ------- -------
3,886 6,004
-------------------------------------------------- ------- -------
Deferred tax charge/(credit)
Derecognition of deferred tax assets 2,308 -
Origination and reversal of temporary differences (3,664) (1,724)
Adjustments in respect of previous periods (13) (46)
-------------------------------------------------- ------- -------
(1,369) (1,770)
-------------------------------------------------- ------- -------
Total tax in income statement 2,517 4,234
-------------------------------------------------- ------- -------
Total tax charge/(credit) on Adjusting items
Total tax on profit before Adjusting items(a) 3,333 8,830
Total tax on Adjusting items(a) (816) (4,596)
Total tax charge in income statement 2,517 4,234
-------------------------------------------------- ------- -------
(a) The prior year comparatives above have been re-presented.
For more detail please refer to note 1.
Reconciliation of effective tax rate
2022 2021
$000 $000
---------------------------------------------------- ------- ------
Profit before tax 2,201 14,675
---------------------------------------------------- ------- ------
Profit before tax multiplied by the standard rate
of corporation tax rate
of 19% in the UK (2021: 19%) 418 2,788
Effects of:
Income not taxable (320) (184)
Expenses not deductible for tax purposes 94 568
Derecognition of deferred tax assets 2,308 -
Effect of tax rate changes (170) -
Differences between UK and overseas tax rates 946 1,290
Movement in uncertain tax provisions (1,531) 175
Other items (182) (284)
Adjustments in respect of previous periods (25) (119)
Current year losses for which no deferred tax asset
is recognised 979 -
---------------------------------------------------- ------- ------
Total tax charge in income statement 2,517 4,234
---------------------------------------------------- ------- ------
8 Property, plant and equipment
Fixtures
Land and buildings Plant and and Motor
--------------------
Freehold Leasehold equipment fittings vehicles Total
$000 $000 $000 $000 $000 $000
-------------------------- --------- --------- --------- -------- -------- --------
Cost
Balance at 1 April
2020 46,189 4,331 102,989 9,332 2,199 165,040
Additions 146 1,118 3,200 2,797 129 7,390
Transfer between
categories - - 2,279 (2,279) - -
Disposals - (61) (203) (528) (195) (987)
Effect of movements
in foreign exchange 2,179 183 5,928 567 262 9,119
-------------------------- --------- --------- --------- -------- -------- --------
Balance at 1 April
2021 48,514 5,571 114,193 9,889 2,395 180,562
Additions 625 842 5,719 844 110 8,140
Transfer to Asset
held for sale (2,150) - (664) - - (2,814)
Transfer to intangible
fixed assets - - - (156) - (156)
Disposals (54) (764) (3,878) (3,097) (53) (7,846)
Effect of movements
in foreign exchange (1,357) 43 (2,544) (134) (61) (4,053)
-------------------------- --------- --------- --------- -------- -------- --------
Balance at 31 March
2022 45,578 5,692 112,826 7,346 2,391 173,833
-------------------------- --------- --------- --------- -------- -------- --------
Depreciation and
impairment
Balance at 1 April
2020 (14,937) (2,802) (47,538) (6,731) (1,288) (73,296)
Depreciation charge
for the year (1,874) (773) (8,353) (2,231) (304) (13,535)
Transfers between
fixed asset categories - - (1,806) 1,806 - -
Disposals - 30 96 376 173 675
Effect of movements
in foreign exchange (1,378) (167) (4,065) (426) (167) (6,203)
-------------------------- --------- --------- --------- -------- -------- --------
Balance at 1 April
2021 (18,189) (3,712) (61,666) (7,206) (1,586) (92,359)
Depreciation charge
for the year (2,027) (990) (9,068) (1,377) (243) (13,705)
Reversal of impairment
in the year - - 327 - - 327
Reclassification
between categories (327) - 136 265 (74) -
Transfers from intangible
fixed assets - - - (30) - (30)
Disposals 53 739 3,411 3,182 20 7,405
Transfer to Asset
held for sale - - 664 - - 664
Effect of movements
in foreign exchange 818 (57) 1,785 188 42 2,776
-------------------------- --------- --------- --------- -------- -------- --------
Balance at 31 March
2022 (19,672) (4,020) (64,411) (4,978) (1,841) (94,922)
-------------------------- --------- --------- --------- -------- -------- --------
Net book value
At 31 March 2022 25,906 1,672 48,415 2,368 550 78,911
-------------------------- --------- --------- --------- -------- -------- --------
At 31 March 2021 30,325 1,859 52,527 2,683 809 88,203
-------------------------- --------- --------- --------- -------- -------- --------
During the year a property in Manhattan, Kansas with a net book
value of $2.2 million has been reclassified to Assets held for
sale. The sale completed on 28 April 2022 (see note 28 for further
details).
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.
Security
Certain freehold properties with a cost of $13.9 million in the
UK 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
$000 $000 $000 $000 $000 $000
--------------------- -------- -------- ------- ------------- ----------- --------
Cost
Balance at 1 April
2020 97,374 13,378 5,212 23,921 164 140,049
Additions - 1,000 - - - 1,000
Disposals - (153) - - - (153)
Effect of movements
in foreign exchange 4,910 316 50 180 14 5,470
Balance at 1 April
2021 102,284 14,541 5,262 24,101 178 146,366
Additions - 381 - - - 381
Transfer from fixed
assets - 156 - - - 156
Disposals - (484) - - - (484)
Effect of movements
in foreign exchange (2,216) (101) (4) (15) (7) (2,343)
--------------------- -------- -------- ------- ------------- ----------- --------
Balance at 31 March
2022 100,068 14,493 5,258 24,086 171 144,076
--------------------- -------- -------- ------- ------------- ----------- --------
Amortisation and
impairment
Balance at 1 April
2020 (13,008) (4,232) (2,177) (4,277) (141) (23,835)
Amortisation charge
for the year - (3,840) (1,057) (2,021) - (6,918)
Disposals - 47 - - - 47
Effect of movements
in foreign exchange (311) (265) (47) (155) (8) (786)
Balance at 1 April
2021 (13,319) (8,290) (3,281) (6,453) (149) (31,492)
Amortisation charge
for the year - (2,980) (1,034) (1,803) - (5,817)
Transfer to fixed
assets - 30 - - - 30
Disposals - 317 - - - 317
Effect of movements
in foreign exchange 168 89 5 15 7 284
--------------------- -------- -------- ------- ------------- ----------- --------
Balance at 31 March
2022 (13,151) (10,834) (4,310) (8,241) (142) (36,678)
--------------------- -------- -------- ------- ------------- ----------- --------
Net book value
At 31 March 2022 86,917 3,659 948 15,845 29 107,398
--------------------- -------- -------- ------- ------------- ----------- --------
At 31 March 2021 88,965 6,251 1,981 17,648 29 114,874
--------------------- -------- -------- ------- ------------- ----------- --------
Computer software relates to purchased software and people costs
associated with the implementation of software.
The aggregate carrying amounts of goodwill allocated to each CGU
are as follows:
2022 2021
$000 $000
------------ ------ ------
UK and Asia 33,618 35,240
Europe 6,688 7,056
USA 42,872 42,872
Australia 3,739 3,797
------------ ------ ------
86,917 88,965
------------ ------ ------
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 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 CGU. The recoverable amounts of CGUs are
determined from the higher of value in use and fair value less
costs to sell.
The Group has prepared budgets and forecasts for each CGU for
the next three 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, more recent
performance and future expectations. The potential impacts of
climate change are not currently considered a key assumption within
the relevant future cash flows as the Group is at a relatively
early stage of its climate change journey. Therefore, there are no
material risks or opportunities which should be included in the
relevant future cash flows and any future impacts of climate change
are not expected to have a material impact on the carrying value of
goodwill.
The Group then extrapolates cash flows for the following two
years based on the long-term growth rates applicable to the
relevant territories (shown below) to determine the discounted cash
flows for five years plus a terminal value for each CGU.
The Group's post -- tax weighted average cost of capital
('WACC') is 7.6% (2021: 6.8%). This has been compared to other
similar companies and is believed to be appropriate by the
Directors.
The CGUs use the following pre-tax discount rates which are
derived from an estimate of the Group's post-tax WACC adjusted for
the relevant tax rate for each CGU.
Pre-tax discount rates used were:
2022 2021
------------ ----- -----
UK and Asia 9.5% 9.1%
Europe 10.0% 9.5%
USA 10.1% 9.5%
Australia 10.8% 10.2%
------------ ----- -----
Long term growth rates used were:
2022 2021
------------ ---- ----
UK and Asia 2.0% 1.0%
Europe 1.5% 1.0%
USA 1.6% 1.0%
Australia 2.2% 1.0%
------------ ---- ----
In all businesses, the carrying value of the goodwill was
supported by the recoverable amount. 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, a forecast including cash flow contingencies and a
0% growth rate assumption (for years four, five and the terminal
value). With these changes in assumptions there is still
comfortable headroom and no indication of impairment.
The base case valuation for UK and Asia shows a recoverable
amount of $103.7 million, on an asset base of $71.8 million (of
which goodwill is $33.6 million), resulting in headroom of $31.9
million available. This is the lowest headroom of all the CGUs. The
cash flows in this base case forecast would need to be 23% lower
throughout the forecasted period to trigger an impairment, with all
other assumptions being the same.
10 Right-of-use assets and lease liabilities
Right-of-use assets
Land and Plant and Motor Office
buildings machinery vehicles equipment Total
$000 $000 $000 $000 $000
------------------------------- --------- --------- -------- --------- --------
Net book value at 1 April
2020 80,128 1,554 530 530 82,742
Additions 32,016 298 223 403 32,940
Disposals - - (17) - (17)
Depreciation charge (16,754) (629) (379) (316) (18,078)
Impairment (5,969) - - - (5,969)
Effect of movements in foreign
exchange 3,467 73 23 199 3,762
Net book value at 1 April
2021 92,888 1,296 380 816 95,380
Additions 8,510 256 284 131 9,181
Disposals (1,231) - - - (1,231)
Transfers between categories (109) 1 (11) 119 -
Depreciation charge (16,718) (498) (290) (270) (17,776)
Reversal of impairment 2,492 - - - 2,492
Effect of movements in foreign
exchange (1,263) (63) 25 (14) (1,315)
------------------------------- --------- --------- -------- --------- --------
Net book value at 31 March
2022 84,569 992 388 782 86,731
------------------------------- --------- --------- -------- --------- --------
Additions include lease modifications and extensions of $5.4
million (2021: $2.4 million).
Income statement
The income statement shows the following charges/(credits)
relating to leases:
2022 2021
$000 $000
------------------------------------------------ ------- ------
Interest expense (included in finance expenses) 3,479 3,685
Depreciation charge 17,776 18,078
(Reversal of impairment)/impairment (2,492) 5,969
Expense relating to short-term leases 126 153
------------------------------------------------ ------- ------
Of the interest expense detailed above $401,000 (2021: $351,000)
has been treated as an Adjusting item as it relates to exited
properties from the DG Americas integration.
Low-value lease costs were negligible in the year.
At 31 March 2022, the Group had estimated lease commitments for
leases not yet commenced of $nil (2021: $1.4 million).
Movement in lease liabilities
2022 2021
$000 $000
---------------------------------------- --------- ---------
Balance at 1 April (113,922) (95,413)
Cash flow - financing activities 20,717 19,184
Additions (9,353) (33,200)
Disposals 1,280 17
Effect of movements in foreign exchange 1,435 (4,510)
---------------------------------------- --------- ---------
Balance at 31 March (99,843) (113,922)
---------------------------------------- --------- ---------
Total cash outflow in relation to leases is as follows:
2022 2021
$000 $000
---------------------------------------------------------------- ------ ------
Included in financing activities - payment of lease liabilities 20,717 19,184
Included in interest and similar charges paid 3,479 3,685
Short-term leases 126 130
---------------------------------------------------------------- ------ ------
24,322 22,999
---------------------------------------------------------------- ------ ------
Commitments for minimum lease payments in relation to
non-cancellable low value or short term leases are payable as
follows:
2022 2021
$000 $000
--------------------------- ---- ----
Less than one year 126 153
Between one and five years - -
More than five years - -
--------------------------- ---- ----
126 153
--------------------------- ---- ----
Income from sub-leasing right-of-use assets
During the year sub-lease income from right-of-use assets was as
follows:
2022 2021
$000 $000
------------------------------------------------------------------ ---- ----
Sub-lease income in the year from sub-leasing right-of-use assets 752 559
------------------------------------------------------------------ ---- ----
Of the sub-lease income detailed above $124,000 (2021: $nil) has
been treated as an Adjusting item as relates to exited properties
from the DG Americas integration.
Non-cancellable operating lease rentals are receivable as
follows:
2022 2021
$000 $000
--------------------------- ----- ----
Less than one year 422 466
Between one and five years 1,542 348
--------------------------- ----- ----
1,964 814
--------------------------- ----- ----
11 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the
following:
Property,
plant
and equipment Tax losses
and intangible carried Share-based Doubtful Other timing
assets forward payments debts differences(a) Total
$000 $000 $000 $000 $000 $000
------------------------------------ -------------- ---------- ----------- -------- -------------- -------
At 1 April 2020 5,413 4,694 1,496 3,957 (2,051) 13,509
Credit/(charge) to income statement 96 3,146 33 (2,611) 1,106 1,770
(Charge)/credit to equity (134) 551 155 8 383 963
------------------------------------ -------------- ---------- ----------- -------- -------------- -------
At 31 March 2021 5,375 8,391 1,684 1,354 (562) 16,242
------------------------------------ -------------- ---------- ----------- -------- -------------- -------
Deferred tax liabilities (1,834) - (3) - (4,968) (6,805)
Deferred tax assets 7,209 8,391 1,687 1,354 4,406 23,047
------------------------------------ -------------- ---------- ----------- -------- -------------- -------
5,375 8,391 1,684 1,354 (562) 16,242
------------------------------------ -------------- ---------- ----------- -------- -------------- -------
Property,
plant
and equipment Tax losses
and intangible carried Share-based Doubtful Other timing
assets forward payments debts differences(a) Total
$000 $000 $000 $000 $000 $000
------------------------------------ -------------- ---------- ----------- -------- -------------- -------
At 1 April 2021 5,375 8,391 1,684 1,354 (562) 16,242
(Charge)/credit to income statement (1,659) (77) (956) (1,348) 5,409 1,369
Credit/(charge) to equity 33 (745) (728) - (235) (1,675)
------------------------------------ -------------- ---------- ----------- -------- -------------- -------
At 31 March 2022 3,749 7,569 - 6 4,612 15,936
------------------------------------ -------------- ---------- ----------- -------- -------------- -------
Deferred tax liabilities (335) - - - (90) (425)
Deferred tax assets 4,084 7,569 - 6 4,702 16,361
------------------------------------ -------------- ---------- ----------- -------- -------------- -------
3,749 7,569 - 6 4,612 15,936
------------------------------------ -------------- ---------- ----------- -------- -------------- -------
(a) Other timing differences include a deferred tax asset
closing balance of $0.6 million (2021: $4.1 million liability) in
respect of provision for inventory and $3.4 million (2021: $3.1
million) in respect of leases.
Deferred tax is presented net on the balance sheet in so far as
a right of offset exists. The net deferred tax asset is $16.3
million (2021: $18.4 million) and the net deferred tax liability is
$381,000 (2021: $2.1 million). Deferred tax assets and liabilities
are treated as non-current as it is expected that they will be
recovered or settled more than twelve months after the reporting
date.
The deferred tax asset in respect of tax losses carried forward
at 31 March 2022 of $7.6 million (2021: $8.4 million) comprises
deferred tax assets in relation to UK tax losses of $nil (2021:
$3.3 million), US tax losses of $7.2 million (2021: $5.0 million)
and Asia tax losses of $337,000 (2021: $156,000). All of these
recognised tax losses may be carried forward indefinitely. The
deferred tax assets have been recognised in the territories where
the Board considers there is sufficient evidence that taxable
profits will be available against which the tax losses can be
utilised. The key assumptions in those forecasts are sales, margins
achievable and overhead costs, which are based on past experience,
more recent performance and future expectations. The Group then
extrapolates cash flows for the following two years based on the
long-term growth rates applicable to the relevant territories.
Based on this assessment the Board expects that these tax losses
will be recoverable against future profits.
During the year, all previously recognised deferred tax assets
in the UK were derecognised. The derecognition has occurred as a
result of the assessment of future taxable profits (which is as a
result of the growing costs in IG Design Group plc) against which
the asset could unwind.
In the UK there are gross temporary differences of $100,000
(2021: $nil) and unused tax losses, with no expiry date, of $20.8
million (2021: $4.7 million) on which deferred tax assets have not
been provided.
In the DG Americas segment there are gross temporary differences
of $59.6 million (2021: $76.4 million) and unused tax losses, with
no expiry date, of $25.0 million (2021: $23.0 million) on which
deferred tax assets have not been provided. This is as a result of
restrictions under the US change in ownership rules following the
acquisition of CSS in 2020.
A deferred tax liability of $88,000 (2021: $101,000) has been
recognised in relation to the tax cost of remitting earnings
(forecast dividends) from China to the UK. 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 corporation tax in the Netherlands
increased from 25% to 25.8% effective from 1 January 2022 and
therefore the deferred tax balances in the Netherlands were
remeasured to 25.8%. The standard rate of corporation tax in the UK
will rise to 25% effective from 1 April 2023. Given that no
deferred tax is recognised in the UK, this does not impact the
deferred tax measurement at the balance sheet date.
Included within current tax liabilities is $4.5 million (2021:
$6.1 million) in respect of uncertain tax positions. These risks
arise because the Group operates in a complex multinational tax
environment. The amount consists of various tax risks which
individually are not material. 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. During the
year, there has been a decrease in the Group's total provision in
respect of uncertain tax positions of $1.5 million, the majority of
which relates to the reassessment of acquisition related tax risks
and has been treated as an Adjusting item.
A deferred tax charge of $1.5 million was recognised through the
statement of changes in equity as a result of the derecognition of
deferred tax asset balances in relation to share-based payments and
IFRS 16 adoption which were initially recognised through the
statement of changes in equity in previous years. In the prior
year, a deferred tax credit of $214,000 was recognised through the
statement of changes in equity in respect of share -- based
payments. There are no deferred tax balances with respect to cash
flow hedges.
12 Inventory
2022 2021
$000 $000
------------------------------ ------- -------
Raw materials and consumables 37,586 23,219
Work in progress 28,925 27,632
Finished goods 164,374 125,314
------------------------------ ------- -------
230,885 176,165
------------------------------ ------- -------
During the year, materials, consumables, changes in finished
goods and work in progress of $701.1 million (2021: $613.3 million)
were recognised as an expense during the year and included in cost
of sales.
Inventories have been assessed as at 31 March 2022 and overall
an expense of $12.1 million has been recognised in the year. This
consists of an impairment of $18.3 million (2021: $19.6 million)
which has been taken to reduce the value of inventories to net
realisable value. In addition to this, inventories have been
increased by previous Covid-19 write downs which have been reversed
of $1.2 million (2021: $4.0 million). The impairment expense in the
year has been reduced by the reversal of previous write downs
amounting to $5.0 million (2021: $0.4 million) due to inventory
either being used or sold.
13 Long-term assets and trade and other receivables
2022 2021
$000 $000
----------------------------- ----- -----
Acquisition indemnities 990 856
UK pension surplus (note 23) - 676
Security deposits 1,607 1,011
Insurance related assets 2,508 3,178
----------------------------- ----- -----
5,105 5,721
----------------------------- ----- -----
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:
2022 2021
$000 $000
-------------------------------------------------- ------- -------
Trade receivables 115,317 115,858
Prepayments, other receivables and accrued income 11,627 13,066
VAT receivable 906 295
-------------------------------------------------- ------- -------
127,850 129,219
-------------------------------------------------- ------- -------
The Group has receivable financing arrangements in Hong Kong.
None of this facility was drawn at 31 March 2022 (2021: $nil). The
Group is party to supplier financing arrangements with one of its
key customers and the associated balances are recognised as trade
receivables until receipt of the payment from the bank, at which
point the receivable is derecognised. At 31 March 2022, $6.0
million had been drawn down on this arrangement (2021: $4.1
million).
Please see note 15 for more details of the banking
facilities.
There are no trade receivables in the current year (2021: $nil)
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
2022 2021
$000 $000
---------------------------------------------------------------------- -------- --------
Cash and cash equivalents 50,179 132,760
Bank overdrafts (20,380) (57,033)
---------------------------------------------------------------------- -------- --------
Cash and cash equivalents and bank overdrafts per cash flow statement 29,799 75,727
---------------------------------------------------------------------- -------- --------
Net cash
2022 2021
$000 $000
------------------------------------------------------------- ------ ------
Cash and cash equivalents 29,799 75,727
Loan arrangement fees 360 723
-------------------------------------------------------------- ------ ------
Net cash as used in the financial review cash flow statement 30,159 76,450
-------------------------------------------------------------- ------ ------
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 and arrangement cash/bank
borrowings fees Sub-total overdrafts Total
$000 $000 $000 $000 $000
---------------------------------------- ---------- ----------- --------- ------------ --------
Balance at 1 April 2020 (987) 1,209 222 52,197 52,419
Cash flows 1,158 - 1,158 24,777 25,935
Effect of other items
Amortisation of loan arrangement fees - (588) (588) - (588)
Effect of movements in foreign exchange (171) 102 (69) (1,247) (1,316)
---------------------------------------- ---------- ----------- --------- ------------ --------
Balance at 1 April 2021 - 723 723 75,727 76,450
Cash flows - 494 494 (48,165) (47,672)
Effect of other items
Amortisation of loan arrangement fees - (824) (824) - (824)
Effect of movements in foreign exchange - (33) (33) 2,237 2,205
---------------------------------------- ---------- ----------- --------- ------------ --------
Balance at 31 March 2022 - 360 360 29,799 30,159
---------------------------------------- ---------- ----------- --------- ------------ --------
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.
2022 2021
$000 $000
-------------------------------------- ----- -----
Non-current liabilities
Secured bank loans - -
Loan arrangement fees (20) (103)
-------------------------------------- ----- -----
(20) (103)
-------------------------------------- ----- -----
Current liabilities
Current portion of secured bank loans - -
Loan arrangement fees (340) (620)
-------------------------------------- ----- -----
(340) (620)
-------------------------------------- ----- -----
Secured bank loans
The Group maintains its banking facilities through a club of
five banks chosen to reflect and support the geographical spread of
the Group. The banks within the club are HSBC, NatWest, Citigroup
(who replaced BNP Paribas), Truist Bank (as successor by merger to
SunTrust Bank) and PNC.
On 1 June 2022, the Company extended the term of its existing
banking agreement to 31 March 2024. As part of this extension,
covenants have been revised for the period to 31 March 2023 and the
amended facilities comprise:
-- A revolving credit facility ('RCF A') which has reduced from
$95.0 million to $90.0 million;
-- A further flexible revolving credit facility ('RCF B') with
availability varying from month to month of up to a maximum level
of GBP92.0 million (reduced from a maximum level of 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 carrying costs; and
-- an invoice financing arrangement in Hong Kong, maximum limit
$18.0 million dependent on level of eligible receivables.
In total, accessible facilities are considered sufficient to
cover the Group's peak requirements. The facilities do not amortise
with time and being partially denominated in US dollars they also
provide a hedge against currency movements.
Invoice financing arrangements are secured over the trade
receivables that they are drawn on (see note 13). The RCFs are
secured with a fixed and floating charge over other assets of the
Group. Amounts drawn under RCFs are classified as current
liabilities as the Group expects to settle these amounts within
twelve months.
The revised covenants, which operate for a maximum period to 31
March 2023 are as follows:
-- Minimum adjusted earnings before interest, depreciation and
amortisation (Adjusted EBITDA), as defined by the banking facility
, measured quarterly at the end of June, September, December and
March, which requires the Group to be within $10.0 million of its
Adjusted EBITDA budget at each quarter end, based on the last
twelve-month Adjusted EBITDA performance at each measurement
point
-- Minimum liquidity level, which requires the Group to maintain
a minimum of $35.0 million of headroom to the maximum available
facility on a monthly basis
The amendment also stipulates that any dividends to be paid by
the Group during the remaining term of the agreement will require
majority lender approval. Banking and legal fees associated with
the amendment and extension of the facility totalled c.$1
million.
From April 2023 the Group will revert to the previous covenants
tested quarterly, which are as follows:
-- interest cover, being the ratio of adjusted earnings before
interest, depreciation and amortisation (Adjusted 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.
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.
Both revised and previous covenants are measured on pre-IFRS 16
accounting definitions.
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.
The Group is party to supplier financing arrangements with one
of its key customers and the associated balances are recognised as
trade receivables until receipt of the payment from the bank, at
which point the receivable is derecognised. This arrangement is not
considered to have had a significant impact on the Group's cash
flow in the year.
16 Deferred income
2022 2021
$000 $000
---------------------------------------- ---- ----
Included within non-current liabilities
Deferred grant income 523 486
---------------------------------------- ---- ----
Included within current liabilities
Deferred grant income 414 136
Other deferred income 51 288
---------------------------------------- ---- ----
465 424
---------------------------------------- ---- ----
The deferred grant income is in respect of government grants
relating to the development of the Penallta site in Wales and the
Byhalia site in Mississippi. The conditions for the Wales grant
were all fully met in January 2019 and the deferred income is being
released in line with the depreciation of the assets for which the
grant is related to. The conditions for the Byhalia grant have not
yet been met.
17 Provisions
Property Other Total
$000 $000 $000
---------------------------------------- -------- ----- -----
Balance at 1 April 2021 6,993 366 7,359
Provisions made in the year 45 46 91
Provisions released during the year (182) (292) (474)
Unwinding of fair value discounts 80 - 80
Provisions utilised during the year (615) - (615)
Effect of movements in foreign exchange (74) (9) (83)
---------------------------------------- -------- ----- -----
Balance at 31 March 2022 6,247 111 6,358
---------------------------------------- -------- ----- -----
2022 2021
$000 $000
------------ ----- -----
Non-current 5,016 5,742
Current 1,342 1,617
------------ ----- -----
6,358 7,359
------------ ----- -----
The property provision represents the estimated reinstatement
cost of 14 of the Group's leasehold properties under fully
repairing leases (2021: 18). A professional valuation was performed
during the year for one of the leasehold properties and the
provision was reassessed and is stated after discounting. Of the
non-current balance, $1.4 million (2021: $1.4 million) relates to a
lease expiring in 2036; the remainder relates to provisions
unwinding between one and five years.
18 Other financial liabilities
2022 2021
$000 $000
------------------------------------------------- ------ ------
Included within non-current liabilities
Other creditors and accruals 21,557 15,526
------------------------------------------------- ------ ------
Included within current liabilities
Other creditors and accruals 34,455 43,976
Liability to acquire non-controlling interest 3,069 -
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 18 293
------------------------------------------------- ------ ------
37,542 44,269
------------------------------------------------- ------ ------
The $3.1 million liability to acquire non-controlling interest
included in current liabilities has been recognised in relation to
a put option that exists over the 49% of the share capital of Anker
Play Products LLC ('APP') not currently owned by the Group, see
note 28 for further details.
19 Trade and other payables
2022 2021
$000 $000
----------------------------------------- ------- -------
Trade payables 138,902 107,588
Other payables including social security 3,821 12,875
VAT payable 595 300
----------------------------------------- ------- -------
143,318 120,763
----------------------------------------- ------- -------
20 Share capital
Authorised share capital at 31 March 2022 and 2021 was GBP6.0
million, 121.0 million ordinary shares of 5p each.
Ordinary shares
-----------------
In thousands of shares 2022 2021
---------------------------------- -------- -------
In issue at 1 April 96,858 96,367
Options exercised during the year 204 491
In issue at 31 March - fully paid 97,062 96,858
---------------------------------- -------- -------
2022 2021
$000 $000
----------------------------------- ----- -----
Allotted, called up and fully paid
Ordinary shares of GBP0.05 each 6,373 6,667
----------------------------------- ----- -----
Of the 97.1 million shares in the Company, 31,000 (2021: 31,000)
are held by IG Employee Share Trustee Limited (the 'Employee
Benefit Trust').
Long Term Incentive Plans ('LTIP') options exercised during the
year resulted in 204,000 ordinary shares issued at nil cost (2021:
491,000 ordinary shares issued at nil cost).
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 (Loss)/earnings per share
2022 2021(a)
$000 $000
-------------------------------------------------- ------- -------
(Loss)/earnings
(Loss)/earnings attributable to equity holders
of the Company (3,277) 8,207
Adjustments
Adjusting items (net of non-controlling interest
effect) (3,498) 18,166
Tax relief on adjustments (net of non-controlling
interest effect) (816) (4,604)
Adjusted (loss)/earnings attributable to
equity holders of the Company (7,591) 21,769
--------------------------------------------------- ------- -------
In thousands of shares 2022 2021
---------------------------------------------------- ------ ------
Weighted average number of shares
Basic weighted average number of shares outstanding 98,118 97,700
Dilutive effect of employee share option plans 119 440
---------------------------------------------------- ------ ------
Diluted weighted average ordinary shares 98,237 98,140
---------------------------------------------------- ------ ------
2022 2021(a)
Cents Cents
------------------------------------------- ----- -------
(Loss)/earnings per share
Basic (loss)/earnings per share (3.3) 8.4
Impact of Adjusting items (net of tax) (4.4) 13.9
------------------------------------------- ----- -------
Basic Adjusted (loss)/earnings per share (7.7) 22.3
------------------------------------------- ----- -------
Diluted (loss)/earnings per share (3.3) 8.4
Diluted Adjusted (loss)/earnings per share (7.7) 22.2
------------------------------------------- ----- -------
(a) The prior year comparatives above have been re-presented.
For more detail please refer to note 1.
Adjusted (loss)/earnings per share are provided to reflect the
underlying earnings performance of the Group.
In thousands of shares 2022 2021
---------------------------------------------- ------ ------
Issued ordinary shares at 1 April 96,858 96,367
Shares relating to share options 1,260 1,333
Weighted average number of shares at 31 March 98,118 97,700
---------------------------------------------- ------ ------
Diluted (loss)/earnings per share
The diluted (loss)/earnings per share is calculated taking into
account LTIP awards whose specified conditions were satisfied at
the end of the year of 119,000 (2021: 440,000) share options along
with 31,000 shares held by the Employee Benefit Trust (2021:
31,000). At 31 March 2022, the diluted number of shares was 98.2
million (2021: 98.1 million).
22 Dividends paid and proposed
A final dividend for year ending 31 March 2021 was paid on 14
October 2021. An interim dividend was paid on 16 January 2022. The
Directors are not recommending the payment of a final dividend in
respect of the year ended 31 March 2022.
2022 2021
--------------------- ----------------------------
Pence Cents Pence Cents
per per
share share $000 per share per share $000
----------------------------------------- ------ ------ ----- --------- --------- ------
Final equity dividend for prior year 5.75 7.92 7,630 5.75 7.13 7,329
Interim equity dividend for current year 1.25 1.68 1,644 3.00 3.89 3,959
----------------------------------------- ------ ------ ----- --------- --------- ------
Dividends paid in the year 9,274 11,288
----------------------------------------- ------ ------ ----- --------- --------- ------
2022 2021
---------------------- ---------------------------
Pence Cents Pence Cents
per per
Proposed for approval at Annual General Meeting share share $000 per share per share $000
------------------------------------------------ ------- ------- ---- --------- --------- -----
Final equity dividend for the current year - - - 5.75 7.92 7,630
------------------------------------------------ ------- ------- ---- --------- --------- -----
23 Employee benefits
Post-employment benefits
The Group administers a defined benefit pension plan that was
inherited through the acquisition of CSS 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 Phoenix Life
Limited.
An actuarial valuation was updated on an approximate basis at 31
March 2022, by a qualified actuary, independent of the scheme's
sponsoring employer.
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)
2021 2021
$000 $000
-------------------------------------------- ------- -------
Fair value plan of assets 3,241 3,615
Present value of defined benefit obligation (1,858) (2,528)
-------------------------------------------- ------- -------
Surplus in plan 1,383 1,087
-------------------------------------------- ------- -------
Net defined benefit asset to be recognised - 676
-------------------------------------------- ------- -------
Reconciliation of opening and closing balances of the defined
benefit obligation
2022 2021
$000 $000
---------------------------------------------------------- ------- -------
Defined benefit obligation as at 1 April (2,528) (2,430)
Interest expense (50) (47)
Benefits payments from plan assets 384 -
Actuarial gains due to changes in demographic assumptions 52 9
Actuarial gains due to changes in financial assumptions 205 201
Effect of experience adjustments (18) -
Effect of movement in foreign exchange 97 (261)
---------------------------------------------------------- ------- -------
Defined benefit obligation as at 31 March (1,858) (2,528)
---------------------------------------------------------- ------- -------
Reconciliation of opening and closing balances of the fair value
of plan assets
2022 2021
$000 $000
----------------------------------------- ----- -----
Fair value of plan assets as at 1 April 3,615 3,028
Interest income 75 59
Return on plan assets 33 121
Contributions by the company 68 71
Benefits payments from plan assets (384) -
Admin expenses paid from plan assets (7) (9)
Effect of movement in foreign exchange (159) 345
----------------------------------------- ----- -----
Fair value of plan assets as at 31 March 3,241 3,615
----------------------------------------- ----- -----
A total of $18,000 has been charged to Group operating profit
during the year, including $7,000 of expense netting against net
interest income of $25,000.
The principal assumptions used by the independent qualified
actuary for the purposes of IAS 19 are as follows:
2022 2021
------------------------ ----- -----
Increase in salaries - -
Increase in pensions - -
- at RPI capped at 5% 3.80% 3.70%
- at CPI capped at 5% 2.75% 2.40%
- at CPI capped at 2.5% 2.50% 2.40%
Discount rate 2.80% 2.20%
Inflation rate - RPI 3.65% 3.30%
Inflation rate - CPI 2.75% 2.40%
------------------------ ----- -----
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:
2022 2021
-------------------------------------- ---- ----
Male retiring today at age 60 26.4 26.4
Female retiring today at age 60 28.5 28.5
Male retiring in 20 years at age 60 27.9 27.9
Female retiring in 20 years at age 60 30.1 30.1
-------------------------------------- ---- ----
In addition to the defined benefit pension scheme there is also
a small post-retirement healthcare scheme operated in the US, which
was also inherited through the acquisition of CSS. In total, the
amounts taken through the Group's statement of comprehensive income
can be seen below:
2022 2021
$000 $000
-------------------------------------------------------- ----- ----
UK pension scheme
Actuarial losses on defined benefit pension scheme (73) (62)
Derecognition of defined benefit pension scheme surplus (664) -
US health scheme 22 30
-------------------------------------------------------- ----- ----
(715) (32)
-------------------------------------------------------- ----- ----
In accordance with IAS 19, the surplus on the plan has not been
recognised on the basis it is not expected to be recovered, with
the previously recognised asset being derecognised in the year.
Long Term Incentive Plans
The Group operate two Long Term Incentive Plans ('Plans'), the
2014 Long Term Incentive Plan ('LTIP') and the Value Creation
Scheme ('VCS') launched in February 2021.
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 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
base salary. The maximum opportunity available under the LTIP is up
to 175% for the CEO and for other Executive Directors up to 150% of
base salary.
Under the VCS, the scheme awards will allow participants to
share, in total, up to 12.5% of the value created ('VCS Pool')
provided that the performance criteria are met. No individual award
can be greater than GBP12.5 million. The maximum opportunity
available under the VCS is up to 17.5% of the VCS Pool for the CEO
and for the other Executive Directors up to 12.5% and 7.5%. Shares
will be released to the participants either following the
calculation of the VCS Pool or, in the case of the awards for the
CEO, the other Executive Directors and three other senior
executives, following the end of a further two year holding period.
Awards may be structured as nil-cost options which can be exercised
from release until the tenth anniversary of grant of the awards, or
as conditional awards which deliver shares for nil-cost
automatically at release.
Subsequent to year end, considering the performance of the Group
for the year ended 31 March 2022, and the significant challenges
and cost headwinds that have been, and will continue to be faced
over the coming financial year, the Remuneration Committee
considered whether the VCS was appropriate in light of the required
change of strategy of the Group. It concluded that the VCS no
longer incentivised nor inspired the behaviours required to drive
the Group forward and as such intends to cancel the scheme
effective 28 June 2022.
For both plans together, the maximum dilution is 15% over a ten
year period. For the VCS specifically, within the 15% limit, there
is a dilution limit of 7.5%.
The plan 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.
Vested LTIP schemes - outstanding options
Exercise
Number of price
ordinary
shares pence Exercise dates
---------------------- --------- --------- -------------------------
2015-2018 LTIP scheme 312,916 nil June 2018 - January 2028
2016-2019 LTIP scheme 231,726 nil June 2019 - January 2028
2017-2020 LTIP scheme 210,091 nil July 2020 - August 2027
2018-2021 LTIP scheme 333,390 nil June 2021 - November 2028
---------------------- --------- --------- -------------------------
1,088,123
---------------------- --------- --------- -------------------------
All performance criteria have been met for the above
schemes.
2022 2021
-------------------- -------------------
Weighted Weighted
average average
exercise Number exercise
price of price Number of
pence options pence options
-------------------------------- --------- --------- -------- ---------
Outstanding at 1 April nil 1,291,728 nil 1,359,488
Prior year adjustment nil - nil 4,650
Options vesting during the year nil - nil 418,429
Exercised during the year nil (203,605) nil (490,839)
-------------------------------- --------- --------- -------- ---------
Outstanding at 31 March nil 1,088,123 nil 1,291,728
-------------------------------- --------- --------- -------- ---------
Exercisable at 31 March nil 1,088,123 nil 1,291,728
-------------------------------- --------- --------- -------- ---------
Scheme details for plans in vesting periods during the year
During the financial year to 31 March 2022 there were two LTIP
schemes still within its vesting period (2021: three), as well as
the VCS. As described above, subsequent to year end, the intention
is to cancel the VCS.
Awards
2019-2022
---------
2020-2022
LTIP LTIP
---------- -------------------
Grant A Grant A Grant B
-------------------------------------- ---------- --------- --------
Grant date July 2019 Sept 2020 Jan 2021
Fair value per share (GBP) 6.02 4.66 6.03
Number of participants 28 1 1
Initial award 758,782 50,000 100,000
Dividend shares - 1,816 2,323
Lapses and forfeitures (758,782) - -
---------------------------------------- ---------- --------- --------
Potential to vest as at 31 March 2022 - 51,816 102,323
---------------------------------------- ---------- --------- --------
Potential to vest as at 31 March 2021 564,027 50,917 100,548
---------------------------------------- ---------- --------- --------
No LTIP options have been granted in the year. The grant date
fair value of the options granted in the previous year, assuming
they were to vest in full was $1.2 million.
The grant date fair value of the VCS of GBP3.54 was determined
using the following factors in the binomial pricing model:
Asset price GBP4.50
Exercise price nil
Expected volatility 31.5%
Option life 2.43
Risk-free rate 0.14%
Dividend yield 2%
-------------------- -------
The expected volatility is based on the Group's historical three
year volatility. The number of participants in the VCS at the year
end was 77.
LTIP performance targets
With the exception of the 2020-2022 scheme, LTIP 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.
Weighting Threshold Maximum
------------------------- --------- --------- -------
2019-2022 scheme
Group Adjusted PBT(a) $m 100% 48.4 56.0
------------------------- --------- --------- -------
(a) Profit before tax and before Board approved Adjusting items.
The performance criteria for the 2019-2022 LTIP award was
amended during the year from an EPS measure. The revised
performance metric was not met and therefore will not vest on
approval of the results for the year ended 31 March 2022.
The 2020-2022 scheme, granted to two individuals, has only a
service condition, being 1 April 2020 to 30 June 2022 and will
therefore vest on 30 June 2022 for the relevant individuals.
VCS performance targets
The VCS is based on an achievement of a minimum 7.5% CAGR on the
opening valuation of the Company over a three year performance
period from 1 April 2020 to 31 March 2023. In addition, a
performance underpin is included such that, ordinarily, no VCS
awards will vest unless the Adjusted profit before tax for the
twelve months to 31 March 2023 meets a set target.
The closing market capitalisation will be based on the volume
weighted average share price over the period of 30 days following
announcement of the audited results for the twelve months ending on
31 March 2023. Appropriate adjustments shall be made in respect of
any capital raised from or returned to shareholders during the
measurement period.
Following the calculation of the VCS Pool, each participant's
allocation will be converted into a number of ordinary shares in
the Company by reference to the share price used to determine the
size of the VCS Pool.
As described above, subsequent to the year end, the intention is
to cancel the VCS.
Share-based payments charges
The total expense recognised for the year arising from equity --
settled share -- based payments is as follows:
2022 2021
$000 $000
---------------------------------------------------------- ------- -----
Charge in relation to the 2018-2021 LTIP scheme - 2,951
Charge in relation to the 2020-2022 LTIP scheme 723 229
(Credit)/charge in relation to the VCS (482) 488
---------------------------------------------------------- ------- -----
Equity-settled share-based payments charge/(credit) 241 3,668
Social security (credit)/charge (1,089) 524
---------------------------------------------------------- ------- -----
Total equity-settled share-based payments (credit)/charge (848) 4,192
---------------------------------------------------------- ------- -----
Deferred tax assets are recognised on share-based payment
schemes (see note 11).
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 $137,000 (2021:
$1.3 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 2022, the Group had derivative contracts, which
were measured at Level 2 fair value subsequent to initial
recognition, to the value of an asset of $316,000 (2021: $207,000)
and a liability of $18,000 (2021: $293,000).
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 $170.9 million (2021: $254.5 million)
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 reporting segment was:
2022 2021
$000 $000
-------------- ------- -------
DG Americas 84,966 94,484
International 30,351 21,374
-------------- ------- -------
115,317 115,858
-------------- ------- -------
Credit quality of financial assets and impairment losses
The ageing of trade receivables at the balance sheet date
was:
Restated(a)
2022 2021
------------------------------ ------------------------------
Provisions Provisions
Expected for Expected for
doubtful doubtful
loss rate Gross debts loss rate Gross debts
% $000 $000 % $000 $000
------------------- --------- ------- ---------- --------- ------- ----------
Not past due - 71,429 - 0.1 76,673 (69)
Past due 0-60 days - 26,889 - 0.3 24,209 (82)
61-90 days 2.0 9,721 (195) 5.3 5,926 (314)
More than 90 days 4.5 7,825 (352) 23.7 12,470 (2,955)
------------------- --------- ------- ---------- --------- ------- ----------
0.5 115,864 (547) 2.9 119,278 (3,420)
------------------- --------- ------- ---------- --------- ------- ----------
(a) There has been a restatement of $6.6 million between gross
trade receivables and provisions for doubtful debts due to a
misclassification in the prior year.
There were no unimpaired balances outstanding at 31 March 2022
(2021: $nil) where the Group had renegotiated the terms of the
trade receivable. The movement year-on-year relates to assets
impaired as at 31 March 2021 due to Covid-19 provisions that have
been utilised or released as no longer required during the year to
31 March 2022 (please refer to note 3 for further information).
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 twelve month expected credit loss.
There have 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:
Restated(a)
2022 2021
$000 $000
---------------------------------------- ------- -----------
Balance at 1 April 3,420 10,616
Charge for the year 277 2,045
Unused amounts reversed (1,511) (5,352)
Amounts utilised (1,627) (4,000)
Effects of movement in foreign exchange (12) 111
---------------------------------------- ------- -----------
Balance at 31 March 547 3,420
---------------------------------------- ------- -----------
(a) There has been a restatement of $6.6 million between gross
trade receivables and provisions for doubtful debts due to a
misclassification in the prior year.
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 2022 are set out in note 15.
The following are the contractual maturities of financial
liabilities, including estimated interest payments:
One to Two to
Carrying Contractual One year two five More than
amount cash flows or less years years five years
31 March 2022 Note $000 $000 $000 $000 $000 $000
--------------------------- ---------- -------- ----------- --------- -------- -------- ----------
Non-derivative financial
liabilities
Other financial liabilities 18 59,081 (59,081) (37,524) (21,523) (32) (2)
Lease liabilities 10 99,843 (112,186) (22,538) (20,669) (37,244) (31,735)
Trade payables 19 138,902 (138,902) (138,902) - - -
Other payables 19 4,416 (4,416) (4,416) - - -
Derivative financial
liabilities
Forward foreign exchange
contracts carried
at fair value through
the hedging reserve(a) 18 18 (524) (524) - - -
302,260 (315,109) (203,904) (42,192) (37,276) (31,737)
------------------------------- ------ -------- ----------- --------- -------- -------- ----------
(a) Measured at Level 2.
One to Two to
Carrying Contractual One year two five More than
amount cash flows or less years years five years
31 March 2021 Note $000 $000 $000 $000 $000 $000
---------------------------- ------ --------- ----------- --------- -------- -------- ----------
Non-derivative financial
liabilities
Other financial liabilities 18 59,502 (59,502) (43,976) (15,279) (122) (125)
Lease liabilities 10 113,922 (129,399) (22,729) (20,125) (44,212) (42,333)
Trade payables 19 107,588 (107,588) (107,588) - - -
Other payables 19 13,175 (13,175) (13,175) - - -
Derivative financial
liabilities
Forward foreign exchange
contracts carried
at fair value through
the hedging reserve(a) 18 293 (2,100) (2,100) - - -
294,480 (311,764) (189,568) (35,404) (44,334) (42,458)
---------------------------- ------- -------- ----------- --------- -------- -------- ----------
(a) Measured at Level 2.
The following table shows the facilities for bank loans,
overdrafts, asset -- backed loans and revolving credit
facilities:
31 March 2022 31 March 2021
------------------------------------------- -------------------------------------------
Facility Facility
used used
Carrying contractual Facility Total Carrying contractual Facility Total
amount cash flows unused facility amount cash flows unused facility
$000 $000 $000 $000 $000 $000 $000 $000
--------------- -------- ----------- --------- --------- -------- ----------- --------- ---------
Corporate
revolving
credit
facilities - - (97,208) (97,208) - - (97,136) (97,136)
Bank overdraft - - (4,909) (4,909) - - (5,002) (5,002)
--------------- -------- ----------- --------- --------- -------- ----------- --------- ---------
- - (102,117) (102,117) - - (102,138) (102,138)
--------------- -------- ----------- --------- --------- -------- ----------- --------- ---------
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 was
$283.7 million (2021: $292.0 million).
At 31 March 2022 the facility amounted to $97.2 million (2021:
$97.1 million).
Additional facilities were available at other banks of $4.9
million (2021: $5.0 million).
On 1 June 2022 the Group banking facilities were extended to run
to March 2024, see note 15 for more information.
The following table shows other facilities that are treated as
contingent liabilities
31 March 2022 31 March 2021
------------------ ------------------
Facility Utilised Facility Utilised
$000 $000 $000 $000
---------------------------------------- -------- -------- -------- --------
UK Guarantee 2,101 1,996 2,203 2,092
UK Import line 1,313 - 1,377 -
Foreign Bills 6,566 - 6,883 -
USA Guarantee 5,500 2,980 5,500 2,980
Netherlands Guarantee (Trade and Import
line) 667 121 704 127
---------------------------------------- -------- -------- -------- --------
16,147 5,097 16,667 5,199
---------------------------------------- -------- -------- -------- --------
d) Cash flow hedges
The following derivative financial instruments were designated
as cash flow hedges:
2022 2021
Forward exchange contracts carrying amount $000 $000
------------------------------------------- ---- -----
Derivative financial assets 316 207
Derivative financial liabilities (18) (293)
------------------------------------------- ---- -----
The Group has forward currency hedging contracts outstanding at
31 March 2022 designated as hedges of expected future purchases in
US dollars and Japanese yen for which the Group has firm
commitments, as the derivatives are based on forecasts and 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 24 months of the
balance sheet date at average prices of 1.14 for US dollar
contracts (2021: 1.23), not applicable for Chinese renminbi
contracts (2021: 6.56) and 152.8 for Japanese yen contracts (2021:
not applicable). At the year end the Group held $11.2 million
(2021: $13.2 million), RMB nil million (2021: RMB 42.0 million) and
JPY 60.8 million (2021: JPY nil million) 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 cash flows.
The cash flow hedges of the expected future purchases in the
year were assessed to be highly effective and as at 31 March 2022,
a net unrealised profit of $686,000 (2021: $1.3 million loss) with
related deferred tax credit of $nil (2021: $nil) was included in
other comprehensive income in respect of these hedging contracts.
Amounts relating to ineffectiveness recorded in the income
statement in the year were $nil (2021: $nil).
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.
US dollar Sterling Euro Other Total
31 March 2022 Note $000 $000 $000 $000 $000
---------------------------- ---- --------- -------- -------- ------- ---------
Long-term assets 13 5,105 - - - 5,105
Cash and cash equivalents 14 32,910 7,447 2,388 7,434 50,179
Trade receivables 13 87,431 12,281 11,014 4,591 115,317
Derivative financial assets - 316 - - 316
Bank overdrafts 14 (295) (14,464) (5,621) - (20,380)
Loan arrangement fees 15 - 360 - - 360
Trade payables 19 (105,299) (16,638) (14,320) (2,645) (138,902)
Other payables 19 (2,418) (1,130) (623) (245) (4,416)
---------------------------- ---- --------- -------- -------- ------- ---------
Balance sheet exposure 17,434 (11,828) (7,162) 9,135 7,579
---------------------------- ---- --------- -------- -------- ------- ---------
US dollar Sterling Euro Other Total
31 March 2021 Note $000 $000 $000 $000 $000
---------------------------- ---- --------- -------- ------- ------- ---------
Long-term assets 13 5,721 - - - 5,721
Cash and cash equivalents 14 101,602 10,227 4,556 16,375 132,760
Trade receivables 13 95,336 9,947 6,233 4,342 115,858
Derivative financial assets - 206 - 1 207
Bank overdrafts 14 (41,582) (11,594) (3,857) - (57,033)
Loan arrangement fees 15 - 723 - - 723
Trade payables 19 (83,908) (11,769) (7,898) (4,013) (107,588)
Other payables 19 (11,650) (703) (611) (211) (13,175)
---------------------------- ---- --------- -------- ------- ------- ---------
Balance sheet exposure 65,519 (2,963) (1,577) 16,494 77,473
---------------------------- ---- --------- -------- ------- ------- ---------
The following significant exchange rates applied to US dollar
during the year:
Average rate 31 March spot rate
-------------- --------------------
2022 2021 2022 2021
--------------- ------ ------ --------- ---------
Euro 0.86 0.85 0.90 0.85
Pound sterling 0.73 0.76 0.76 0.73
--------------- ------ ------ --------- ---------
Sensitivity analysis
A 10% weakening of the following currencies against US dollar at
31 March 2022 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 2021.
Equity Loss
-------------- -----------
2022 2021 2022 2021
$000 $000 $000 $000
--------------- ------- ----- ----- ----
Euro (651) (143) (551) (14)
Pound sterling (1,075) (269) (3) -
--------------- ------- ----- ----- ----
On the basis of the same assumptions, a 10% strengthening of the
above currencies against US dollar at 31 March 2022 would have
affected equity and profit or loss by the following amounts:
Equity Profit
----------- ----------
2022 2021 2022 2021
$000 $000 $000 $000
--------------- ----- ---- ---- ----
Euro 796 175 674 17
Pound sterling 1,314 329 3 -
--------------- ----- ---- ---- ----
Profile
At the balance sheet date the interest rate profile of the
Group's interest-bearing financial instruments was:
2022 2021
Variable rate instruments Note $000 $000
-------------------------- ---- -------- --------
Financial assets 50,179 132,760
Financial liabilities (20,380) (57,033)
-------------------------- ---- -------- --------
Net cash 14 29,799 75,727
-------------------------- ---- -------- --------
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 and financial
instruments at fair value through profit or loss. The analysis is
performed on the same basis for 31 March 2021.
Sensitivity analysis
2022 2021
$000 $000
--------------- ---- ----
Equity
Increase 149 379
Decrease - -
Profit or loss
Increase 149 379
Decrease - -
--------------- ---- ----
f) Capital management
The Board's policy is to hold a strong capital base so as to
maintain investor, creditor, customer 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 the Group's principal bank have amended covenants
relating to earnings and liquidity cover and previous 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
------------------
2022 2021
Note $000 $000
-------------------------------------------------------- ---- -------- --------
Net equity attributable to owners of the Parent Company 361,711 383,522
Net cash 14 (30,159) (76,450)
-------------------------------------------------------- ---- -------- --------
Trading capital 331,552 307,072
-------------------------------------------------------- ---- -------- --------
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, Chief
Executive Officer and Interim Executive Chair, 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 before lease liabilities to Adjusted EBITDA reduced for
lease payments.
25 Capital commitments
At 31 March 2022, the Group had outstanding authorised capital
commitments to purchase plant and equipment for $1.5 million (2021:
$2.7 million).
26 Related parties
2022 2021
$000 $000
----------------------------- ---- ----
Sale of goods:
Hedlunds Pappers Industri AB 566 278
Festive Productions Ltd - 14
SA Greetings (Pty) Ltd 93 45
----------------------------- ---- ----
659 337
----------------------------- ---- ----
Receivables:
Hedlunds Pappers Industri AB 23 7
----------------------------- ---- ----
23 7
----------------------------- ---- ----
Identity of related parties and trading
Hedlund Import AB is 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, who are a major shareholder
in the Company. Festive Productions Ltd is a subsidiary undertaking
of Malios Holding AG, a company under the ultimate control of the
Hedlund family.
John Charlton is the Chairman of SA Greetings (Pty) Ltd (South
African Greetings).
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 24% (2021: 24%) of the voting shares of the Company.
The shareholdings of Directors and changes during the year are
shown in the Directors' report on page [--].
Directors' remuneration
2022 2021
$000 $000
------------------------------------- ------- -----
Short-term employee benefits 2,496 1,874
Termination benefits 890 -
Share-based payments (credit)/charge (1,256) 2,266
------------------------------------- ------- -----
2,130 4,140
------------------------------------- ------- -----
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.
2022 2021
----------------------------- ----------------------------
Non-controlling interest - Australia APP Total Australia APP Total
balance sheet as at 31 March $000 $000 $000 $000 $000 $000
----------------------------- --------- -------- -------- --------- ------- --------
Non-current assets 9,625 1,253 10,878 11,146 177 11,323
Current assets 16,497 15,639 32,136 19,525 8,328 27,853
Current liabilities (9,082) (10,706) (19,788) (8,757) (6,462) (15,219)
Non-current liabilities (4,355) (894) (5,249) (6,066) - (6,066)
----------------------------- --------- -------- -------- --------- ------- --------
Non-controlling interest - 2022 2021
------------------------- -------------------------
comprehensive income for the year Australia APP Total Australia APP Total
ended 31 March $000 $000 $000 $000 $000 $000
---------------------------------- --------- ------ ------ --------- ------ ------
Revenue 51,296 38,309 89,605 43,995 21,084 65,079
Profit after tax 3,756 2,211 5,967 4,399 1,307 5,706
Total comprehensive income 3,568 2,211 5,779 6,564 1,307 7,871
---------------------------------- --------- ------ ------ --------- ------ ------
2022 2021
------------------------- -------------------------
Non-controlling interest
- Australia APP Total Australia APP Total
cash flow for the
year ended 31 March $000 $000 $000 $000 $000 $000
------------------------------ --------- ----- ------- --------- ----- -------
Cash flows from operating
activities 3,101 602 3,703 7,584 1,397 8,981
Cash flows from investing
activities (357) (224) (581) (251) (88) (339)
Cash flows from financing
activities (8,348) (63) (8,411) (2,343) (125) (2,468)
------------------------------ --------- ----- ------- --------- ----- -------
Net (decrease)/increase
in cash and cash equivalents (5,604) 315 (5,289) 4,990 1,184 6,174
------------------------------ --------- ----- ------- --------- ----- -------
2022 2021
------------------------- ----------------------
Australia APP Total Australia APP Total
Non-controlling interest $000 $000 $000 $000 $000 $000
------------------------------------------ --------- ----- ------- --------- ---- -----
Balance as at 1 April 7,924 573 8,497 4,643 - 4,643
Share of profits for the year 1,878 1,083 2,961 2,200 34 2,234
Other comprehensive expense - - - (94) - (94)
Recognition of non-controlling interest - - - - 539 539
Dividend paid to non-controlling interest (3,365) - (3,365) - - -
Currency translation (94) - (94) 1,175 - 1,175
------------------------------------------ --------- ----- ------- --------- ---- -----
Balance as at 31 March 6,343 1,656 7,999 7,924 573 8,497
------------------------------------------ --------- ----- ------- --------- ---- -----
28 Non-adjusting post balance sheet events
On 28 April 2022 a property owned by the Group in Manhattan,
Kansas was sold for net proceeds of $6.7 million. The net book
value of the property was $2.2 million resulting in a profit on
disposal of $4.5 million which will be included in the next year's
results.
On 23 May 2022 the Group purchased the remaining 49% interest in
APP bringing its total ownership to 100%. This was completed
pursuant to the exercise of a put option by Maxwell Summers, Inc.,
the holder of the remaining 49% interest, which the Group is
legally obliged to purchase with the exercise of the put option
under the APP Limited Liability Company agreement dated 30 March
2017. The transaction was contractually committed on 23 May 2022,
with an effective date of 1 April 2022. The transaction, made
through the Group's American subsidiary IG Design Group Americas,
Inc. is satisfied with an initial cash payment of $1.5 million with
the final cash payment subject to finalisation of APP's financial
results for the year ended 31 March 2022. The Directors anticipate
this payment to be c.$1.6 million. The consideration will be
satisfied from the existing Group banking facilities.
On 4 May 2022, the Group received confirmation of insurance
proceeds regarding representations and warranties associated with
the acquisition of Impact in August 2018. The proceeds, which will
be included in the next year's results as an Adjusting item, amount
to $1.5 million.
There were no other material non-adjusting events which occurred
between the end of the reporting period and prior to the
authorisation of these financial statements on 27 June 2022.
This information is provided by RNS, the news service of the
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FR BCGDLDBDDGDR
(END) Dow Jones Newswires
June 28, 2022 02:00 ET (06:00 GMT)
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