Market Beating Organic Growth Annual Report and Accounts 2016 4 i m p r i n t G r o u p p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 6 ABOUT 4IMPRINT Contents 2016 Highlights Overview 01 02 At a Glance 04 Chairman’s Statement Strategic Report 06 Chief Executive’s Review 08 Strategy 09 Market Overview 10 11 12 16 Financial Review Business Model Principal Risks & Uncertainties 19 Corporate & Social Key Performance Indicators Most of our revenue is generated in North America, serviced from the principal office in Oshkosh, Wisconsin. Customers in the UK and Irish markets are served out of an office in Manchester, UK. Operations are focused around a highly developed direct marketing business model which provides millions of potential customers with access to tens of thousands of customised products. Organic growth is delivered by using a wide range of data-driven, offline and online direct marketing techniques to capture market share in the large and fragmented promotional product markets that we serve. Responsibility Report Governance 22 Board of Directors 24 Directors’ Report 26 Statement on Corporate Governance 32 Annual Statement by the Chairman of the Remuneration Committee 34 Remuneration Report 40 Statement of Directors’ Responsibilities Financial Statements 41 Independent Auditors’ Report – Group 46 Group Income Statement 47 Group Statement of Comprehensive Income 48 Group Balance Sheet 49 Group Statement of Changes in Shareholders’ Equity 50 Group Cash Flow Statement 51 Notes to the Financial Statements 74 Independent Auditors’ Report – Company 76 Company Balance Sheet 77 Statement of Changes in Company Shareholders’ Equity 78 Company Cash Flow Statement 79 Notes to the Company’s Financial Statements Additional Information 86 Five Year Financial Record 87 Registered Office and Company Advisers We are the leading direct marketer of promotional products in the USA, Canada, the UK and Ireland. OVERVIEW 2016 Highlights Financial Revenue $558.22m 2015: $497.22m Underlying* profit before tax $38.35m 2015: $33.55m Profit before tax $34.15m 2015: $31.16m Underlying* basic EPS (cents) 99.01c 2015: 88.04c Basic EPS (cents) 87.27c 2015: 81.26c Proposed total dividend per share (cents) 52.50c 2015: 38.89c Proposed total dividend per share (pence) 41.82p 2015: 26.57p +12% +14% +10% +12% +7% +35% +57% * Underlying is before share option related charges, defined benefit pension charges and exceptional items. Operational › Organic revenue growth continues • Orders 12% ahead of 2015 • More than 1,050,000 total orders received • Consistent re-order rates from existing customers › Strong financial position maintained • Efficient cash conversion • $21.7m cash balance at year end › Pension buy-out project complete • £10.0m ($14.5m) one-off contribution • $2.9m exceptional charge 01 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information OVERVIEW At a Glance 4imprint is the leading direct marketer of promotional products in the USA, Canada, the UK and Ireland. Our locations Our objectives North America Most of our revenue is generated in North America, serviced from the principal office in Oshkosh, Wisconsin. 1. Market leadership We aim to develop our position as the leading direct marketer of promotional products in the markets in which we operate. 2016 Revenue Employees $540.6m 97% of Group revenue 818 December 2016 UK and Ireland Customers in the UK and Irish markets are served out of an office in Manchester, UK. 2016 Revenue Employees $17.6m 3% of Group revenue 39 December 2016 02 2. Competitive advantage We aspire to achieve competitive advantage through sustained investment in three key areas: • Marketing • People • Systems technology and data analytics 3. Organic revenue growth Our primary financial objective is to maximise organic revenue growth whilst maintaining a broadly stable operating margin percentage. 4imprint Group plc Annual Report and Accounts 2016 Five year growth Revenue ($m) $558.2m +12% Individually customised orders processed in 2016 1.05m 558.2 497.2 415.8 332.9 290.8 Underlying profit before tax ($m) $38.35m +14% Blue Box™ sample packages mailed in 2016 1.96m 38.35 33.55 27.86 19.55 14.57 Underlying earnings per share (c) 99.01c +12% 99.01 88.04 73.48 55.55 39.67 03 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information201420132012201520162014201320122015201620142013201220152016 OVERVIEW Chairman’s Statement Revenue $558.2m Underlying profit before tax $38.4m Our business model is resilient and our market opportunity remains large and attractive. I am pleased to report that 2016 was another very good year of progress for 4imprint. Revenue for the year was $558.2m, an increase of 12% over prior year. The revenue increase on a like-for-like basis was 13%, after adjusting for the effects of a 53rd week in the 2015 comparative accounting period and a negative currency impact on the results of our UK-based business. All revenue growth was organic. Underlying profit before tax rose to $38.4m, up 14% over 2015. Profit before tax was $34.2m, 10% higher than 2015. This result is consistent with our strategy to maximise revenue growth whilst maintaining a broadly stable operating margin percentage. Investment in marketing remains the primary growth driver. A major milestone was reached in 2016: the total number of orders received in the year surpassed one million for the first time. The Group ended 2016 in a strong financial position. Low fixed capital requirements and good working capital management resulted in efficient cash conversion. The year end cash balance of $21.7m was an increase of $3.3m over 2015, despite a planned one-off pension contribution in the year of $14.5m. Significant progress was made during 2016 in respect of the Group’s legacy defined benefit pension scheme. The buy-out process is complete. Going forward, contributions into the remaining plan, which consists primarily of deferred pensioners, will be at a much lower level over the next several years. John Poulter retired on 30 November 2016 from his position as Non-Executive Chairman of the Group. John joined the Board in 04 May 2010, and his leadership was instrumental in the success of the Group over recent years. The Board wishes to express its gratitude to John and to wish him well for the future. I was appointed to the Board as a Non-Executive Director in February 2016 and subsequently as Non-Executive Chairman on 1 December 2016. At the half year the Board declared an interim dividend per share of 16.32c, an increase of 35% over 2015. This increase was set in the context of expected reduced future contributions to the pension scheme, along with the ongoing cash generative nature of the Group’s trading operations. As anticipated, the Board confirms that it is recommending a final dividend of 36.18c, also an increase of 35% over prior year. A relentless focus on customer care is at the heart of our business, and I would like to thank every one of our talented and dedicated team members for maintaining remarkable service levels as the business continues to grow. Our business model is resilient and our market opportunity remains large and attractive. After a period of volatility in the fourth quarter of 2016 caused by uncertainty around the US presidential election, customer order activity normalised in December. The first few weeks of 2017 have shown a satisfactory start to the year. Paul Moody Chairman 8 March 2017 4imprint Group plc Annual Report and Accounts 2016 CASE STUDY Giving Back Onebyone® is our charitable giving programme in North America. Each business day we aim to award at least three $500 grants to non-profit organisations, allowing them to use the power of promotional products to help spread the word, recruit volunteers or thank donors. How dogs help kids read and succeed in the classroom Stuffed dogs were ‘adopted’ by second graders who completed the program, becoming strong, confident readers, while learning compassion for animals. Marlboro County Economic Development Partnership Calculators were given to attendees at the opening of a training hub for current workers and those looking to enter a career in manufacturing. Helping Hands for Manitobans with Breast Cancer Inc. Branded flashlights lit up the room at an event to raise funds to support Manitobans undergoing breast cancer treatment. 05 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information STRATEGIC REPORT Chief Executive’s Review New customers acquired 240,000 Total orders received 1,054,000 Revenue North America UK and Ireland Total 2016 $m 2015 $m 540.60 17.62 479.24 17.98 558.22 497.22 +13% -2% +12% Underlying* operating profit Direct Marketing operations Head Office 2016 $m 42.28 (3.90) Underlying operating profit 38.38 2015 $m 37.04 (3.52) 33.52 +14% +11% +14% Operating profit 34.70 31.96 +9% Underlying profit is included because the Directors consider this gives a measure of the underlying performance of the business. * Underlying is before share option related charges, defined benefit pension charges and exceptional items. The 2016 financial results are consistent with the Group’s established financial strategy of prioritising organic revenue growth whilst maintaining a broadly stable operating margin percentage. Total Group revenue was $558.22m, which was 12% ahead of prior year. This growth measure was negatively influenced by the fact that the 2015 comparative contained an ‘extra’ week of sales due to a 53 week accounting period, in addition to which the reported revenue of our UK business was adversely affected by currency swings following the EU referendum in June. Adjusting for these two factors, the like-for-like revenue increase over 2015 was 13%. On a similarly adjusted basis, revenue at the half year was up 15%, meaning that the growth rate in the second half of the year was slightly lower than that experienced in the first half. The North American business, which comprises 97% of Group revenue, continued to grow well ahead of the promotional products industry as a whole, which was estimated by US industry sources to have grown by approximately 3.1%. Fourth quarter trading patterns were disrupted, with order intake in October and November, particularly in respect of new customers, running markedly lower than the year to date run rate. This correlated directly with a six to eight week period of uncertainty leading up to, and immediately following, the US election. Leading indicators and order activity recovered towards the end of the year, with December performance returning to anticipated levels. Reported revenue for the UK operation was 2% lower than prior year. This result should, however, be set firmly in the context of the material currency movements following the EU referendum in late June. In underlying currency the year on year growth rate was 11%, also well above the estimated UK industry growth rate of 6.1%. 06 4imprint Group plc Annual Report and Accounts 2016 Effective and innovative marketing is the key driver of our continued growth. During 2016 we continued to invest a significant proportion of our overall marketing funds into customer acquisition activities. More than 240,000 new customers were acquired in 2016. On a like-for-like basis orders from new customers were up 6% over prior year, and orders from existing customers increased by 15% compared to 2015. In total, 1,054,000 individually customised orders were processed by our dedicated and talented customer service teams – the first time that more than a million orders have been received in one year. Head office costs increased by 11% compared to prior period. There was no significant change in the structure and activities of the central function. The variance arose primarily due to losses on the maturity of forward currency contracts taken out before the EU referendum to hedge cash flows from the US, partly offset by a favourable currency effect from the translation into reporting currency of costs incurred in Sterling. Overall, the Group’s underlying operating margin percentage for 2016 was 6.87%, compared to 6.74% in 2015. This is within the bandwidth to be consistent with our strategic intention to deliver a broadly stable operating margin percentage. For the ninth year in a row, the North American business was named on the list of the Top 25 Best Medium Sized Workplaces in the USA. The UK business maintains its Investors in People accreditation. We are proud of our workplace and our culture, and as such we remain confident in our ability to innovate, adapt and continue to generate attractive levels of profitable organic growth. Effective and innovative marketing is the key driver of our continued growth. During 2016 we continued to invest a significant proportion of our overall marketing funds into customer acquisition activities. In addition to our well-established offline prospecting initiatives, a critical part of the 2016 marketing mix involved understanding and developing strategies around changes in the dynamics of the search engine platforms which take up a large part of our online marketing budget. Customer retention was driven in large part by our ever-popular and constantly evolving Blue Box™ sample mailings, complemented by our relentless focus on delivering remarkable customer service. Revenue per marketing dollar is the KPI used to assess whether our increasing investment in marketing remains consistent with our strategy. In 2016 this was $5.77, compared to $5.92 in 2015. This was in line with our expectations and with our financial strategy, delivering both organic revenue growth and a stable operating margin percentage. Underlying operating profit, excluding Head Office expenses, increased by 14%, compared to a 12% increase in reported revenue. The resulting increase in operating margin percentage in the trading businesses had three major components: (i) a slightly improved gross margin percentage; (ii) improved revenue per payroll dollar, effectively offsetting the movement in revenue per marketing dollar; and (iii) some gearing effect from the fixed or semi-fixed elements in selling costs and other overheads. 07 4imprint Group plc Annual Report and Accounts 2016GovernanceFinancial StatementsAdditional InformationStrategic ReportOverview STRATEGIC REPORT Strategy 4imprint’s strategy is to develop its position as the leading direct marketer of promotional products in the fragmented markets in which it operates. Operationally, the objective is to deliver competitive advantage through sustained investment in marketing, people, systems technology and data analytics. Financially, the objectives are to maximise organic revenue growth whilst maintaining a broadly stable operating margin percentage and to retain an efficient cash conversion ratio, assisted by the low capital intensity of the business. 4imprint has a rolling three year strategic planning process, providing a framework for the delivery of the revenue growth required to underpin both sustainable growth in earnings per share and a policy of progressive dividend increases. Strategic differentiator What have we been doing in 2016? • Continuous refinement of established marketing techniques: – Catalogue versions and circulation plans – Blue Box™ programme efficiency – Understanding and developing strategies around changes in search engine platforms • Evaluation of new and emerging digital marketing opportunities • Continued expansion of breadth and depth of product range and development of exclusive and proprietary products • Named for the ninth consecutive year as a Top 25 Best Medium Sized Workplace • in the USA Initiatives in benefits and workplace environment helping to maintain single digit employee turnover • Expansion of internal and external training resources and number and type of courses offered • Continuous development and enhancement of website functionality and performance • Software development to allow for more efficient order handling at our distribution centre • Software development to support improved organisation and cataloguing of customer art files for use with re-orders • Blue Box™ automation development Marketing People Technology 08 4imprint Group plc Annual Report and Accounts 2016 Market Overview Where we do business We operate in two primary geographical markets. • North America: The US and Canadian promotional products markets together are estimated to total around $25 billion. • UK and Ireland: The UK and Irish promotional products market size is estimated at around £970 million, or $1.2 billion. The promotional products marketplace is fragmented. The largest market, the USA, is served by around 23,000 distributors, of whom more than 20,500 have annual sales of less than $2.5 million. The profile is similar in the Canadian and UK/Irish markets. 4imprint is the largest direct marketer of promotional products in each market and has consistently increased market share, through organic growth, at a rate significantly ahead of the overall growth rate in the industry. What we sell We sell an extensive range of promotional products – merchandise custom printed with the logo or name of an organisation with the intention of promoting a brand, service, product or event. Our product range comprises tens of thousands of individual products ranging from basic giveaways such as pens, bags and drinkware to higher value items such as embroidered apparel, business gifts and full size trade show displays. Merchandising specialists work closely with suppliers, continually updating the product range and developing new products or lines, many of which are exclusive to 4imprint. Our customers Promotional products are purchased by a wide range of individuals within all types and sizes of businesses and organisations. The products have many uses: as an integral part of sales and marketing activities; for recruitment or recognition initiatives; to promote health and safety programmes; and for any other method of making a connection between the customer’s organisation and the recipient of the item. We define our customer as the individual placing the order, rather than the business or organisation for which the individual works or with which he/she is associated. As such, our customers can be found across the different areas of geography, industry categories, size of business/ organisation and charitable, religious or governmental institutions. No single customer comprises a material part of 4imprint’s overall revenue. The top 10 current product categories are: 1. Apparel 2. Bags 3. Drinkware 4. Writing 5. Technology 6. Stationery 7. Outdoor & leisure 8. Tradeshows & signage 9. Auto, home & tools 10. Wellness & safety 09 4imprint Group plc Annual Report and Accounts 2016GovernanceFinancial StatementsAdditional InformationStrategic ReportOverview STRATEGIC REPORT Business Model Our commercial operations are built around a direct marketing business model capable of introducing millions of potential customers to tens of thousands of customised promotional products. Our model has favourable cash characteristics: minimal inventory requirements; a high proportion of orders paid for by credit card; and ongoing capital investment broadly in line with depreciation charge. Increasing investment in marketing activity and technology is funded out of operating cash flow, sustaining competitive advantage and further growth in market share. Customer proposition › Fast, easy and convenient › Expansive and relevant product range › Industry-leading customer guarantee • Online or via telephone • Free samples and artwork • Remarkable customer service • On-time shipment or your order is free • Lowest prices or double the difference • Total satisfaction or your money back “Drop ship” from suppliers › Unrestricted access to tens of thousands of products › Efficient deliveries to short lead times › Minimal investment in inventory • Supplier holds the stock • Supplier prints the product • Order shipped direct to customer • Merchandisers work closely with suppliers • Product range continually updated Application of technology › Customer-facing, websites & mobile › Proprietary order processing platform › Sophisticated database analytics • Mature, scalable systems • Efficient order processing • Supplier integration • Data-driven marketing • Innovative web technology Innovative marketing › Data-driven heritage and discipline › Online and offline techniques › Catalogue, search engine, email, social • Existing customer • New customer acquisition • Growing customer file retention • Blue BoxTM 10 4imprint Group plc Annual Report and Accounts 2016 Key Performance Indicators The Board monitors the performance of the business against its strategy using the KPIs set out below. These KPIs have been selected as they are considered appropriate for measuring the progress of the business towards achieving its strategic objectives. Financial KPIs Non-Financial KPIs Revenue ($m) Dividend per share (c) No. of orders received (000s) $558.2m 52.50c 1,054 +12% 558.2 497.2 415.8 332.9 290.8 +35% 52.50 38.89 32.41 27.56 23.55 703 351 613 332 506 282 410 227 344 209 New Existing Underlying profit before tax ($m) Underlying operating cash flow ($m) Revenue per marketing dollar ($) $38.35m $43.43m 5.77 +14% +117% 38.35 33.55 27.86 19.55 14.57 20.00 27.58 19.77 13.03 43.43 5.77 5.92 6.01 6.08 5.83 Underlying earnings per share (c) 99.01c +12% 99.01 88.04 73.48 55.55 39.67 11 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information20142013201220152016201420132012201520162014201320122015201620142013201220152016201420132012201520162014201320122015201620142013201220152016 STRATEGIC REPORT Financial Review Underlying operating profit Share option related charges (incl. social security) Exceptional items Net finance (expense)/income Defined benefit pension charges Profit before tax Underlying* EPS 99.01c Dividend paid and proposed 52.50c 2016 Underlying* $m 2015 Underlying* $m 38.38 33.52 (0.03) 0.03 38.35 33.55 2016 Total $m 38.38 (0.43) (2.94) (0.03) (0.83) 34.15 2015 Total $m 33.52 (0.30) (0.86) 0.03 (1.23) 31.16 * Underlying is before share option related charges, defined benefit pension charges and exceptional items. Operating result Group revenue in 2016 was $558.22m, (2015: $497.22m), an increase of 12% over prior year. Underlying operating profit before tax was $38.35m (2015: $33.55m), up 14% over the 2015 comparative. Operating profit was $34.15m (2015: $31.16m). 2015 was a 53 week accounting period for the Group, reverting back in 2016 to the normal 52 week timeframe. This means that the comparative contains around $4.0m of additional revenue from the “extra” week. Another factor to note in year on year revenue comparisons is an adverse currency effect of around $2.2m arising from the translation of the results of the UK business into reporting currency. Adjusting the comparative for these two items, Group revenue growth over prior year was 13%. In terms of underlying operating profit, the additional week in the comparative had a negligible effect due to a full week of payroll and overheads offsetting the additional gross margin arising from a quiet week of revenue during the holiday season. Foreign exchange The US dollar exchange rates material to the Group’s 2016 results were as follows: 2016 2015 Period end Average Period end Average Sterling Canadian dollars 1.23 0.74 1.35 0.76 1.48 0.72 1.53 0.78 Share option charges The Group charged $0.43m (2015: $0.30m) in respect of IFRS2, “Share-based payments”. This was made up of various elements: the Performance Share Plan (“PSP”) approved by Shareholders on 27 April 2011, which matured in April 2016; charges under the 2015 Incentive Plan, approved at the 2015 AGM, in respect of 2015 actual and 2016 accrued awards; and a charge in respect of the 2016 UK SAYE and US ESPP plans. Current options and awards outstanding are 144,826 shares under the 2016 UK SAYE and US ESPP plans and 26,128 shares under the 2015 Incentive Plan. Exceptional items A total of $2.94m (2015: $0.86m) was charged to exceptional items in the year, which all related to pension risk reduction activity. There were three components of the charge: (i) $1.32m of buy-out related costs incurred and paid by the pension scheme; (ii) $1.45m representing a past service charge in respect of Guaranteed Minimum Pension equalisation; and (iii) $0.17m paid by the Group in respect of fees incurred on the buy-out project. Net finance income Net finance expense for the year was $0.03m (2015: income of $0.03m), reflecting non-utilisation fees on the US line of credit, offset partially by modest interest received on the investment of cash balances in short-term deposits. 12 4imprint Group plc Annual Report and Accounts 2016 Taxation The tax charge for the year was $9.67m (2015: $8.46m), producing an effective tax rate of 28% (2015: 27%). The charge comprised current tax of $10.08m, representing tax payable in the USA, and a deferred tax credit of $0.41m. The increase in overall rate between years was due principally to increased taxable profits arising in the USA, which is a higher tax jurisdiction. The tax charge relating to underlying profit before tax was $10.58m (2015: $8.96m), an effective tax rate of 28% (2015: 27%). Earnings per share Underlying basic earnings per share was 99.01c (2015: 88.04c), an increase of 12%. This increase is lower than the 14% increase in underlying profit before tax, reflecting a higher effective tax rate and a slightly higher weighted average number of shares in issue. Basic earnings per share was 87.27c (2015: 81.26c), an increase of 7%. The primary factors causing the increase in basic earnings per share to be lower than the increase in underlying earnings per share were higher exceptional charges, share option charges and effective tax rate, offset by lower pension-related administration and finance charges, all compared to prior period. Dividends Dividends are determined in US dollars and paid in Sterling at the exchange rate on the date that the dividend is determined. The Board has proposed a final dividend of 36.18c (2015: 26.80c) which, together with the interim dividend of 16.32c, gives a total paid and proposed dividend relating to 2016 of 52.50c, an increase of 35% compared to prior year. In Sterling, the final dividend paid to Shareholders will be 29.52p (2015: 18.82p), which, combined with the interim dividend paid of 12.30p, gives a total dividend for the year of 41.82p, an increase of 57% compared to prior year. During the year, the previously bought-in benefits of the majority of pensioner members were successfully converted to buy-out status. This resulted in a remaining pension obligation that is considerably smaller, moving from around 1,600 members (1,100 pensioners and 500 deferred pensioners) in December 2015, to around 420 mainly deferred members at the 2016 year end. Individual annuities were issued to the departing pensioner members under the terms of the contracts with the insurers. In financial terms, this meant that gross liabilities of $94.79m, and the corresponding insured asset of the same amount, were removed from the Group’s balance sheet. In order to extinguish these liabilities fully, the old scheme is in the process of being wound up. A new scheme with equivalent benefits has been set up, and members not included in the buy-out have been transferred to this scheme, except for those with small pension entitlements who opted to depart the scheme by taking winding up lump sum payments, resulting in liabilities of $1.98m and assets of an equivalent amount being removed. In order to facilitate the buy-out process and the establishment and funding of the new scheme, a one-off contribution of £10.0m ($14.5m) was paid in the first half of 2016, as previously agreed with the Trustee. The remainder of the $17.35m total contributions during the year were in respect of an interim deficit recovery arrangement agreed with the Trustee and the funding of some transfer values out of the scheme. At 31 December 2016, gross scheme liabilities under IAS 19 were $34.36m, and assets were $15.07m, resulting in a net liability of $19.29m. This residual net liability is higher than expected. Two primary factors influenced this: (i) adverse movements in actuarial assumptions, particularly the discount rate which moved from 3.52% in 2015 to 2.68% at the end of 2016; and (ii) a gap between the actuarial estimates of the split of liabilities between insured and non-insured members (based initially on the last full valuation in 2013 and rolled forward since then), and the actual liabilities transferred to insurers. Defined benefit pension scheme The Group sponsors a legacy defined benefit pension scheme which has been closed to new members and future accruals for several years. A new deficit recovery contribution schedule will be agreed with the Trustee during 2017. In the meantime, the current interim contribution of around £2.3m per year will continue to be paid into the scheme. At 31 December 2016, the deficit of the scheme on an IAS 19 basis was $19.29m, compared to $23.11m at 2 January 2016. The change in deficit is analysed as follows: IAS 19 deficit at 2 January 2016 Company contributions to the scheme Pension administration costs Pension costs - exceptional Pension finance charge Re-measurement gains due to changes in assumptions Exchange gains IAS 19 deficit at 31 December 2016 $m (23.11) 17.35 (0.31) (2.77) (0.52) (12.94) 3.01 (19.29) 13 4imprint Group plc Annual Report and Accounts 2016GovernanceFinancial StatementsAdditional InformationStrategic ReportOverview STRATEGIC REPORT Financial Review continued Cash flow The Group had net cash of $21.68m at 31 December 2016, an increase of $3.30m over the 2 January 2016 balance of $18.38m. Cash flow in the period is summarised as follows: Underlying operating profit Depreciation and amortisation Change in working capital Capital expenditure Underlying operating cash flow Tax and interest Defined benefit pension contributions Own share transactions Exceptional items National Insurance on share options exercised Exchange Free cash flow Dividends to Shareholders Net cash inflow in the period 2016 $m 38.38 2.39 5.95 (3.29) 43.43 (9.45) (17.35) 0.07 (0.17) (0.07) (1.02) 15.44 (12.14) 3.30 2015 $m 33.52 1.96 (4.46) (11.02) 20.00 (8.70) (0.83) – (0.31) – (0.48) 9.68 (9.60) 0.08 The cash generative nature of the direct marketing business model was demonstrated in the 2016 results. The underlying operating profit to cash conversion rate was 113% (2015: 87%, after adjusting for $9m of unusually high capital expenditure). This attractive cash conversion ratio was driven in large part by a favourable swing in the working capital position. Working capital at the end of 2015 was unusually high, driven by timing effects due to a 53 week accounting period. The 2016 balance reflects a more normalised position. Free cash flow was $15.44m, after the one-off pension contribution of $14.5m. Balance sheet and Shareholders’ funds Net assets at 31 December 2016 were $29.33m, compared to $28.45m at 2 January 2016. The balance sheet is summarised as follows: 31 December 2016 $m 2 January 2016 $m Non-current assets Working capital Net cash Pension deficit Other assets/(liabilities) - net Net assets 14 25.05 3.58 21.68 (19.29) (1.69) 29.33 23.75 9.71 18.38 (23.11) (0.28) 28.45 Shareholders’ funds increased by $0.88m, comprising: net profit in the period of $24.48m; $0.99m of exchange gains; net pension re-measurement losses of $(12.30)m; $(0.15)m of net share option related movements; and $(12.14)m equity dividends paid to Shareholders. Balance sheet movements in respect of cash, working capital and pension deficit are discussed in earlier sections of the Financial Review. Treasury policy The financial requirements of the Group are managed through a centralised treasury policy. The Group operates cash pooling arrangements for its North American operations. Forward contracts are taken out to buy or sell currency relating to specific receivables and payables as well as remittances from overseas subsidiaries. The Group holds the majority of its cash with its principal US and UK bankers. A facility with the principal US bank, JPMorgan Chase, N.A., is available to fund the short-term working capital requirements of the North American business. The Group has $20.5m of working capital facilities with its principal US bank. The interest rate is US$ LIBOR plus 1.5%, and the facilities expire on 31 May 2018 ($20.0m US facility) and 31 August 2017 ($0.5m Canadian facility). In addition, an overdraft facility of £1.0m, with an interest rate of bank base rate plus 2.0%, is available from the Group’s principal UK bank, Lloyds Bank plc. Critical accounting policies Critical accounting policies are those that require significant judgements or estimates and potentially result in materially different results under different assumptions or conditions. It is considered that the only critical accounting policy is in respect of pensions. Going concern The Board reviews several factors when considering whether the financial statements should be prepared on a going concern basis: • The Group’s business activities, together with management’s current view of circumstances likely to affect its future development, performance and financial position (summarised in the Strategic Report on pages 6 to 21). • The Group’s principal risks and uncertainties, as set out on pages 16 to 18 . • The financial position of the Group, its cash flows and principal risks and uncertainties, net cash position, borrowing facilities and policies for managing financial risk, which are described in the Financial Review and Principal Risks & Uncertainties on pages 12 to 18. As a result of this review, the Board has a reasonable expectation that the Group has adequate resources to continue to operate for a period of at least twelve months from the date this report was approved. Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements. 4imprint Group plc Annual Report and Accounts 2016 Long-term prospects and viability In accordance with Provision C.2.2 of the 2014 UK Corporate Governance Code, the Board has assessed the prospects and viability of the Group. Assessment of prospects The Group’s strategy, market position and business model, as set out on pages 8 to 10 of the Strategic Report, are central to an understanding of its prospects. These factors provide a framework for the rolling three year plan which is developed as part of the annual budget process and reviewed by the Board to assess the Group’s prospects. Established and reliable demand forecasting models are driven by customer acquisition and retention assumptions, which are flexed to account for known initiatives and anticipated market developments over the three year forecast period. The three year timeframe for assessing both prospects and viability is considered to be appropriate due to the following factors: • It is consistent with the Group’s rolling three year strategic planning process. It reflects reasonable expectations in terms of the reliability and accuracy of operational forecasting models. It acknowledges that the Group’s business model does not rely heavily on fixed capital, long-term contracts or fixed external financing arrangements. It recognises that projections looking out further than three years become significantly less meaningful in the context of the fast-moving nature of the business and its markets. • • • Confirmation of viability The Board’s assessment of the Group’s prospects, as described above, has been made with reference to current market conditions and known risk factors. The principal risks and uncertainties facing the Group are outlined on pages 16 to 18. In the light of the Group’s financial performance over recent years, the Board considers that the key factor which would prejudice the delivery of the Group’s stated financial objectives is a significant decline in demand, leading to lower or negative revenue growth and a lower return on marketing spend. Using the current three year rolling forecasts as a base case, alternative forecasts have been produced to model the effects on the Group’s liquidity and solvency of very severe but plausible combinations of the principal risks and uncertainties on demand levels in the business. The basis for the key assumptions used in the viability model was an overall effect similar to, but more severe than, that experienced during the 2008/9 financial crisis. New customer acquisition and existing customer retention metrics were significantly degraded in the model, but expenditure in the areas of marketing, payroll and technology were held steady. Revenue and profitability are clearly affected in this scenario, but the business retains a robust financial position with the Group able to maintain its external dividend payments at current rates. The assumptions used in the viability model and the resultant sensitised financial forecasts have been reviewed and approved by the Board. The conclusion of this review is that the Group has significant financial flexibility, starting with a net cash position, but remaining cash positive even under severe economic stress and able to continue investing in marketing, people and technology, which are the key differentiators in its strategy. Based on this review of the Group’s prospects and viability, the Directors confirm that they have a reasonable expectation that the Group will continue to operate and to meet its liabilities, as they fall due, for the next three years. 15 4imprint Group plc Annual Report and Accounts 2016GovernanceFinancial StatementsAdditional InformationStrategic ReportOverview STRATEGIC REPORT Principal Risks & Uncertainties 4imprint seeks to take a balanced approach to the risks and uncertainties which it faces. There is an appetite for risk-taking that contributes to both the operational agility and innovative culture which 4imprint believes is necessary to meet its strategic objectives. That appetite is, however, tempered by risk identification, evaluation and management. The Board has ultimate responsibility for the risk management process, although responsibility for reviewing specific risk controls may be delegated to the Audit Committee. The Executive Directors and operational management teams are responsible for the identification and evaluation of risks and the subsequent implementation of specific risk mitigation activities. It is important to note that business operations are conducted from centralised facilities in each territory, with short reporting lines. Consequently, the Executive Directors are close to day-to-day matters, facilitating early identification of, and response to, evolving risks. Risk appetite, the risk management process, and associated mitigating activities are all essential elements of the Group’s strategic and operational planning processes. 4imprint’s business model means that it may be affected by a number of risks, not all of which are within its control. Outlined on the following pages are the current principal potential risks to the successful delivery of the Group’s strategic goals. The list is not exhaustive and other, as yet unidentified, factors may have an adverse effect. Risk Potential impact Mitigating activities Economic and market risks Macroeconomic conditions The business conducts most of its operations in North America and would be affected by a downturn in general economic conditions in this region. The promotional products market would likely soften in line with the general economy. Competition The promotional products markets in which the business operates are intensely competitive and the rapid development of internet commerce, digital marketing and technological innovation may allow competitors to reach a broader audience. In addition, new or disruptive business models may be developed by existing competitors or new entrants. Currency exchange There is some exposure to currency exchange risk. Although the business trades predominantly in US dollars, it also transacts business in Canadian dollars, Sterling and Euros, leading to some currency risk on trading. In addition, head office costs, pension scheme commitments and dividend payments are payable in Sterling, consequently the business may be adversely impacted by movements in the Sterling/US dollar exchange rate when it repatriates cash to the UK. 16 • Customer acquisition and retention • Management monitors economic and metrics could fall. • The growth and profitability levels called for in the Group strategic plan may not be achieved. • Cash generation could be reduced broadly corresponding to a reduction in profitability. market conditions to ensure that appropriate and timely adjustments are made to marketing and other budgets. • The customer proposition in terms of promotions, price, value and quality of product can be adjusted to resonate with the prevailing economic climate. • Aggressive competitive activity could result in pressure on prices, margin erosion and loss of market share. All of these factors could impair the growth of the business and therefore impact the financial results. • The Group’s strategy based on achieving organic growth in fragmented markets may need to be reassessed. • The financial results of operations, and therefore overall profitability, may be negatively affected. • The financial condition and cash position of the Group may differ materially from expectations. In particular, the Group’s strategic objective of delivering progressive dividend increases could be disrupted. • An open-minded culture and an appetite for technology are encouraged, with the aim of positioning the business at the forefront of innovation in the industry. • Management proactively monitors competitive activity in the marketplace. • Price, satisfaction and service level guarantees are an integral part of the customer proposition. Customer surveys and market research are used to gauge customer satisfaction and perception, and the causes of any negative indications are investigated and addressed rapidly. • The Group reports its results in US dollars, minimising currency impact on reported revenue, operating profit and net assets since trading operations are concentrated largely in North America. • The Group uses forward contracts to hedge anticipated cash receipts from its overseas operations over a rolling 12 month timeframe, giving some certainty of amounts receivable in Sterling. 4imprint Group plc Annual Report and Accounts 2016 Risk Operational risks Business facility disruption The business model means that operations are concentrated in centralised office and distribution facilities. The performance of the business could be adversely affected if activities at one of these facilities were to be disrupted, for example, by fire, flood, loss of power or telecommunication failure. Disruption to delivery service or the product supply chain As a consequence of the Group’s drop-ship distribution model, trading operations could be interrupted if (i) the activities of a key supplier were disrupted and it was not possible to source an alternative supplier in the short term; or (ii) the primary parcel delivery partner used by the business suffered significantly degraded service levels. Disturbance in established marketing techniques The success of the business relies on its ability to attract new and retain existing customers through a variety of marketing techniques. These methods may become less effective as follows: Offline: The flow of print catalogues and sample packages would be disrupted by the incapacity of the US Postal Service to make deliveries, for example due to natural disasters or labour activism. Online: Search engines are an important source for channelling customer activity to 4imprint’s websites. The efficiency of search engine marketing would be adversely affected if the search engines were to modify their algorithms or otherwise make substantial changes to their practices or pricing. Reliance on key personnel Performance depends on the business’s ability to continue to attract, motivate and retain key staff. These individuals possess sales and marketing, merchandising, supply chain, IT and financial skills that are key to the continued successful operation of the business. Potential impact Mitigating activities • The inability to service customer orders • Data is backed up immediately to over any extended period would result in significant revenue loss, deterioration of customer acquisition and retention metrics and diminished return on marketing investment. • Inability to fulfil customer orders would lead to lost revenue and a negative impact on customer acquisition and retention statistics. • If sustained over anything more than a short time period, an externally-driven decrease in the effectiveness of key marketing techniques would cause damage to the customer file as acquisition and retention metrics fall. This would affect order flow and revenue in the short term and the productivity of the customer file over a longer period, impacting growth prospects. off-site servers. • Back-up and business continuity procedures are in place to ensure that customer service disruption is minimised. • Relationships are maintained with third party embroidery contractors to provide back-up in the event of facility unavailability. • A rigorous selection process is in place for key suppliers, with evaluation and monitoring of quality, production capability and capacity, ethical standards and financial stability. • Wherever possible, relationships are maintained with suitable alternative suppliers for each product category. • Secondary relationships are maintained with alternative parcel carriers. • Offline: Developments in the US Postal Service are closely monitored through industry associations and lobbying groups. Alternative parcel carriers are continuously evaluated. • Online: Management stays very close to new developments and emerging technologies in the online space. Efforts are focused on anticipating changes and ensuring compliance with both the requirements of providers and applicable laws. The marketing team constantly tests and evaluates new marketing techniques and opportunities. • The loss of key employees or inability to • The business is proactive in aiming to attract appropriate talent could adversely affect the Group’s ability to meet its strategic objectives, with a consequent negative impact on future results. deliver a first-class working environment. In addition, attractive employment terms and incentive plans are designed with a view to attracting and retaining key personnel. 17 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information STRATEGIC REPORT Principal Risks & Uncertainties continued Risk Potential impact Mitigating activities Technological risks Failure or interruption of information technology systems and infrastructure The business is highly dependent on the efficient functioning of its IT infrastructure. An interruption or degradation of services at a central office facility would affect critical order processing systems and thereby compromise the ability of the business to deliver on its customer service proposition. Failure to adapt to new technological innovations The operating platforms of the business may not be able to respond and adapt to rapid changes in technology. If the development of websites and customer-facing applications for alternative devices and platforms is slow or ineffective the business could lose competitive edge. In addition, the development of order processing, supplier-facing and data analytics technologies could fail to deliver the improvements in speed, ease and efficiency necessary to attract and retain a productive customer base. Security of customer data Unauthorised access to and misappropriation of customer data could lead to reputational damage and loss of customer confidence. • In the short-term, orders would be lost and delivery deadlines missed for orders in-house, decreasing the efficiency of marketing investment and impacting customer acquisition and retention. Depending on the severity of the incident, longer-term reputational damage could result. • Revenue and profitability are directly related to order flow and would be adversely affected as a consequence of a major IT failure. • If the business fails to adapt to new technologies and therefore falls behind in the marketplace it may fail to capture the significant number of new customers and retain existing customers at the rate required to deliver the growth rates envisaged in the Group’s strategic plan. • There is significant ongoing investment in both the IT team supporting the business and the hardware and software system requirements for a stable and secure operating platform. • Back-up and recovery processes are in place to minimise the impact of information technology interruption, including real-time replication of data at an alternative site. • Management has a keen awareness of the need to keep pace with the rapidly changing and continuously evolving technological landscape. • An appetite for technological innovation is encouraged in the business. Sustained investment is made in the development of both outward-facing and back office systems. • A significant security breach could lead to litigation and losses, with a costly rectification process. In addition, it might be damaging to the Group’s reputation and brand. • An event of this nature might result in extraordinary expense, impacting the Group’s ability to meet its earnings per share targets. • The business employs IT staff who are appropriately trained to mitigate IT security violations. In particular, emerging cyber risks are proactively monitored and addressed. • Technical and physical controls are in place to mitigate unauthorised access to customer data and there is an ongoing investment process in place to maintain and enhance the integrity and efficiency of the IT infrastructure and its security. 18 4imprint Group plc Annual Report and Accounts 2016 Corporate & Social Responsibility Report The Board believes that a strong and principled approach to corporate and social responsibility is fundamentally important to the present and future success of 4imprint. Training room in Oshkosh Employment Our strategy statement identifies investment in our people as a key driver of competitive advantage. We are committed to a culture that encourages the training, development, wellbeing and participation of every team member. Business objectives are shared with team members via quarterly briefings and everyone participates in a quarterly “gain share” bonus plan that is based on achievement of tangible, clearly communicated performance targets. Training of new team members covers job-specific skills, other soft skills and a grounding in the 4imprint philosophy. Existing team members are regularly offered ongoing training opportunities in a variety of subjects, some directly business- related, and others aimed towards personal development, wellness initiatives and general education. In addition, the pursuit of external educational opportunities and professional qualifications is encouraged through our popular tuition reimbursement programme. The welfare of our team members is also addressed through a competitive benefits package, including strong medical, dental and pension offerings. In addition, we run an employee wellness programme and provide multiple workplace perks and fun events. Our culture encourages responsible practice at all levels of the organisation and presents clear guiding principles that drive ethical interactions with, and outcomes for, our key stakeholders. 4imprint is run in accordance with “The Golden Rule” – treat others as you would wish to be treated yourself. This mindset is evident across the business: in our customer service proposition and guarantees; in our product sourcing initiatives; in the way that our team members interact with our customers, our supplier partners and with each other; in the way that we engage in our communities; and in our respect for the environment. We are pleased to have become a constituent company in the FTSE4Good Index Series, the global responsible investment index designed to identify companies that demonstrate strong environmental, social and governance (ESG) practices, measured against globally recognised standards. Providing remarkable service A proactive approach to health and safety is an important aspect of the 4imprint workplace. Desk-based ergonomics and best practice protocols in the operation of machinery and material handling at our distribution centre are key areas of emphasis in promoting a safety culture. A Safety Committee meets on a regular basis to review any incidents or near misses and to consider future improvements or changes in regulatory requirements. In addition, health and safety reports are regularly received and reviewed by the Board. We understand the importance and beneficial effect of diversity within our team and we aim to foster a culture that recruits, develops and promotes team members regardless of background. We are committed to the principle of equal opportunity in employment, and no 19 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information STRATEGIC REPORT Corporate & Social Responsibility Report continued We are acutely aware, however, that our end-to-end supply chain is a long and complex one that extends far beyond our domestic supply partners across the globe to the manufacturers of the base product. As such, our business activities can have a significant impact at many levels. Our intention is to make that impact positive from a social, economic and environmental perspective. To set the tone, the Board has developed, approved and issued a social and ethical policy, the purpose of which is to set broad guidelines that the Group should conduct its business operations in accordance with best practice and in compliance with relevant legislation such as the Modern Slavery Act. The policy addresses such issues as working hours, wages, discrimination, collective bargaining, health & safety and child labour. These broad principles are reinforced in our “4imprint Supply Chain Code of Conduct”. This is based on the International Labour Organisation’s “Declaration on Fundamental Principles and Rights at Work” and the Fair Labor Association’s “Principles of Fair Labor and Responsible Sourcing”. 4imprint team members are actively involved in the FLA’s activities. At the operational level, this means that 4imprint’s goal is to work with suppliers who are diligent in managing their sourcing practices and selecting manufacturing facilities, who commit to ensuring safe working environments where employees are adequately compensated and who are able to develop the necessary manufacturing, design and quality capabilities. These ethical sourcing expectations are communicated and reviewed through our document “4imprint’s Expectations of Supply Chain Responsibility”, signature of which reaffirms the supplier’s commitment to these principles within their own organisation and supply base. In support of our supply chain expectations, our product sourcing professionals schedule regular visits to both domestic supplier facilities and to the offshore factories where the base product is manufactured. In addition, we conduct a programme of independent audits of offshore manufacturing facilities in conjunction with our key suppliers. Our preference is to work with suppliers and manufacturers on areas of concern and to develop a corrective action plan, although ultimately business would be re-sourced if compliance is not achieved. Product sourced in accordance with ethical supply chain expectations applicant or employee receives less favourable treatment on the grounds of nationality, age, gender, sexual orientation, religion, race, ethnicity or disability. We recognise our responsibility to disabled persons and endeavour to assist them to make their full contribution at work. Where team members become disabled, every practical effort is made to allow them to continue in their jobs or to provide retraining in suitable alternative work. The Group employs over 860 people, 75% of whom are female. One third of the North American executive team and two thirds of the UK senior team are female. As at 31 December 2016 the Board had no female members, and one of six Board members (16%) is a non-UK national. 2016 was the ninth consecutive year that the North American operation has been included on the prestigious list of the Top 25 Best Medium Sized Workplaces in the USA. The UK-based business maintains its Investors in People accreditation. We are very proud of these accolades, which are emblematic of team members who go above and beyond every day to help each other, to provide our customers with remarkable service and to give back to their communities because they know and believe that it is the right thing to do. Product and supply Our suppliers are based in the US and Canada for the North American business, and in the UK and EU for the UK and Ireland business. Therefore, our supply base is essentially domestic, with our suppliers taking care of the importing/manufacture, inventory management and printing capabilities required to ship thousands of orders on a daily basis. 20 4imprint Group plc Annual Report and Accounts 2016 operations on the environment. Energy consumption and waste management are key areas of focus. In addition, printed marketing materials such as catalogues use paper sourced from sustainable forests, conforming to Forestry Stewardship Council (“FSC”) requirements. the word, recruit volunteers or thank donors. In 2016, there were 3,395 applicants, with 767 grants awarded. The total value of “one by one®” grants awarded was $385,000, and on top of this we made more than 2,000 other donations of product to “one by one®” applicants, businesses, team members and customers in support of fundraising or charitable causes. Our UK business has its own charitable giving initiative, “Helping Hand”, which also aims to use the power of promotional products in the support of a good cause. Environment The Board recognises its obligations to protect the environment and is committed both to achieving required environmental standards across all the activities of the Group and to minimising its environmental impact. The management teams in both the North American and UK businesses assess and monitor the potential impact of Underpinning all of our product supply efforts is our aim to match remarkable customer service with great products that meet functional, environmental and safety standards in each market of distribution. Our internal supply chain compliance team works to stay abreast of current and developing standards as set by the regulatory bodies and liaises with our supplier partners to manage and validate product testing and other quality assurance procedures. Community and charitable giving Team members are given paid time off to be used specifically for volunteering for a local charity or non-profit organisation of their choice. 4imprint is actively involved in its local communities in many other ways, for example in team sponsorships, student scholarships at local colleges, product donations for events such as fun runs, 5Ks and marathons, and encouragement of team members to participate on volunteer boards and committees. Our North American business operates its “one by one®” charitable giving programme which reflects our culture and principles. Each business day we donate at least three $500 grants to non-profit organisations. These grants are to be used on promotional products to help spread Oshkosh Holiday Parade 2016 4imprint team members involved in the community The Strategic Report was approved by the Board on 8 March 2017 Kevin Lyons-Tarr Chief Executive Officer David Seekings Chief Financial Officer 21 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information GOVERNANCE Board of Directors P.S. Moody Non-Executive Chairman K. Lyons-Tarr Chief Executive Officer Paul Moody was appointed as a Non- Executive Director on 1 February 2016 and on 1 December 2016 became Non- Executive Chairman. Paul currently serves on the Board of Johnson Service Group plc as Non-Executive Chairman and is also a Non-Executive Director of Pets at Home Group plc. He has extensive public company experience and spent 17 years at Britvic plc, including the last eight years as Chief Executive. Prior to that, he held a number of senior appointments in sales and HR, with companies including Grand Metropolitan plc and Mars. Kevin Lyons-Tarr was appointed an Executive Director in 2012 and, with effect from 31 March 2015, became Chief Executive of 4imprint Group plc. Based in Oshkosh, Wisconsin, Kevin has been with the business since 1991, serving in several capacities, including Chief Information Officer and Chief Operating Officer. He was appointed President of the Direct Marketing business in 2004 and has led its substantial growth since then. A.J. Scull Corporate Services Director and Legal Counsel Andrew Scull was appointed as Corporate Services Director and Legal Counsel in 2004. He has an MBA from Warwick University and since qualifying as a solicitor in 1980, he has held a number of senior positions including Group Legal Counsel at Laporte plc, Commercial Director at SGB Group plc and Director of Legal Services at Coors Brewers Limited. In addition to extensive experience of international mergers and acquisitions, he has had responsibility for corporate services including pensions, human resources, insurance and real estate. 22 4imprint Group plc Annual Report and Accounts 2016 D.J.E. Seekings Chief Financial Officer J.A. Warren Senior Independent Non- Executive Director C.J. Brady Independent Non-Executive Director David Seekings was appointed as Chief Financial Officer on 31 March 2015. He is a chartered accountant, having trained and qualified with KPMG. David has been with the 4imprint Group since 1996, initially as Group Financial Controller, moving to the USA in 2000 to become Chief Financial Officer of 4imprint Direct Marketing, based in Oshkosh, Wisconsin. John Warren was appointed a Non- Executive Director in 2012. A chartered accountant, John was Group Finance Director of United Biscuits (Holdings) Plc and WH Smith PLC before embarking on a career as a Non-Executive Director. He is currently a Non-Executive Director and Chairman of the Audit Committee at Welsh Water, Greencore Group plc and Bloomsbury Publishing Plc. He has previously served on the Boards of Bovis Homes Group PLC, Spectris plc, Rank Group Plc, Rexam Plc, RAC Plc and BPP Holdings Plc and chaired the Board at Uniq Plc through the resolution of their major pension issues. Charles Brady was appointed a Non- Executive Director in June 2015. Charles is a solicitor and was the founder and Managing Director of Central Law Training Limited which, during his leadership between 1987 and 2002, became the largest provider of post-qualification legal training in the UK. Wilmington plc, a company listed on the London Stock Exchange, acquired Central Law Training in 1999. Charles remained with the business, becoming Chief Executive of Wilmington plc in 2002, a post which he held until his retirement in 2014. Charles has also served as a Non-Executive Director of both Hatton Blue Limited, a start-up IT company and the PPA (Professional Publishers Association). Audit Committee Mr. J.A. Warren (Chairman) Mr. C.J. Brady Remuneration Committee Mr. C.J. Brady (Chairman) Mr. J.A. Warren Nomination Committee Mr. C.J. Brady (Chairman) Mr. J.A. Warren During the period from 1 February 2016 until 1 December 2016, Mr. P.S. Moody was a member of the Audit, Remuneration and Nomination Committees but relinquished his membership of those Committees on being appointed as Non-Executive Chairman. 23 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information GOVERNANCE Directors’ Report The Directors present their report and the audited consolidated and Company financial statements for the period ended 31 December 2016. The Company’s Statement on Corporate Governance is included in the Corporate Governance section on pages 26 to 31 of this Annual Report. The Statement on Corporate Governance forms part of the Directors’ Report and is incorporated into it by cross-reference. 4imprint Group plc (registered number 177991) is a public limited company incorporated in England and Wales, domiciled in the UK and listed on the London Stock Exchange. Its registered office is 7/8 Market Place, London W1W 8AG. Dividends Dividends are determined in US dollars and paid in Sterling at the exchange rate at the time the dividend is determined. An interim dividend of 16.32c (12.30p) per ordinary share was paid on 15 September 2016 and the Directors recommend a final dividend of 36.18c (29.52p) per share. The proposed final dividend, if approved, will be paid on 12 May 2017 in respect of shares registered at the close of business on 7 April 2017. The total distribution paid and recommended for 2016 on the ordinary shares is $14.71m or 52.50c (41.82p) per share (2015: $10.83m or 38.89c (26.57p) per share). Cross-reference to Strategic Report including the Corporate & Social Responsibility Report The Strategic Report is set out on pages 6 to 21 of the Annual Report. It includes the Chief Executive’s Review and Financial Review which contain information and disclosures concerning the Group’s financial performance and position, future prospects, key performance indicators, principal risks and uncertainties, going concern and viability. In addition, the Corporate & Social Responsibility Report which is included within the Strategic Report contains information in respect of the Group’s policies and procedures on social and ethical responsibility, the environment, health and safety, diversity, disabled persons and employee welfare. These elements of the Strategic Report are incorporated into the Directors’ Report by cross-reference. Directors The names and biographical details of the present Directors, their committee memberships, independence status and identification of the Senior Independent Director are given on pages 22 and 23. Mr. J.W. Poulter retired on 30 November 2016. The interests of the Directors in the shares of the Company are shown on page 39. Neither the Directors, nor their associated companies, nor any members of their families, had any interest either during or at the end of the period in any contract with the Company or its subsidiaries requiring disclosure under Sections 197, 198, 200, 201 and 203 of the Companies Act 2006. Share capital The Group’s objective for managing capital is described in note 20. The Company has a single class of share capital which is divided into ordinary shares of 386/13 pence each. The shares are in registered form. Rights and obligations attaching to shares Subject to applicable statutes and other Shareholders’ rights, shares may be issued with such rights and restrictions as the Company may by ordinary resolution decide, or, if there is no such resolution or in so far as it does not make specific provision, as the Board may decide. At each Annual General Meeting (“AGM”), the Company seeks annual Shareholder authority for the Company’s Directors to allot shares, in certain circumstances, for cash. Currently, there are no such restrictions in place over the issued share capital of the Company, other than those required by law or regulation. Qualifying third party indemnity provisions During 2008, qualifying third party indemnity agreements were signed by the Company in respect of each of the Directors then in office and these remained in effect during 2016 and up to 8 March 2017 in respect of Mr. A.J. Scull. Qualifying third party indemnity agreements have also been signed by the Company in respect of Mr. K. Lyons-Tarr, Mr. J.A. Warren, Mr. C.J. Brady, Mr. P.S. Moody and Mr. D.J.E. Seekings with effect from the date of their respective appointments. 24 4imprint Group plc Annual Report and Accounts 2016 Shares held in trust for employee share schemes The trustees of both the 4imprint Group plc Employee Share Trust and the 4imprint 2012 Employee Benefit Trust may vote or abstain from voting on shares held in the trusts in any way they consider appropriate. Significant agreements There are no agreements containing provisions entitling the counterparty to exercise termination or other rights in the event of a change of control. Methodology All of the emission sources required under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013 for Scope 1 and Scope 2 emissions have been reported. The emission factors used were from the UK Government’s GHG Conversion Factors for Company Reporting 2016. Political donations No political donations were made in the period or prior period. Remuneration report Details of the procedures and guidelines used by the Remuneration Committee in determining remuneration are outlined in its report on page 34. Annual General Meeting Notice of the AGM is set out in a separate document. Items of special business to be considered at the Meeting are described in detail in the Notice of the AGM and the notes on the business to be conducted. Purchase of own shares Following the approval at the 2016 AGM of Resolution 15, the Company is authorised, generally and without conditions to make market purchases, as defined in the Companies Acts, of its ordinary shares of 386/13 pence subject to the provisions set out in such Resolution. This authority applies from 10 May 2016 until the earlier of the end of the 2016 AGM or 9 August 2017 unless previously cancelled or varied by the Company in a general meeting. No such cancellation or variation has taken place. During the period, no shares have been purchased by the Company, but employee benefit trusts purchased 139,413 shares. Waiver of dividends The dividend income in respect of the 19,980 shares (2015: 7,333 shares) held in 4imprint Group plc employee share trusts has been waived. Independent auditors A resolution to reappoint PricewaterhouseCoopers LLP as auditors to the Company has been recommended to the Board by the Audit Committee and will be proposed at the AGM. Directors’ statement as to disclosure of information to auditors In the case of each of the persons who are Directors of the Company at the date this report was approved: • so far as each of the Directors is aware, there is no relevant audit information (as defined in the Companies Act 2006) of which the Company’s auditors are unaware; and • each of the Directors has taken all of the steps that he ought to have taken as a Director to make himself aware of any relevant audit information (as defined) and to establish that the Company’s auditors are aware of that information. Greenhouse gas emissions report Global greenhouse gas (GHG) emissions data for the period Combustion of fuel and operation of facilities (Scope 1) Electricity, heat, steam and cooling purchased for own use (Scope 2) Emissions intensity per thousand dollars of revenue Tonnes of carbon dioxide equivalent 2016 2015 Approved by the Board 7 10 2,306 1,823 0.004 0.004 Andrew Scull Company Secretary 8 March 2017 The emissions data set out above relates to the operations of the Group for the period ended 31 December 2016. 25 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information GOVERNANCE Statement on Corporate Governance The disclosures required by company law in relation to the Takeover Directive in relation to the Group’s capital structure are included in the Directors’ Report on page 24. Company Secretary of 4imprint 2016 Pension Trustee Company Limited, which administers the legacy defined benefit pension scheme. During 2016, the Group has complied with the provisions of The UK Corporate Governance Code (2014) (the “Code”). The Code is publicly available on the Financial Reporting Council’s website, www.frc.org.uk. The Board The Board is responsible to Shareholders for creating and sustaining Shareholder value through the management of the Group’s business. It is also responsible for ensuring that management maintains a system of control that provides assurance of effective and efficient operations, internal financial control and compliance with laws and regulations. The Board is the decision-making body for all matters material to the Group’s finances, strategy and reputation. The Board has a formal schedule of matters reserved for its decision and the schedule was reconsidered and approved by the Board at its meeting on 13 December 2016. The schedule includes: the approval of interim and annual financial statements; the acquisition and disposal of businesses; changes to the capital structure of the Company; the appointment or removal of Directors; and the financing of the Group’s businesses. Otherwise, the Board delegates day-to-day management of the Group to the Executive Directors. Throughout the period, and in accordance with provision C.2.1 of the Code, the Board has carried out a robust assessment of the principal risks and uncertainties facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. This is fully described in the risks section on pages 16 to 18. The Board has assessed the future prospects of the Group in accordance with provision C.2.2 of the Code. Based on the results of this analysis, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period of their assessment. Details of the assessment performed by the Board, including an assessment of those risks most likely to impact the Group’s future prospects and viability, have been set out on page 15. In any circumstances where a Director has a concern, which cannot be resolved, about the running of the Company or a proposed action, any such concern is recorded in the minutes of Board meetings. The Companies Act 2006 codifies the duty of the Directors to avoid a situation in which they have, or could have, an interest that conflicts, or may possibly conflict, with the interests of the Company. A Director will not be in breach of that duty if the relevant matter has been authorised in accordance with the Articles of Association by the other Directors. Each Director has confirmed that they are aware of the need to notify the Company of any potential conflict of interest. Mr. A.J. Scull has notified the Company that he is a Director and Company Secretary of the 4imprint Pension Trustee Company Limited and a Director and 26 Specific responsibilities have been delegated to Board Committees which have access to independent expert advice at the Group’s expense. The details of the Board Committees and their activities are set out on pages 28 to 34. The Non-Executive Directors meet from time to time, without the Executive Directors being present. All Directors have access to the advice and services of the Company Secretary. At the period end the Board consisted of the Non-Executive Chairman, the Group Chief Executive Officer, the Group Chief Financial Officer, the Corporate Services Director and two Independent Non-Executive Directors. The role of the Non- Executive Directors includes assisting in the development of strategy, scrutinising the performance of management, monitoring the integrity of financial information and systems of risk management as well as determining the appointment, removal and remuneration of Executive Directors. Key activities of the Board in 2016 included: • Review and approval of full year and half year results; • Review and approval of 2017 budget and the three year plan • Review of dividend policy and rebasing of dividend to be paid in respect of 2016; • Review principal risks and uncertainties; • Receipt and review of reports on regulatory matters, including, for example, health, safety and environmental issues; • Receipt of post-meeting reports from the Chairs of the Remuneration and Audit Committee; • Appointment of an additional Non-Executive Director and selection of new Chairman; • Monitoring progress of the pension scheme buy-out and authorising payments into the pension scheme; and • Site visit to the Manchester operation. Mr. J.W. Poulter retired from the Board with effect from 30 November 2016. During 2015, and following a Board evaluation process, the Board considered it would be appropriate to have an additional Non- Executive Director and Mr. P.S. Moody was appointed as a Non-Executive Director with effect from 1 February 2016 for a period of three years. The current Non-Executive Directors have letters of appointment for three years from 28 May 2015 for Mr. J.A. Warren, 11 June 2015 for Mr. C.J. Brady and 1 February 2016 for Mr. P.S. Moody, which are available for inspection by any person at the Company’s registered office during normal business hours and also at the AGM. The Corporate Services Director also acts as the Company Secretary. This situation has been reconsidered by the Board at its meeting on 13 December 2016 and approved by the Board. The Corporate Services Director took no part in that decision. The appointment and removal of the Company Secretary is a matter to 4imprint Group plc Annual Report and Accounts 2016 be decided by the Board as a whole (excluding the Corporate Services Director). The Board has at least six scheduled meetings per year and additional Board meetings are convened as and when required. In advance of each meeting, the Board receives minutes of the previous meeting, detailed financial information on the performance of the business and items for discussion. This enables the Directors to make informed decisions on the corporate and business issues under consideration. Additionally, the Company provides resources as appropriate, to enable Directors to update their skills and knowledge. Independent professional advice is available to the Directors as required, at the Company’s expense. The Board evaluations and those of its Committees, which were undertaken in 2012, 2013, 2014, 2015 and 2016, were undertaken internally through a process conducted by the Non-Executive Directors, assisted by the Company Secretary. Given the changes to the Board in 2016, no external evaluation was undertaken but an evaluation was undertaken internally during 2016, by the Company Secretary, at the request of the Chairman. The questions asked during the process were based on questions outlined in the Code and addressed both the performance of the Board and its Committees, as well as the Chairman. A table setting out the number of Board and Committee meetings held during the period and attendance by Directors at those meetings is set out below: Board meetings Audit Committee meetings Remuneration Committee meetings Nomination Committee meetings** Mr. J.W. Poulter Mr. P.S. Moody Mr. K. Lyons-Tarr Mr. A.J. Scull Mr. D.J.E. Seekings Mr. C.J. Brady Mr. J.A. Warren 6 7 7 7 7 7 7 2* 2 2* 2* 2* 2 2 1* 0 1* 1* 0 1 1 0 0 0 0 0 0 0 * By invitation. ** In relation to the appointment of Mr. P.S. Moody as Non-Executive Chairman to replace Mr. J.W. Poulter, the list of potential candidates meant that a meeting of the Nomination Committee would not have been quorate. Accordingly, an additional Board Meeting (not noted in column 1 of the table, above) was convened under the Chairmanship of the Senior Independent Director and comprising the Chief Executive Officer, the Chief Financial Officer and the Corporate Services Director. This Board Meeting considered the applications of the potential applicants and decided on the appointment of the Non-Executive Chairman. Powers of Directors Subject to the Company’s Memorandum and Articles of Association, the Companies Acts and any directions given by special resolution, the business of the Company will be managed by the Board who may exercise all the powers of the Company. Board Committees The Board has three permanent Committees being the Audit Committee, the Nomination Committee and the Remuneration Committee. Other than the Committee members, further participants may attend by the invitation of the Committee. Each Committee has defined terms of reference, procedures, responsibilities and powers as described in this report. Relations with Shareholders Substantial interests At 31 December 2016 the Company had been notified of the following interests in the issued ordinary share capital of the Company: BlackRock Inc. Standard Life Investment (Holdings) JPMorgan Asset Management Holdings Mr. K.J. Minton FIL Limited GVQ Investment Management Artemis Investment Management AXA Investment Managers Invesco Perpetual Asset Management Miton Asset Management Number of shares 3,911,410 3,074,667 1,787,900 1,619,488 1,385,578 1,346,775 1,300,000 907,857 847,147 846,361 % 13.93% 10.95% 6.37% 5.77% 4.93% 4.80% 4.63% 3.23% 3.02% 3.01% The Company has received no notifications of changes in holdings since 31 December 2016. The Board places a high value on its relations with its investors and consults with Shareholders in connection with specific issues where it considers it appropriate. The Group, principally through the Chief Executive Officer and Chief Financial Officer, has regular dialogue and meetings with institutional shareholders, fund managers and analysts. Subject always to the constraints regarding sensitive information, discussions cover a wide range of issues, including strategy, performance, management and governance. The Board considers it important to understand the views of Shareholders, in particular, any issues which concern them. The Senior Independent Non-Executive Director is available to meet major Shareholders, if they so wish. Restrictions on voting No member shall be entitled to vote at any general meeting in respect of any shares held by that member if any call or other sum then payable by that member in respect of that share remains unpaid. Currently, all issued shares are fully paid. Private Shareholders can keep up-to-date through updates provided on the 4imprint corporate website, investors.4imprint. com and through the provision of the Annual and Interim Reports and Accounts. Shareholders are invited at any time to write to the Non-Executive Chairman or any other Director to express their views and the AGM provides an opportunity for Shareholders to address their questions to the Board in person. Share capital Details of the Company’s share capital are provided in the Directors’ Report on page 24. Going concern The going concern statement is on page 14. 27 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information GOVERNANCE Statement on Corporate Governance continued Composition of the Nomination Committee I chair the Nomination Committee and I am an Independent Non-Executive Director. The other member of the Committee during the period was Mr. J.A. Warren, the Senior Independent Non-Executive Director. Mr. P.S. Moody became a member of the Committee in February 2016, but stepped down upon becoming Non-Executive Chairman on 1 December 2016. The Chairman of the Company is usually invited to attend formal meetings of the Committee. The Company Secretary may be invited to attend meetings of the Nomination Committee, in his capacity as Company Secretary. Meetings of the Nomination Committee The Nomination Committee meets as frequently as is required to fulfil its duties. When there are no specific decisions or recommendations to be made, the Chairman of the Committee consults the other member of the Committee as necessary. During the period ended 31 December 2016 there were no meetings of the Nomination Committee. In relation to the appointment of Mr. P.S. Moody as Non-Executive Chairman to replace Mr. J.W. Poulter, the list of potential candidates meant that a meeting of the Nomination Committee would not have been quorate. Accordingly, an additional Board Meeting was convened under the Chairmanship of the Senior Independent Director and comprised the Chief Executive Officer, the Chief Financial Officer and the Corporate Services Director. This Board Meeting considered the applications of the potential applicants and decided on the appointment of the Non-Executive Chairman. C.J. Brady Chairman of the Nomination Committee 8 March 2017 Nomination Committee I am pleased to present my report to Shareholders as Chairman of the Nomination Committee. Responsibilities of the Nomination Committee The responsibilities of the Nomination Committee include: (i) reviewing the structure, size and composition of the Board and making recommendations to the Board with regard to any adjustments that are necessary; (ii) identifying and nominating candidates for the approval of the Board to fill Board vacancies as and when they arise; and (iii) putting in place plans for succession at Board level. The Company supports the Code provision that Boards should consider the benefits of diversity, including gender, when making appointments and is committed to ensuring diversity, not just at Board level, but also across the Company’s senior management, not least because it believes that business benefits from the widest range of perspectives and backgrounds. The Company’s aim as regards the composition of the Board is that it should have a balance of experience, skills and knowledge to enable each Director and the Board as a whole to discharge their duties effectively. Whilst the Company agrees that it is appropriate that it should seek to have diversity on its Board, it does not consider that this can be best achieved by establishing specific quotas and targets and appointments will continue to be made based wholly on merit. The Nomination Committee has terms of reference which were reconsidered and approved by the Board of the Company at its Board meeting on 13 December 2016. These terms of reference are available for inspection at the Company’s registered office during normal business hours. Appointment and replacement of Directors Directors may be appointed by the Company by ordinary resolution or by the Board. A Director appointed by the Board holds office only until the next AGM and is then eligible for election by the Shareholders. At every AGM of the Company, all Directors put themselves forward for re-election. The office of Director shall be vacated if: (a) he or she resigns or offers to resign and the Board resolves to accept such offer; (b) he or she is, or has been, suffering from mental ill health; (c) he or she becomes bankrupt or compounds with creditors generally; (d) he or she is prohibited by law from being a Director; (e) he or she ceases to be a Director by virtue of the provisions of the Companies Act; or (f) he or she is removed from office pursuant to the Articles of Association. 28 4imprint Group plc Annual Report and Accounts 2016 Audit Committee I am pleased to present my report to Shareholders as Chairman of the Audit Committee. The Audit Committee meets at least twice each year and has an agenda linked to events in the Group’s financial calendar. The Audit Committee met twice during 2016. Responsibilities of the Audit Committee The Audit Committee is responsible for maintaining an appropriate relationship with the Group’s external auditors and for reviewing the Group’s internal financial controls and the audit process. It aids the Board in seeking to ensure that the financial and non-financial information supplied to Shareholders presents a fair, balanced and understandable assessment of the Group’s performance and position. The Committee reviews the effectiveness, objectivity and independence of the external auditors and also considers the scope of their work and fees paid for audit and non-audit services. The Audit Committee has terms of reference which were reconsidered and approved by the Board at its meeting on 13 December 2016. These terms of reference are available for inspection at the Company’s registered office during normal business hours. The Board considers that the Audit Committee members have an understanding of the following areas: • the principles of, and developments in, financial reporting including the applicable accounting standards and statements of recommended practice; • key aspects of the Group’s operations including corporate policies and the Group’s internal control environment; • matters which may influence the presentation of the accounts; • the principles of, and developments in, company law, sector- specific laws and other relevant corporate legislation; • the role of internal and external auditing and risk management; and • the regulatory framework for the Group’s businesses. Composition of the Audit Committee I chair the Audit Committee and I am the Senior Independent Non-Executive Director. I am a chartered accountant and was Group Finance Director of United Biscuits (Holdings) Plc and WH Smith PLC. The Board is of the view that I have recent and relevant financial knowledge and experience derived from current roles as Chairman of the Audit Committee at Bloomsbury Publishing Plc, Welsh Water and Greencore Group plc. The other member of the Committee during the period was Mr. C.J. Brady, an Independent Non-Executive Director. Mr. P.S. Moody became a member of the Committee in February 2016, but stepped down on becoming Non-Executive Chairman on 1 December 2016. The Chairman of the Company and the Chief Financial Officer are normally invited to attend meetings of the Audit Committee as is, from time to time, the Group Financial Controller. The Corporate Services Director attends meetings of the Audit Committee in his capacity as Company Secretary. How the Audit Committee discharges its responsibilities The Committee has unrestricted access to Company documents and information, as well as to employees of the Company and the external auditors. Members of the Committee may, in pursuit of their duties, take independent professional advice on any matter, at the Company’s expense. The Audit Committee Chairman reports the outcome of Audit Committee meetings to the Board. In order to fulfil its terms of reference, the Audit Committee receives and reviews presentations and reports from the Group’s senior management and the external auditors. During the period, the Audit Committee formally reviewed draft Interim and Annual Reports and associated interim and year end results’ announcements. These reviews considered: • the accounting principles, policies and practices adopted in the Group’s accounts and proposed changes to them; and • significant accounting issues and areas of judgement and complexity. The Audit Committee is required to assist the Board to fulfil its responsibilities relating to the adequacy and effectiveness of the control environment and the Group’s compliance with the Corporate Governance Code. To fulfil these duties, the Audit Committee reviewed: • the external auditors’ review of internal controls and audit highlights memoranda; • any reports on the systems of internal controls and risk management; and • any reports on identified frauds perpetrated against the Group. The Audit Committee is responsible for the development, implementation and monitoring of the Group’s policy on external audit. The Group’s policy on external audit prohibits certain types of non-audit work from being performed by the auditor, particularly in cases where auditor objectivity and independence would be put at risk. During 2016, the Group’s auditors provided non-audit services in respect of advice on the pension buy-out. Before any significant non-audit work is commissioned, the nature and extent of such work is considered, initially by the Chief Financial Officer and the Corporate Services Director, to determine if such work would put at risk auditor objectivity and independence. This process includes discussion with the audit partner at PricewaterhouseCoopers LLP. If there is any concern that auditors’ objectivity and independence would be put at risk, the matter will be referred to the Audit Committee, prior to commissioning. For the area referred to above, after following the process described in this paragraph, it was considered that PricewaterhouseCoopers LLP was the most suitable firm to perform the work given their long-standing knowledge of the legacy defined benefit scheme. In accordance with new EU regulation, the appointment of PricewaterhouseCoopers LLP to provide advice in respect of pensions ceased on 31 December 2016. 29 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information GOVERNANCE Statement on Corporate Governance continued Details of fees paid to the auditors in respect of audit and non-audit services are shown in note 2 to the consolidated financial statements. To fulfil its responsibility regarding the independence of the external auditors, the Audit Committee reviewed: • changes and rotation of external audit team members in the audit plan for the current year; • a report from the external auditors describing their arrangements to identify, report and manage any conflicts of interest; and • the nature and extent of non-audit services provided by the external auditors. To assess the effectiveness of the external auditors, the Audit Committee reviewed: • the relevant skills and experience of the audit partner and team and their knowledge of the business; • planning and scope of the audit and identification of areas of audit risk; • execution of the audit plan; and • formal reports presented to the Audit Committee. To fulfil its responsibility for oversight of the external audit process, the Audit Committee reviewed: • the terms, areas of responsibility, associated duties and scope of the audit as set out in the external auditors’ engagement letter for the forthcoming year; • the external auditors’ overall work plan for the forthcoming year; • the external auditors’ fee proposal; • the major issues that arose during the course of the audit and their resolution; • key accounting and audit judgements; • the levels of errors identified during the audit; and • recommendations made by the external auditors in their management letters and the adequacy of management’s response. Main activities of the Committee during the period ended 31 December 2016 During the period ended 31 December 2016, the Audit Committee’s business has included the following items: • consideration and approval of half year results; • consideration and approval of full year results; • principal judgmental accounting matters affecting the Group based on reports from both the Group’s management and the external auditors; • review of external audit plans and reports; • consideration of fraud and loss prevention measures in the Group; • consideration and approval of risk assessments relating to the Group’s business; and • specific investigations as required. Financial reporting and significant financial judgments The Committee assesses whether suitable accounting policies have been adopted and whether management has made appropriate estimates and judgments. The Committee reviews accounting papers prepared by management which provide details on the main financial reporting judgments. 30 The Committee also reviews reports by the external auditors on the half year and full year results which highlight any issues arising from the work undertaken in respect of the half year review and year end audit. Specific areas of audit and accounting risk reviewed by the Committee were: Accounting for defined benefit pension scheme The defined benefit pension scheme is material to the financial position of the Group. The amount shown in the balance sheet is sensitive to changes in key actuarial assumptions. The Committee reviewed the appropriateness and consistency of these assumptions and the auditors confirmed that the assumptions used were reasonable and within an acceptable range. Full disclosure of the pension scheme is provided in note 17 to the financial statements, which includes the key period end assumptions on page 66 and the sensitivities on page 67. Supplier rebates As in previous years, the business accrued rebates from key suppliers based on agreed fixed rates relating to the volumes of goods purchased in a calendar year. The Committee does not consider the Group’s rebates to be highly complex as: they are volume-related; agreement periods are coterminous with the Group’s accounting period; there are written agreements in place with suppliers; and historically rebates have been collected. However, FRC guidance has highlighted this as an area of focus, as the rebates are material to the results for the period. The Committee has discussed any judgements made in accruing supplier rebates and the collectability of these amounts with management and the external auditors. The Committee is satisfied that the amounts of income accrued are appropriate. Interaction with the Financial Reporting Council The Company received, from the Financial Reporting Council (“FRC”), a letter dated 14 October 2016 which indicated that the FRC had carried out a review of the Company’s Report and Accounts for the year ended 2 January 2016. The letter indicated that there were no questions or queries which the FRC wished to raise as at the date of the letter. The letter also indicated that it provided no assurance that the Annual Report and Accounts for the year ended 2 January 2016 were correct in all material respects and noted that the FRC’s role is not to verify the information provided, but to consider compliance with reporting requirements. The letter was written on the basis that the FRC accepted no liability for reliance on the letter by the Company or any third party. Financial statements The Committee considered, and was satisfied with, management’s presentation of the financial statements for the period ended 31 December 2016 and, in particular, the presentation of certain items as exceptional items. 4imprint Group plc Annual Report and Accounts 2016 The auditors confirmed to the Committee that they were not aware of any material misstatements during the course of their work. The Committee is satisfied that the judgments made by management are reasonable and that appropriate disclosures have been included in the financial statements. The Group has a “Whistleblowing” policy which contains arrangements for the Company Secretary to receive, in confidence, complaints on accounting, risk issues, internal controls, auditing issues and related matters for reporting to the Audit Committee as appropriate. After reviewing the presentation from management and following discussions with the auditors, the Committee is satisfied that: • the financial statements appropriately address the critical judgments and key estimates both in respect of the amounts reported and the related disclosures in the financial statements; • the processes used for determining the value of the assets and liabilities have been appropriately reviewed, challenged and are sufficiently robust; and • the Annual Report and Accounts taken as a whole are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Group’s position and performance, business model and strategy and should be recommended to the Board as such. In arriving at the conclusion that the Annual Report and Accounts were fair, balanced and understandable the Committee considered: • any feedback provided by Shareholders on the Group’s 2015 Annual Report and Accounts and trading updates, and information received by the Board throughout the period; • the processes underpinning the compilation of the Annual Report and the Group’s reporting governance framework; and • the reviews and findings of the Group’s auditors. Auditor independence PricewaterhouseCoopers LLP, or its predecessor firms, has been the Company’s auditors since 1992. The Audit Committee considers that the relationship with the auditors is working well and remains satisfied with their effectiveness. Accordingly, the Committee has not considered it necessary to date to require the firm to retender for the audit. However, the Committee has noted the guidance from the Financial Reporting Council and changes in the EU to the regulatory framework and, accordingly, anticipates a retendering process being undertaken in 2019. In the meantime, the Committee will continue to keep the matter under review. The external auditors are required to rotate the audit partner responsible for the Group and subsidiary audits every five years. The current audit partner was first appointed in respect of the 2015 financial period ended 2 January 2016. There are no contractual obligations restricting the Company’s choice of external auditor. Taking into consideration the external auditors’ knowledge of the Group and level of experience, the Audit Committee has recommended to the Board that the external auditors are reappointed. Given the present structure of the Group, the Board does not currently consider the establishment of a separate internal audit function to be necessary. However, this matter is reviewed by the Board at least annually. As necessary, the Audit Committee holds private meetings with the external auditors to review key issues within their spheres of interest and responsibility. As Chairman of the Committee, I will be present at the Annual General Meeting to answer questions on this report, matters within the scope of the Audit Committee’s responsibilities and any significant matters brought to the Audit Committee’s attention by the external auditors. Internal control The control system of the Group is intended to manage rather than eliminate the risk of failure to meet the Group’s objectives and any such system can only provide reasonable and not absolute assurances against material misstatement or loss. The effectiveness of the control system including financial, operating, compliance and risk management is reviewed by the Board at least annually. Additionally, through the management process outlined in the Statement on Corporate Governance on pages 26 and 27 the Group operates a continuous process of identifying, evaluating and managing the significant risks faced by each business and the Group as a whole. This process, which has been in place throughout 2016 and up to the date of the approval of this Annual Report, complies with the FRC guidance and includes the following: • a defined organisational structure with appropriate delegation of authority; • formal authorisation procedures for all investments; • clear responsibilities on the part of management for the maintenance of good financial controls and the production and review of detailed, accurate and timely financial management information; • the control of financial risks through clear authorisation levels; identification of operational risks and the development of • mitigation plans by the senior management; • regular reviews of both forward looking business plans and historic performance; and • regular reports to the Board from the Executive Directors. The internal controls extend to the financial reporting process and the preparation of the consolidated financial statements. The basis of preparation of the consolidated financial statements is set out on page 51. The internal control process will continue to be monitored and reviewed by the Board which will, where necessary, ensure improvements are implemented. During the period the Board has undertaken a review of the effectiveness of internal controls and systems. No material matters were identified. J.A. Warren Chairman of the Audit Committee 8 March 2017 31 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information GOVERNANCE Annual Statement by the Chairman of the Remuneration Committee 4imprint’s strategy is to develop its position as the leading direct marketer of promotional products in the fragmented markets in which it operates. Recent years have seen sustained growth in the Group and in both the earnings per share and share price of the Company. The Remuneration Committee and the Board aim to ensure that the Company has the best possible management to continue that growth and the creation of further shareholder value and to reward management accordingly. The Committee’s view regarding remuneration is that it should: (i) be competitive when compared to that of organisations of similar size, complexity and type; (ii) be structured so that remuneration is linked to the long-term growth in earnings per share and in the shareholder value of the Company; (iii) be clear, easy to understand and motivating; (iv) not promote unacceptable behaviour or encourage unacceptable risk taking; and (v) be structured to avoid reward for failure. 2015 Incentive Plan The 2015 Incentive Plan (the “Plan”) is designed to support the long-term strategy of the Group, in particular its increasing focus on the business in North America. The implementation of the Plan reflects the desire of the Remuneration Committee to ensure that, given the greater focus of the business in North America, key US-based beneficiaries are appropriately retained and incentivised. During 2016, the first awards under the Plan were made to the Chief Executive Officer, the Chief Financial Officer and seven senior managers. The Plan is directly linked to the annual bonus of senior employees. The Remuneration Committee will assess senior employee performance against the criteria set each year to determine the level of achievement of performance and therefore the annual bonus to be paid in respect of such year. The performance targets for the 2016 period are set out below. Under the provisions of the Plan, 50% of the annual bonus will be deferred into shares through the award of nil cost options or conditional share awards. The awards will usually be made during the 42 day period following the announcement of the Company’s full year results. The number of nil cost options or conditional share awards will be determined by dividing the amount of the annual bonus being deferred by the price of a share on 31 December of the year preceding that in which the awards are made. For example, for awards made in 2016, the share price used in the determination was that on 31 December 2015. In respect of the period ended 31 December 2016, the Remuneration Committee has approved an annual bonus for those participating in the Plan equal to 40% of base salary in respect of the beneficiaries based in North America and 20% of base salary in respect of the beneficiary based in the UK with 50% of annual bonus being deferred under the terms of the Plan. Given a share price of £17.75 on 31 December 2016, this is expected to result in the award of a total of 16,150 nil cost options or conditional share awards. Other than in exceptional circumstances, any deferred awards will not vest earlier than three years from the date of the grant of the nil cost option or award of conditional shares and such vesting will be conditional on the beneficiary being in employment for that period. If, before that period has expired, a participant leaves employment as a good leaver or, in the event of a takeover or change of control, the award will vest in full (or, if the Board should so decide, on a time pro-rated basis). The Plan contains “malus” provisions such that if, prior to the date on which an award vests, the annual bonus from which it was determined is found to be incorrect as a result of either a material misstatement in the audited accounts of the Group or the conduct of a beneficiary amounting to fraud or gross misconduct, then the Board may reduce, to nil, the number of shares awarded. 2016 performance targets In respect of the Chief Executive Officer and the Chief Financial Officer, the performance targets for the period ended 31 December 2016 were set using a combination of targets for both (i) revenue growth percentage and (ii) return on sales (operating margin) percentage. It was considered appropriate by the Remuneration Committee that these performance targets should be based on the results of the North American Direct Marketing business, since this represents 97% of Group revenue, and its financial performance is the dominant factor influencing the Group’s financial results. The bonus percentage reward scenarios were based on a performance grid with (i) the vertical axis representing return on sales results ranging from a base of 7.3% and rising at 0.1% intervals to 8.0%, and (ii) the horizontal axis representing revenue growth percentages rising at 1% intervals from a base of 13% growth to a maximum of 23% growth. Examples of different scenarios under the grid are as follows: • 13% revenue growth, at 7.3% return on sales: nil bonus (floor). • 23% revenue growth, at 8.0% return on sales: 100% bonus, split half cash and half deferred shares (ceiling). • 16% revenue growth, at 7.6% return on sales: 60% bonus, split half cash and half deferred shares (on-target performance). 32 4imprint Group plc Annual Report and Accounts 2016 Given its focus on the Directors and senior managers in North America, Mr. A.J. Scull, the remaining UK-based Executive Director, does not participate in the Plan. His 2016 salary has remained at its previous level of £185,000. In January 2017 the Remuneration Committee awarded him a bonus of 8% of annual salary, payable in cash, for 2016. The Committee reserves the right to make payments outside its approved policy but only in exceptional circumstances. The Committee would only use this right where it believes that this is in the best interests of the Company and when it would be disproportionate to seek specific approval from a general meeting. No such payments have been made during the period. Remuneration is a topic upon which Shareholders have differing views, but I hope that the Group’s principles of clarity, relative simplicity and balance will help to explain what the Committee does and to enable Shareholders to understand the Remuneration Policy. In this context, I am pleased to note that at the 2016 Annual General Meeting the Remuneration Report was approved by 81.18% of Shareholders who voted (which excluded 1,350,133 votes withheld). C.J. Brady Chairman of the Remuneration Committee 8 March 2017 The bonus percentages payable at different performance levels were chosen specifically in accordance with the Group’s financial strategy to maximise organic revenue growth whilst maintaining a broadly stable operating margin percentage. The maximum percentage of salary that could be awarded as bonus was 100%, and in each scenario the cash element of the bonus had to be self-financed in the operating result. The actual performance of the North American Direct Marketing business in 2016 was 13% revenue growth at a 7.7% return on sales. According to the performance grid this resulted in a bonus payable of 40% of base salary, split 20% in cash and 20% in deferred shares. 2017 performance targets The performance targets for 2017 have been agreed by the Committee based on the principles set out in the Plan. As for 2016, these targets consist of both revenue growth percentage and operating margin percentage ranges for the performance of the North American business. The exact targets are not disclosed for commercial reasons. Board of Directors Mr. K. Lyons-Tarr was appointed Chief Executive Officer of the Group with effect from 31 March 2015. In January 2017 the Remuneration Committee awarded him a bonus of 40% of his annual salary, half of which will be paid in cash and half of which will be used for an award of conditional shares pursuant to the Plan. The number of shares to be awarded is 4,121. Mr. D.J.E. Seekings was appointed Chief Financial Officer with effect from 31 March 2015. In January 2017 the Remuneration Committee awarded him a bonus of 40% of his annual salary, half of which will be paid in cash and half of which is to be used for an award of conditional shares pursuant to the Plan. The number of shares to be awarded is 2,747. 33 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information GOVERNANCE Remuneration Report This report sets out the information required by the Companies Act 2006, Schedule 8 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 and the Listing Rules of the Financial Conduct Authority. This report is unaudited except where otherwise stated. An ordinary resolution to approve this report will be put to the AGM on 9 May 2017. Remuneration governance Remuneration Committee composition The Remuneration Committee is a committee whose membership is comprised solely of Independent Non-Executive Directors, being Mr. C.J. Brady (Chairman of the Committee), Mr. J.A. Warren and Mr. P.S. Moody (from 1 February 2016 until 1 December 2016). The Committee meets at least once a year and may invite other attendees as it sees fit. The Committee remains mindful of the remuneration of employees when reviewing changes in executive pay. Remuneration Committee responsibilities The principal duties of the Remuneration Committee are reflected in its terms of reference and include the following: • to determine and recommend to the Board the overall remuneration policy of the Company; • to determine and recommend to the Board the remuneration of the Executive Directors; • to monitor and review the level and structure of remuneration for senior management; • to determine the targets for any performance-related bonus and share incentive schemes operated for Executive Directors and senior management; and • to review and approve any material termination payments. The remuneration of Non-Executive Directors is determined by the Non-Executive Chairman of the Board and the Executive Directors. The Remuneration of the Non-Executive Chairman of the Board is determined by the Board (excluding the Non-Executive Chairman). Remuneration Committee activities in the period ended 31 December 2016 The Remuneration Committee met twice during the period ended 31 December 2016 and the following matters were considered: Salaries Approving the salaries of the Executive Directors for 2016 and monitoring and reviewing the level and structure of salaries for senior management for 2016. In the case of the Chief Executive Officer and the Chief Financial Officer, the increases in basic annual salary in 2016 were 12%. The Executive Chairman became Non-Executive in September 2015 and the increase in 2016 basic annual salary for the Chief Executive Officer reflected the additional duties and responsibilities which he assumed from that date. The Chief Financial Officer, having been appointed in April 2015, progressively assumed additional duties and responsibilities thereafter and they were reflected in the increase in 2016 basic annual salary. 34 At its meeting on 17 January 2017, the Remuneration Committee awarded a 2017 basic annual salary increase of 3% to each of the Chief Executive Officer and the Chief Financial Officer, this being in line with the increase in 2017 basic annual salary for all employees. Bonuses Approving the bonuses for the Executive Directors for 2015 and monitoring and reviewing the level of bonuses for senior management for 2015. Approving the structure of the bonus criteria for Executive Directors and monitoring and reviewing the level and structure of bonuses for senior management for 2016. Future remuneration policy The Company has a well-established and clear remuneration policy which, in the view of the Committee, has made an important contribution to the success of the Company over a sustained period. The policy includes providing Executive Directors with remuneration packages which are: (i) competitive when compared to that of organisations of similar size, complexity and type; (ii) structured so that remuneration is linked to the long-term growth in earnings per share and in the shareholder value of the Company; (iii) clear, easy to understand and motivating; (iv) designed not to promote unacceptable behaviour or encourage unacceptable risk taking; and (v) structured to avoid reward for failure. At the 2015 AGM Shareholders approved the remuneration policy, which can be found on the corporate website at http:// investors.4imprint.com/investors/shareholder-information/ agm-company-documents. Elements of remuneration Remuneration for Executive Directors comprises both fixed and variable elements. The principal component of the fixed element is a salary, which is set at an appropriate level for the size and type of the Company to retain the quality of management it requires to further the Board’s objectives, but which is not excessive. The variable element of remuneration is designed to incentivise and motivate management to meet annual performance targets and reward performance. The principal component of the variable element is an annual bonus, half of which is paid in cash and half of which is deferred into shares, through the award of nil cost options or conditional share awards granted in accordance with the terms of the 2015 Incentive Plan. The targets for the annual bonus, which is capped at a maximum of 100% of annual base salary, except in the case of the remaining UK-based Executive Director, where the maximum is 50%, are set by the Remuneration Committee each year and evolve with the growth objectives of the Group. Statement of voting at general meeting At the Annual General Meeting held on 10 May 2016, the Directors’ Remuneration Report received the following votes from Shareholders: For 81.18%; Against 18.82% and 1,350,133 votes withheld. 4imprint Group plc Annual Report and Accounts 2016 Total Shareholder Return The graph below illustrates the Company’s Total Shareholder Return performance relative to constituents of the FTSE SmallCap and FTSE SmallCap media of which the Company is a constituent. The graph shows performance of a hypothetical £100 invested over the period. 2,000 1,750 1,500 1,250 1,000 750 500 250 0 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 4IMPRINT FTSE SMALLCAP FTSE SMALLCAP MEDIA Change in Executive Chairman/Chief Executive Officer’s total remuneration 2009 £’000 2010 £’000 2011 £’000 2012 £’000 2013 £’000 2014 £’000 K. Lyons-Tarr J.W. Poulter K.J. Minton Total remuneration Annual variable award Percentage versus max opportunity Long-term incentive Vesting rate 55 55 40 172 212 n/a 100% 120 120 n/a 738 1,380 738 1,380 180 180 n/a n/a 100% 60% 40% – – – 33.30% 66.70% – – – 2015 £’000 326 45 2016 £’000 481 371 481 Mr. K. Lyons-Tarr was appointed Group Chief Executive Officer on 31 March 2015. Prior to that the Executive Chairman, Mr. J.W. Poulter, fulfilled the role. Percentage change in remuneration of Chief Executive Officer and employees The table below shows the percentage change in remuneration of the Director undertaking the role of Chief Executive Officer and the Company’s employees as a whole between 2016 and 2015. Percentage increase in remuneration in 2016 compared with remuneration in 2015 Salary Benefits Annual bonus Chief Executive Officer Average pay based on all employees 12% 6% -25% 0%* 7% -22% * The average salary increase shown in the table above for all employees is distorted by new employees starting in the period being principally at junior staff levels. Existing employees typically received a 2-3% salary increase in 2016. 35 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information GOVERNANCE Remuneration Report continued Relative importance of spend on pay The table below shows the Group’s actual spend on pay relative to dividends: Wages and salaries Dividends paid 2016 $m 40.23 12.14 2015 $m Percentage change 38.04 9.60 6% 26% In 2016, in light of the reduced future contributions to the pension scheme, along with the ongoing cash generative nature of the Group’s trading operations, the Board decided to enhance the dividend payments, setting a higher base for the progressive dividend policy. Reward scenarios The chart below shows how the composition of the Executive Directors’ remuneration packages for 2017 may vary at different levels of performance under the policy set out in this report as a percentage of total remuneration opportunity. Kevin Lyons-Tarr ($’000) David Seekings ($’000) Andrew Scull (£’000) 1000 800 600 400 200 0 49% 32% 100% 68% 51% Base On Target Maximum 1,000 800 600 400 200 0 800 600 400 48% 31% 100% 69% 52% 200 100% 6% 94% 11% 89% Base On Target Maximum 0 Base On Target Maximum Base remuneration comprises fixed elements of pay being base salary, benefits in kind and pension contributions or pay in lieu of pension contributions. The base salaries are those approved at the Remuneration Committee meeting in January 2017. Pension contributions or pay in lieu of pension contributions are a fixed percentage of base salary and benefits in kind are based on 2016 figures. On target includes base remuneration plus the bonus payable if budget is met. This results in bonus of 50% of base salary for the Chief Executive Officer and Chief Financial Officer, half of which is in the form of conditional share awards with a vesting period of three years from the award date, and a bonus of 8% of base salary, payable in cash, for the Corporate Services Director. Maximum shows the maximum bonus payable if stretch targets set by the Remuneration Committee are met. In the case of the Chief Executive Officer and Chief Financial Officer this is 100% of base salary, again with half in the form of conditional share awards with a vesting period of three years from the award date. The Corporate Services Director’s bonus is payable in cash. Remuneration implementation Current service agreements Mr. A.J. Scull (the “UK-based Executive Director”) has a rolling service contract which continues until terminated by the expiry of twelve months’ written notice from the Company to the Director. The service contract provides for participation in a discretionary bonus scheme, the provision of a car (or car allowance) and pay in lieu of pension entitlements. The contractual termination payment in such circumstances would comprise up to twelve months’ payments, equivalent to the notice period, in respect of salary, car allowance, pay in lieu of pension entitlements and contributions to healthcare and income protection schemes. Mr. K. Lyons-Tarr and Mr. D.J.E. Seekings (the “US-based Executive Directors”) have rolling employment agreements with 4imprint, Inc. which continue until terminated by the expiry of twelve months’ written notice from that Company to the Director. The employment agreements for the US-based Executive Directors provide for participation in a discretionary bonus scheme and entitlement to benefits generally available to employees of 4imprint, Inc. from time to time including, for example, retirement, disability, group accident, life and health insurance programmes. The contractual termination payment in such circumstances would comprise up to twelve months’ payments, equivalent to the notice period in respect of salary and other non-discretionary components. 36 4imprint Group plc Annual Report and Accounts 2016 Any commitment made to the Executive Directors by the Company under their service contracts or otherwise which is consistent with the approved remuneration policy in force at the time that commitment was made will be honoured, even where it is not consistent with the policy prevailing at the time such commitment is fulfilled. Name K. Lyons-Tarr Contract date 27 July 2009 A.J. Scull 8 November 2004 D.J.E. Seekings 27 July 2009 Notice period (i) from Company (ii) from Director (i) Twelve months (ii) Six months (i) Twelve months (ii) Six months (i) Twelve months (ii) Six months Contractual termination payment (i) Twelve months’ contractual benefits (ii) n/a (i) Twelve months’ contractual benefits (ii) n/a (i) Twelve months’ contractual benefits (ii) n/a Letters of appointment for the Non-Executive Chairman and the Non-Executive Directors Mr. P.S. Moody, the Non-Executive Chairman, has a letter of appointment dated 1 February 2016. The appointment is for a period of three years from 1 February 2016 after which it is renewable by mutual agreement subject to the provisions in respect of reappointment contained in the Company’s Articles of Association. The letter of appointment indicates that the appointment will terminate, forthwith, without any entitlement to compensation, if, at any time: (a) he is not reappointed as a Director of the Company upon retirement (by rotation or otherwise) pursuant to the Company’s Articles of Association; or (b) he is removed as a Director of the Company by resolution passed at a general meeting of the Company; or (c) he ceases to be a Director of the Company by reason of his vacating or being removed from office pursuant to any provisions of the Company’s Articles of Association. The letter of appointment does not provide for: (i) any participation in an annual bonus scheme; (ii) any pension provision; or (iii) any car allowance. Mr. J.A. Warren has a letter of appointment dated 28 May 2015 and Mr. C.J. Brady has a letter of appointment dated 11 June 2015. Their respective appointments are for three years, after which they are renewable by agreement with the Company, subject to the provisions in respect of reappointment contained in the Company’s Articles of Association. The letter of appointment indicates that the appointment will terminate, forthwith, without any entitlement to compensation, if, at any time (a), (b) or (c) above apply. The Executive Directors’ service contracts and the Non-Executive Directors’ letters of appointment are available for inspection at the Company’s registered office. The following information on pages 37 to 39 has been subject to audit. Apart from Mr. K. Lyons-Tarr and Mr. D.J.E. Seekings, Directors are paid in Sterling. It is therefore considered more appropriate to present the Directors’ remuneration in Sterling. The US dollar remuneration amounts for Mr. K. Lyons-Tarr and Mr. D.J.E. Seekings are disclosed separately over the page. 37 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information GOVERNANCE Remuneration Report continued Directors’ remuneration – single total figure 2016 Executive K. Lyons-Tarr A.J. Scull D.J.E. Seekings Non-Executive P.S. Moody (c) J.W. Poulter (d) J.A. Warren C.J. Brady Total Basic salary/fee £ Benefits in kind £ Annual bonus (a) £ Total emoluments £ Employers pension contributions/ pay in lieu (b) £ Total remuneration 2016 £ 330,879 185,000 223,166 39,167 110,000 35,000 35,000 12,649 18,050 13,086 132,920 15,000 88,613 – – – – – – – – 476,448 218,050 324,865 39,167 110,000 35,000 35,000 4,908 27,750 7,136 481,356 245,800 332,001 – – – – 39,167 110,000 35,000 35,000 958,212 43,785 236,533 1,238,530 39,794 1,278,324 Benefits in kind include car allowance, medical insurance, life assurance and income protection. (a) For Mr. K. Lyons-Tarr and Mr. D.J.E. Seekings 50% of the annual bonus is payable in the form of conditional share awards pursuant to the terms of the 2015 Incentive Plan. (b) Mr. A.J. Scull received £27,750 pay in lieu of pension contributions. (c) For the period from 1 February 2016 when Mr. P.S. Moody was appointed. (d) For the period until 30 November 2016 when Mr. J.W. Poulter retired. (e) The former Director, Ms. G. Davies, was paid £37,322 compensation for loss of office and received benefits in kind of £422 in 2016. 2015 Executive J.W. Poulter G. Davies (e) K. Lyons-Tarr A.J. Scull D.J.E. Seekings Non-Executive J.W. Poulter J.A. Warren C.J. Brady* S.J. Gray* Total Basic salary/fee £ Benefits in kind £ Annual bonus (a) £ Total emoluments £ Employers pension contributions/ pay in lieu (b) £ Total remuneration 2015 £ 90,000 46,250 261,191 185,000 132,385 30,000 35,000 19,385 26,250 – 3,514 10,610 17,017 8,811 45,000 23,125 157,017 92,500 80,756 – – – – – – – – 135,000 72,889 428,818 294,517 221,952 30,000 35,000 19,385 26,250 – 6,938 6,035 27,750 4,394 – – – – 135,000 79,827 434,853 322,267 226,346 30,000 35,000 19,385 26,250 825,461 39,952 398,398 1,263,811 45,117 1,308,928 (e) Ms. G. Davies was paid £186,208 compensation for loss of office and received benefits in kind of £1,038, in 2015, after ceasing to be a Director on 31 March 2015. * From appointment or until resignation. K. Lyons-Tarr and D.J.E. Seekings US dollar remuneration 2016 K. Lyons-Tarr D.J.E. Seekings 2015 K. Lyons-Tarr D.J.E. Seekings 38 Basic salary/fee $ Benefits in kind $ Annual bonus $ 448,077 302,212 17,130 17,721 180,000 120,000 Total emoluments $ 645,207 439,933 Employers pension contributions $ Total remuneration $ 6,646 9,663 651,853 449,596 399,231 202,867 16,216 13,502 240,000 123,750 655,447 340,119 9,225 6,733 664,672 346,852 4imprint Group plc Annual Report and Accounts 2016 Directors’ interests in the share capital of the Company Details of the beneficial interests in the number of ordinary shares held in the Company by each Director and their connected persons are set out below. Holding at 31 December 2016 Holding at 2 January 2016* P.S. Moody J.W. Poulter K. Lyons-Tarr A.J. Scull D.J.E. Seekings J.A. Warren C.J. Brady * or date of appointment Nil Nil N/A 120,000 251,827 121,617 176,269 5,000 Nil 251,827 100,000 176,269 5,000 Nil There has been no change in the Directors’ interests in the share capital of the Company since 31 December 2016 to the date of this report. Directors’ options over the share capital of the Company Details of share options held by the Directors are set out below: J.W. Poulter – SAYE K. Lyons–Tarr – US Sharesave – 2015 Incentive Plan A.J. Scull – SAYE – SAYE D.J.E. Seekings – US Sharesave – 2015 Incentive Plan Holding at 3 Jan 2016 Granted during the year Exercised Holding at 31 Dec 2016 Date of grant Exercise price From To Exercisable 3,383 3,383 – 31 Oct 2012 266p 1 Jan 2016 30 Jun 2016 – – 1,209 6,376 – – 1,209 11 May 2016 6,376 30 Mar 2016 $16.49 19 July 2018 19 July 2018 nil 30 Mar 2019 30 Mar 2019 3,383 – – – 1,761 1,209 4,383 3,383 – – 31 Oct 2012 1,761 11 May 2016 266p 1022p 1 Jan 2016 30 Jun 2016 1 July 2019 31 Dec 2019 – – 1,209 11 May 2016 4,383 30 Mar 2016 $16.49 19 July 2018 19 July 2018 nil 30 Mar 2019 30 Mar 2019 Gains on exercise of options in the period were £35,352 for both Mr. J.W. Poulter and Mr. A.J. Scull. During 2016 the middle-market value of the share price ranged from £11.40 to £17.83 and was £17.75 at the close of business on 31 December 2016. During the period 26,128 awards of nil-cost options or conditional shares were made under the Plan, in respect of 2015 bonus awards. The intention is to make awards in 2017 in accordance with the rules of the Plan, in respect of 2016 bonus awards. Details of share options granted by 4imprint Group plc as at 31 December 2016 are given in note 21. None of the terms and conditions of the share options were varied during the period. The performance criteria for all Directors’ options were consistent with the remuneration policy. Once an award has vested, the exercise of share options is unconditional, subject to the Rules of the option grant. On behalf of the Board C. J. Brady Chairman of the Remuneration Committee 8 March 2017 39 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information GOVERNANCE Statement of Directors’ Responsibilities in respect of the Annual Report, the Directors’ Remuneration Report and the financial statements The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union. Under company law the 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 the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 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. The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company’s performance, business model and strategy. Each of the Directors, whose names and functions are listed in the Board of Directors on pages 22 and 23 confirm that, to the best of their knowledge: • the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and • the Strategic Report, Chief Executive’s Review, Financial Review and Directors’ Report contained on pages 6 to 25 include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces. By order of the Board Andrew Scull Company Secretary 8 March 2017 40 4imprint Group plc Annual Report and Accounts 2016 FINANCIAL STATEMENTS Independent Auditors’ Report to the members of 4imprint Group plc Report on the Group financial statements Our opinion In our opinion, 4imprint Group plc’s group financial statements (the “financial statements”): • give a true and fair view of the state of the Group’s affairs as at 31 December 2016 and of its profit and cash flows for the 52 week period (the “period”) then ended; • have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. What we have audited The financial statements, included within the Annual Report and Accounts (the “Annual Report”), comprise: • the Group balance sheet as at 31 December 2016; • the Group income statement and Group statement of comprehensive income for the period then ended; • the Group cash flow statement for the period then ended; • the Group statement of changes in Shareholders’ equity for the period then ended; and • the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited. The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union, and applicable law. Our audit approach Overview • Overall Group materiality: $1,850,000 which represents 5% of profit before tax and Materiality exceptional items. Audit scope • We conducted audit work over 4imprint Group plc (the Parent Company of the Group), 4imprint, Inc. and 4imprint Direct Marketing Limited which accounted for 100% of revenue and profit before tax and exceptional items. • Accounting for defined benefit pension scheme liabilities. Areas of focus • Accounting for supplier arrangements. The scope of our audit and our areas of focus We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud. The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit. 41 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Independent Auditors’ Report continued to the members of 4imprint Group plc Area of focus How our audit addressed the area of focus Accounting for defined benefit pension scheme liabilities Refer to page 30 of the statement on corporate governance, page 54 of the Statement of Accounting Policies and note 17 of the Consolidated Financial Statements The Group operates a defined benefit pension scheme which, although closed to future accrual and entrants, had a deficit of $19.3m (2015: $23.1m) as at 31 December 2016. The Group engage independent actuarial specialists to calculate the valuation of scheme liabilities. The valuation of pension scheme liabilities is impacted by the actuarial assumptions adopted by the Directors which are subjective and require estimation and judgement to be applied in their determination. If alternative assumptions had been adopted and applied these could have materially impacted the valuation of the pension scheme liabilities as at 31 December 2016. We focussed our work on the assumptions to which the valuation was most sensitive, namely the discount rate, inflation rate and mortality assumptions. Accounting for supplier arrangements Refer to page 30 of the statement on corporate governance and page 52 of the Statement of Accounting Policies. The Group, primarily through 4imprint, Inc., receives significant rebates from its suppliers. These relate to volume based rebates on purchases made from key product suppliers throughout the financial period. The rebates received are determined by formal signed agreements with suppliers and depend on the level of spend within the financial period, with which all agreements are coterminous. The percentage of purchases paid as a rebate from certain suppliers increases based on predetermined thresholds within supplier agreements. We have focussed on this area because the quantum of income recorded under these arrangements is material in relation to the result in the period. Furthermore, given the number of different rebate contracts the Group has entered into and the range of different rebate rates used, including stepped rebates, in the calculations there is an inherent risk of error in the calculation of these amounts. We compared the discount rate, inflation rate and mortality assumptions to externally derived data, as well as our own independently formed assessments, in relation to these key inputs in order to assess whether the assumptions used were reasonable. We noted that all assumptions applied were in line with our independently formed assessments, within an acceptable range. We also assessed whether the disclosures reflect the risks inherent in the accounting for the pension scheme and determined that the disclosures were sufficient and reflected the period end position of the pension scheme. We obtained a sample of supplier agreements and inspected them to assess whether all rebates received, and receivable, by the Group have been accounted for in the correct financial period and in accordance with specific terms agreed with suppliers. From inspection of these agreements we determined that the terms and conditions, including the financial periods over which rebate income could be earned, had been appropriately reflected in the calculations of rebates receivable. We confirmed directly with a sample of suppliers the rebate income which had been earned in the period, and also recalculated supplier rebate income and receivables based upon spend with suppliers in the period taking account of agreed rebate rates per signed agreements. We did not identify any material differences between either confirmed rebate income or our expectation and the amounts recognised. We compared actual receipts from suppliers in the period to amounts recorded as receivable at the prior period end in order to assess the historical accuracy of the estimation process. We determined that the level of current year receipts supported the assumptions around collectability of prior period rebates receivable, and therefore the estimation process was reasonable in this regard. We tested purchase transactions around the period end to confirm whether purchases upon which rebate income and receivables are based had been recorded in the correct accounting period and we noted no material exceptions from this testing. We tested the carrying value of rebate receivable balances at the period end by vouching to subsequent cash receipts from suppliers. We determined the proportions of these balances collected as at the date of this report and noted no evidence to suggest material doubts over collectability. 42 4imprint Group plc Annual Report and Accounts 2016 How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the Group operates. The Group comprises the following entities: • 4imprint, Inc. and 4imprint Direct Marketing Limited, trading entities that form the Direct Marketing operating segment and are based in the United States and United Kingdom respectively; • 4imprint Group plc, parent company of the Group; and • Four non-trading entities. The Group audit team in the UK performed an audit of the complete financial information of 4imprint, Inc. (which included visiting the business’s operations in Oshkosh, Wisconsin, USA), 4imprint Direct Marketing Limited and 4imprint Group plc, which we regarded as financially significant components of the Group. These components accounted for 100% of the Group’s revenue and profit before tax and exceptional items for the period. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall Group materiality $1,850,000 (2015: $1,600,000). How we determined it 5% of profit before tax and exceptional items. Rationale for benchmark applied We note that profit before tax and exceptional items is the key measure used both by the Board and, we believe, externally by Shareholders in evaluating the performance of the Group. It also represents a consistent measure of the performance year-on-year by removing the impact of non-recurring items. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $93,000 (2015: $80,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Going concern Under the Listing Rules we are required to review the Directors’ statement, set out on page 14, in relation to going concern. We have nothing to report having performed our review. Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the Directors’ statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing material to add or to draw attention to. As noted in the Directors’ statement, the Directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern basis presumes that the Group has adequate resources to remain in operation, and that the Directors intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the Directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s ability to continue as a going concern. 43 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Independent Auditors’ Report continued to the members of 4imprint Group plc Other required reporting Consistency of other information and compliance with applicable requirements Companies Act 2006 reporting In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and the Directors’ Report for the financial period for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. In addition, in light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we are required to report if we have identified any material misstatements in the Strategic Report and the Directors’ Report. We have nothing to report in this respect. ISAs (UK & Ireland) reporting Under ISAs (UK & Ireland) we are required to report to you if, in our opinion: • information in the Annual Report is: – materially inconsistent with the information in the audited financial statements; or – apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or – otherwise misleading. • the statement given by the Directors on page 40, in accordance with provision C.1.1 of the UK Corporate Governance Code (the “Code”), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group’s position and performance, business model and strategy is materially inconsistent with our knowledge of the Group acquired in the course of performing our audit. We have no exceptions to report. We have no exceptions to report. • the section of the Annual Report on pages 29 to 31, as required by provision C.3.8 of the Code, describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. We have no exceptions to report. The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to: • the Directors’ confirmation on page 26 of the Annual Report, in accordance with provision C.2.1 of the Code, that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. We have nothing material to add or to draw attention to. • the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. • the Directors’ explanation on page 15 of the Annual Report, in accordance with provision C.2.2 of the Code, as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We have nothing material to add or to draw attention to. We have nothing material to add or to draw attention to. Under the Listing Rules we are required to review the Directors’ statement that they have carried out a robust assessment of the principal risks facing the Group and the Directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review. Adequacy of information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility. 44 4imprint Group plc Annual Report and Accounts 2016 Directors’ remuneration Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. Corporate Governance Statement Under the Companies Act 2006 we are required to report to you if, in our opinion, a corporate governance statement has not been prepared by the Company. We have no exceptions to report arising from this responsibility. Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the Code. We have nothing to report having performed our review. Responsibilities for the financial statements and the audit Our responsibilities and those of the Directors As explained more fully in the Statement of Directors’ Responsibilities set out on page 40, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. What an audit of financial statements involves An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: • whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; • the reasonableness of significant accounting estimates made by the Directors; and • the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic Report, Directors’ Report and Corporate Governance Statement, we consider whether those reports include the disclosures required by applicable legal requirements. Other matter We have reported separately on the Company financial statements of 4imprint Group plc for the 52 week period ended 31 December 2016 and on the information in the Directors’ Remuneration Report that is described as having been audited. Ian Marsden (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Manchester 8 March 2017 45 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information 2016 52 weeks $’000 2015 53 weeks $’000 Note 1 558,223 497,219 2 (523,527) (465,256) 37,636 32,821 (2,940) (858) 34,696 31,963 4 1 22 (46) 37 (7) (521) (836) 5 (545) (806) 34,151 31,157 6 (9,672) (8,462) 24,479 22,695 Cents Cents 7 7 7 87.27 87.02 99.01 81.26 80.76 88.04 FINANCIAL STATEMENTS Group Income Statement for the 52 weeks ended 31 December 2016 Revenue Operating expenses Operating profit before exceptional items Exceptional items Operating profit Finance income Finance costs Pension finance charge Net finance cost Profit before tax Taxation Profit for the period Earnings per share Basic Diluted Underlying basic 46 4imprint Group plc Annual Report and Accounts 2016 Group Statement of Comprehensive Income for the 52 weeks ended 31 December 2016 Profit for the period Other comprehensive (expense)/income Items that may be reclassified subsequently to the income statement: Currency translation differences Items that will not be reclassified subsequently to the income statement: Re-measurement (losses)/gains on post-employment obligations Return on pension scheme assets (excluding interest income) Tax relating to components of other comprehensive income Effect of change in UK tax rate Total other comprehensive (expense)/income net of tax Total comprehensive income for the period 2016 52 weeks $’000 2015 53 weeks $’000 Note 24,479 22,695 23 17 17 992 417 (16,261) 5,597 3,323 (4,832) 869 (235) (156) (235) (11,312) 791 13,167 23,486 47 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Group Balance Sheet at 31 December 2016 Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Current assets Inventories Trade and other receivables Current tax Cash and cash equivalents Current liabilities Trade and other payables Net current assets Non-current liabilities Retirement benefit obligations Deferred tax liability Provisions for other liabilities and charges Net assets Shareholders’ equity Share capital Share premium reserve Other reserves Retained earnings Total Shareholders’ equity Note 9 10 11 2016 $’000 2015 $’000 18,938 18,154 1,082 5,030 1,211 4,388 25,050 23,753 12 13 4,179 4,460 39,766 42,506 34 688 14 21,683 18,381 65,662 66,035 15 (40,363) (37,254) 25,299 28,781 17 18 19 (19,290) (23,114) (1,601) (133) (808) (160) (21,024) (24,082) 29,325 28,452 21 18,842 18,777 68,451 68,451 23 6,420 5,428 (64,388) (64,204) 29,325 28,452 The financial statements on pages 46 to 73 were approved by the Board of Directors on 8 March 2017 and were signed on its behalf by: Kevin Lyons-Tarr Chief Executive Officer David Seekings Chief Financial Officer 48 4imprint Group plc Annual Report and Accounts 2016 Group Statement of Changes in Shareholders’ Equity for the 52 weeks ended 31 December 2016 Balance at 27 December 2014 Profit for the period Other comprehensive income/(expense) Currency translation differences Re-measurement gains on post-employment obligations Tax relating to components of other comprehensive income Effect of change in UK tax rate Total comprehensive income Proceeds from options exercised Own shares utilised Own shares purchased Share-based payment charge Deferred tax relating to share options Dividends Balance at 2 January 2016 Profit for the period Other comprehensive income/(expense) Currency translation differences Share capital $’000 Share premium reserve $’000 Other reserves (note 23) $’000 Own shares $’000 Profit and loss $’000 Total equity $’000 Retained earnings 18,777 68,451 5,011 (1,392) (76,777) 14,070 417 22,695 22,695 417 765 (156) (235) 765 (156) (235) 417 23,069 23,486 900 1,430 (1,430) (750) 222 128 900 – (750) 222 128 (9,604) (9,604) 18,777 68,451 5,428 (712) (63,492) 28,452 24,479 24,479 Re-measurement losses on post-employment obligations Tax relating to components of other comprehensive income Effect of change in UK tax rate Total comprehensive income Proceeds from options exercised Shares issued Own shares utilised Own shares purchased Share-based payment charge Deferred tax relating to share options and losses Dividends 65 992 992 (12,938) (12,938) 869 869 (235) (235) 992 12,175 13,167 767 (477) 142 (767) 425 142 65 – (477) 425 (308) (308) (12,141) (12,141) Balance at 31 December 2016 18,842 68,451 6,420 (422) (63,966) 29,325 49 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Group Cash Flow Statement for the 52 weeks ended 31 December 2016 Cash flows from operating activities Cash generated from operations Net tax paid Finance income Finance costs Net cash generated from operating activities Cash flows from investing activities Purchases of property, plant and equipment Purchases of intangible assets Net proceeds from sale of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of ordinary shares Dividends paid to Shareholders Net cash used in financing activities Net movement in cash and cash equivalents Cash and cash equivalents at beginning of the period Exchange losses on cash and cash equivalents Cash and cash equivalents at end of the period Analysis of cash and cash equivalents Cash at bank and in hand Short-term deposits 50 2016 52 weeks $’000 2015 53 weeks $’000 Note 24 29,115 29,797 (9,423) (8,730) 23 (46) 37 (7) 19,669 21,097 (2,903) (10,585) (383) 19 (438) 111 (3,267) (10,912) 21 8 65 – (12,141) (9,604) (12,076) (9,604) 4,326 581 18,381 18,301 (1,024) (501) 21,683 18,381 14 14 19,196 5,463 2,487 12,918 21,683 18,381 4imprint Group plc Annual Report and Accounts 2016 Notes to the Financial Statements General information 4imprint Group plc, registered number 177991, is a public limited company incorporated and domiciled in the UK and listed on the London Stock Exchange. Its registered office is 7/8 Market Place, London W1W 8AG. These financial statements have been prepared in US dollars. Accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented. Accounting standards effective for the first time in the period have had no impact on the Group’s financial statements. The Group presents the consolidated financial statements in US dollars and numbers are shown in US dollars thousands. A substantial portion of the Group’s revenue and earnings are denominated in US dollars and the Board decided that a US dollar presentation gives a more meaningful view of the Group’s financial performance and position. Basis of preparation The financial statements have been prepared under the historical cost convention in accordance with IFRS (International Financial Reporting Standards) as adopted by the EU, IFRS IC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The standards used are those published by the International Accounting Standards Board (“IASB”) and endorsed by the EU at the time of preparing these financial statements (March 2017). After making enquiries, the Directors have reasonable expectations that the Group has adequate resources to continue to operate for a period of at least twelve months from the date these financial statements were approved. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements. Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries for the period. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. The financial statements of subsidiaries, as amended to conform to Group accounting policies, are included in the consolidated financial statements from the date that control commences until the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the consideration paid. Identifiable assets and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. The excess of the cost of acquisition over the Group’s share of identifiable net assets is recorded as goodwill. Acquisition-related costs are expensed as incurred. The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. In addition, comparatives are also restated to reclassify disposed businesses, or those that meet the criteria of IFRS 5 to be classified as held for sale and as discontinued operations. All subsidiaries have the same year end date as the Group. Use of assumptions and estimates The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experiences and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The key estimates are in respect of the present value of the pension scheme obligations. The assumptions used are disclosed in note 17. Critical accounting policies Critical accounting policies are those that require significant judgements or estimates and potentially result in materially different results under different assumptions or conditions. Management considers the following to be the only critical accounting policy: Pensions As disclosed in note 17, the Group sponsors a defined benefit pension scheme closed to new members and future accruals. Period end recognition of the liabilities under this scheme and the return on assets held to fund these liabilities require a number of significant actuarial assumptions to be made including inflation rate, discount rate and mortality rates. Small changes in assumptions can have a significant impact on the expense recorded in the income statement and on the pension liability in the balance sheet. Sensitivities to changes in these assumptions are disclosed in note 17. 51 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Financial Statements continued Other accounting policies Revenue Revenue from sales of promotional goods, delivery receipts and other activities is measured at the fair value of the consideration received or receivable for goods and services provided in the normal course of business net of discounts, returns and sales-related taxes. Revenues are recognised upon the transfer of risks and rewards to customers. Supplier rebates Amounts due under rebate agreements are recognised based upon volumes of products purchased during the period to which the rebates relate at the relevant rebate rates, per supplier agreements. Amounts are credited to the cost of purchase of goods for resale and any accrued income is included in other receivables. Provision is made against such receivables to the extent it is considered that the amounts are not recoverable. Segmental reporting The reporting requirements of IFRS 8 require operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance. The chief operating decision maker has been identified by the Directors as the Board and accordingly the segmental reporting included in the financial statements aligns with those reported monthly to the Board. Leases Where the Group has substantially all of the risks and rewards of ownership under a lease, the lease will be classified as a finance lease. All other leases are classified as operating leases. Finance leases Assets acquired through finance leases are capitalised as property, plant and equipment, at the lower of the fair value of the leased asset and the present value of the minimum lease payments. These assets are depreciated over the lease term or the estimated useful life, whichever is shorter. The resulting lease obligations are included in liabilities, net of finance charges. Interest costs on finance leases are charged directly to the income statement. Operating leases Assets leased under operating leases are not recorded on the balance sheet. Rental payments are charged directly to the income statement on a straight-line basis over the period of the lease. Share-based payments All share options are measured at fair value at the date of grant allowing for any non-market and service conditions and the impact of any non-vesting conditions (for example requirements for the employee to save). The fair value is charged to the income statement over the vesting period of the share option schemes on a straight-line basis. The value of the charge is adjusted each year to reflect the expected number of options that will become exercisable. All options cancelled are fully expensed to the income statement upon cancellation. Exceptional items Income or costs which are both material and non-recurring, whose significance is sufficient to warrant separate disclosure in the financial statements, are referred to as exceptional items. The Directors consider that the separate disclosure of these items assists in understanding the Group’s financial performance. Taxation The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity in which case the tax is recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts estimated to be paid to tax authorities. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Group’s financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. 52 4imprint Group plc Annual Report and Accounts 2016 Taxation continued Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Dividends Final equity dividends are recognised in the Group’s financial statements in the period in which the dividends are approved by the Shareholders. Interim equity dividends are recognised when paid. Foreign currency The functional and presentation currency of the Company is Sterling, however the Group’s financial statements are presented in US dollars. Transactions in currencies other than the functional currency of the Company or subsidiary concerned are recorded at the exchange rate prevailing at the date of the transaction. At each balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate prevailing at the balance sheet date. Translation differences on monetary items are taken to the income statement. On consolidation the balance sheets of Sterling enterprises are translated into US dollars at the exchange rate ruling at the balance sheet date and income statements are translated at average rates for the period under review. One-off material transactions are translated at the spot rate on the transaction date. The resulting exchange differences are taken to the cumulative translation differences reserve and are reported in the statement of comprehensive income. On disposal of an operation any cumulative exchange differences held in Shareholders’ equity are recycled to the income statement. Derivative instruments The Group uses derivative forward foreign exchange contracts to hedge highly probable cash flows. Derivatives are recognised initially at fair value and are remeasured at fair value at each reporting date. The treatment of the gain or loss on re-measurement depends on the nature of the item being hedged. Hedges of the fair value of recognised assets and liabilities are designated as fair value hedges. Hedges of highly probable forecast transactions are designated as cash flow hedges. Changes in the fair value of fair value hedging instruments are recognised in the income statement. Changes in the fair value of the hedged items are also recognised in the income statement. The effective portion of changes in cash flow hedges are deferred in a hedging reserve, where material, and then charged to the income statement when the forecast sale or purchase occurs or if the forecast transaction is no longer expected to occur. Any ineffective portion of the cash flow hedge is recognised immediately in the income statement. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. No depreciation is provided on freehold land. For all other property, plant and equipment, depreciation is calculated to write-off their cost less residual value by equal annual instalments over the period of their estimated useful lives, which are reviewed on a regular basis. Leasehold assets are depreciated over the shorter of the term of the lease or their estimated useful lives. Cost comprises the purchase price plus costs directly incurred in bringing the asset into use. The principal useful lives currently fall within the following ranges: Freehold and long leasehold buildings Short leasehold buildings Plant, machinery, fixtures and fittings Computer hardware 50 years Life of lease 3–15 years 3 years Profits and losses on disposal which have arisen from over or under depreciation are accounted for in arriving at operating profit and are separately disclosed when material. 53 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Financial Statements continued Other accounting policies continued Intangible assets Acquired software licences and external expenditure on developing websites and other computer systems are capitalised, held at historic cost and amortised from the invoice date on a straight-line basis over its useful economic life (currently three to five years). Internal costs and non-development costs are expensed to operating expenses as incurred. An expense is recognised in operating expenses for catalogues and other related marketing expenses when the business has access to them. Impairment of assets All property, plant and equipment and intangible assets are reviewed for impairment in accordance with IAS 36 “Impairment of Assets” if there is an indication that the carrying value of the asset may have been impaired. Where an impairment review is required, the carrying value of the assets is measured against their value in use based on future estimated cash flows, discounted by the appropriate cost of capital, resulting from the use of those assets. Assets are grouped at the lowest level for which there is a separately identifiable cash flow (cash generating unit). An impairment loss is recognised for the amount at which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Inventories Inventories are valued at the lower of cost, net of provisions for slow moving and discontinued items, and net realisable value using the first in first out basis. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Items in transit where the Group holds the risks and rewards are included in inventories. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is recognised in the income statement. Trade receivables are discounted when the time value of money is considered material. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held on call with banks and other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. In the cash flow statement cash and cash equivalents are shown net of bank overdrafts. Cash deposits with an original maturity in excess of three months are classified as other financial assets. Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost. Trade and other payables are discounted when the time value of money is considered material. Pensions The Group operates defined contribution plans for the majority of its UK and US employees. The regular contributions are charged to the income statement as they are incurred. The Group sponsors a defined benefit scheme, which is closed to new members and future accruals. The Group accounts for the defined benefit scheme under IAS 19 “Employee Benefits”. The deficit of the defined benefit pension scheme is recognised in full on the balance sheet and represents the difference between the fair value of the plan assets and the present value of the defined benefit obligation at the balance sheet date. A full actuarial valuation is carried out at least every three years and the defined benefit obligation is updated on an annual basis, by independent actuaries, using the projected unit credit method. Pension charges recognised in the income statement consists of administration costs of the scheme, exceptional costs of risk reduction exercises incurred by the scheme and a finance cost based on the interest on net pension scheme liabilities calculated in accordance with IAS 19. Differences between the actual and expected return on assets, experience gains and losses and changes in actuarial assumptions are included directly in the statement of comprehensive income. Borrowings Borrowings are measured initially at fair value net of transaction costs incurred and subsequently carried at amortised costs using the effective interest rate method. Arrangement fees are amortised over the life of the borrowing. Borrowings are discounted when the time value of money is considered material. 54 4imprint Group plc Annual Report and Accounts 2016 Provision for future lease costs Provisions for future lease costs and dilapidations are made when there is a legal or constructive obligation as a result of past events and it is probable that expenditure will be incurred and a reliable estimate can be made of that cost. If the effect of the time value of money 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 an interest expense. Own shares held by employee share trusts Own shares acquired, to meet future obligations under employee share options, are held in independent trusts. These are funded by the Company and purchases of shares by the trusts are charged directly to equity. Administration expenses of the trusts are charged to the Company’s income statement as incurred. IFRS standards effective in future financial statements The IASB and IFRS IC have issued new or amended standards and interpretations which are effective for accounting periods as noted below. The impact of IFRS 15 on the full year results is very minor. IFRS 16 will result in an increase to both assets and liabilities in the balance sheet, but no material impact upon operating profit or profit before tax, based upon current lease commitments of the Group. If IFRS 16 had been in place at the end of 2016 both the assets and liabilities would have increased by around $5.0m. Management does not believe the impact of adopting the other new or amended standards and interpretations will have a material impact on the results or net assets of the Group. IFRS 9, “Financial instruments” (effective 1 January 2018) IFRS 15, “Revenue from contracts with customers” (effective 1 January 2018) Amendments to IFRS 15, “Revenue from contracts with customers” (effective 1 January 2018)* IFRS 16, “Leases” (effective 1 January 2019)* Amendments to IAS 7, “Statement of cash flows” (effective 1 January 2017)* Amendments to IAS 12, “Income taxes” (effective 1 January 2017)* Amendments to IFRS 2, “Share-based payments” (effective 1 January 2018)* Amendments to IFRS 4, “Insurance contracts” (effective 1 January 2018)* Amendments to IAS 40, “Investment property” (effective 1 January 2018)* Annual improvements 2014 – 2016 (effective 1 January 2018)* IFRIC 22 “Foreign currency transactions and advanced consideration” (effective 1 January 2018)* * Not yet endorsed by the EU. 55 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Financial Statements continued 1 Segmental reporting The chief operating decision maker has been identified as the Board of Directors and the segmental analysis is presented based on the Group’s internal reporting to the Board. At 31 December 2016, the results of the Group are reported as one primary operating segment and the costs of the Head Office: Revenue 4imprint Direct Marketing North America UK and Ireland Total revenue from sale of promotional products Profit 4imprint Direct Marketing Head Office Underlying operating profit Exceptional items (note 4) Share option related charges (note 22) Defined benefit pension scheme administration costs (note 17) Operating profit Net finance (expense)/income (note 5) Pension finance charge (note 5) Profit before tax Taxation Profit after tax Other segmental information 2016 $’000 2015 $’000 540,599 479,235 17,624 17,984 558,223 497,219 Underlying 2016 $’000 2015 $’000 Total 2016 $’000 2015 $’000 42,282 37,044 42,282 37,044 (3,905) (3,525) (3,905) (3,525) 38,377 33,519 38,377 33,519 (2,940) (430) (311) (858) (304) (394) 38,377 33,519 34,696 31,963 (24) 30 (24) (521) 30 (836) 38,353 33,549 34,151 31,157 (10,580) (8,962) (9,672) (8,462) 27,773 24,587 24,479 22,695 Assets Liabilities Capital expenditure Depreciation Amortisation 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 4imprint Direct Marketing 63,757 65,930 (39,476) (35,872) 3,267 11,023 (1,858) (1,417) (499) (510) Head Office items 5,272 5,477 (21,911) (25,464) Cash 21,683 18,381 – – 18 – – – (32) – (32) – – – – – 90,712 89,788 (61,387) (61,336) 3,285 11,023 (1,890) (1,449) (499) (510) Head Office items relate principally to retirement benefit obligations and Group tax balances. Geographical analysis of revenue and non-current assets 2016 Total revenue by destination Property, plant and equipment Intangible assets North America $’000 UK $’000 All other countries $’000 Total $’000 540,684 16,671 868 558,223 17,938 1,026 1,000 56 – – 18,938 1,082 56 4imprint Group plc Annual Report and Accounts 2016 Geographical analysis of revenue and non-current assets continued 2015 Total revenue by destination Property, plant and equipment Intangible assets 2 Operating expenses The following items have been charged/(credited) in arriving at operating profit: Purchase of goods for resale and consumables Changes in inventories Increase in stock provision Increase in trade receivables provision Staff costs Marketing expenditure (excluding staff costs) Depreciation of property, plant and equipment Amortisation of intangible assets Profit on sale of property, plant and equipment Operating lease payments Exceptional items Defined benefit pension scheme administration costs Net exchange losses Other operating expenses North America $’000 UK $’000 All other countries $’000 Total $’000 479,310 17,082 827 497,219 16,877 1,134 1,277 77 – – 18,154 1,211 Note 2016 $’000 2015 $’000 344,610 308,133 12 13 3 4 17 280 74 6 44,895 90,338 1,890 499 – 1,774 2,940 311 375 (107) 56 167 42,297 78,324 1,449 510 (81) 1,669 858 394 350 35,535 31,237 523,527 465,256 During the period the Group obtained the following services from its auditors at costs as detailed below: Fees payable to the Company’s auditors for the audit of the Parent Company, non-statutory audits of overseas subsidiaries and audit of consolidated financial statements Fees payable to the Company’s auditors and its associates for other services: – the audit of Company’s subsidiaries pursuant to legislation – pensions advice – share scheme advice 2016 $’000 2015 $’000 203 206 20 126 – 349 15 200 22 443 The 4imprint defined benefit pension scheme has paid the Group’s auditors $17,670 (2015: $14,750) for audit services. 3 Employees Staff costs Wages and salaries Social security costs Pension costs – defined contribution Share option charges Social security costs in respect of share options Note 2016 $’000 2015 $’000 40,234 38,041 17 22 22 3,153 1,078 425 5 2,993 959 222 82 44,895 42,297 57 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Financial Statements continued 3 Employees continued Average monthly number of people (including Executive Directors) employed Distribution and production Sales and marketing Administration Key management compensation Salaries, fees and short-term employee benefits Social security costs Pension costs – defined contribution Share option charges Social security costs in respect of share options 2016 Number 2015 Number 272 414 166 852 2016 $’000 1,715 110 16 91 4 240 389 155 784 2015 $’000 1,974 152 27 39 1 1,936 2,193 Key management compensation in the period comprised the emoluments of all Directors (which are disclosed separately in the Remuneration Report). Directors’ remuneration Aggregate emoluments Pension costs – defined contribution 4 Exceptional items Pension flexible retirement option costs Past service costs re defined benefit pension scheme pensioner GMP equalisation Pension buy-out costs 2016 $’000 1,715 16 2016 $’000 – 1,452 1,488 2,940 2015 $’000 1,974 27 2015 $’000 276 – 582 858 Exceptional items include $1,320,000 (2015: $610,000) incurred and paid by the defined benefit pension scheme, in respect of the buy-out and, in 2015, the flexible retirement option. Direct cash expenditure by the Group in respect of the exceptional items in 2016 was $172,000 (2015: $248,000). 5 Net finance income and costs Finance income/(costs) Bank and other interest receivable Bank interest payable Pension finance charge (note 17) Net finance costs 58 2016 $’000 2015 $’000 22 (46) (24) (521) (545) 37 (7) 30 (836) (806) 4imprint Group plc Annual Report and Accounts 2016 6 Taxation Current tax UK tax – current Overseas tax – current Overseas tax – prior periods Total current tax Deferred tax Origination and reversal of temporary differences Adjustment in respect of prior periods Total deferred tax (notes 11 and 18) Taxation 2016 $’000 2015 $’000 – 10,037 40 10,077 (401) (4) (405) – 7,865 167 8,032 590 (160) 430 9,672 8,462 The tax for the period is different to the standard rate of corporation tax in the respective countries of operation. The differences are explained below: Profit before tax Profit before tax for each country of operation multiplied by rate of corporation tax applicable in the respective countries Effects of: Adjustments in respect of prior periods Expenses not deductible for tax purposes and non-taxable income Other differences Effect of tax rate changes on deferred tax balances Utilisation of tax losses not previously recognised Taxation 2016 $’000 2015 $’000 34,151 31,157 12,157 10,232 36 7 (2,048) (1,560) (33) (6) (434) (208) – (9) 9,672 8,462 The main rate of UK corporation tax was reduced to 20% from 1 April 2015. Further reductions to 19% from 1 April 2017 and 17% from 1 April 2020 have been enacted. The net deferred tax asset at 31 December 2016 has been calculated at a tax rate of 19% in respect of UK deferred tax items which are expected to reverse before 2020 and 17% in respect of UK deferred tax items expected to reverse thereafter. A rate of 35% has been used in respect of US deferred tax items. The amount of current tax recognised directly in Shareholders’ equity in 2016 was $nil (2015: $nil). No current tax was recognised in other comprehensive income (2015: $nil). 59 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Financial Statements continued 7 Earnings per share Basic, diluted and underlying The basic, diluted and underlying earnings per share are calculated based on the following data: Profit after tax Basic weighted average number of shares Adjustment for employee share options Diluted weighted average number of shares Basic earnings per share Diluted earnings per share Profit before tax Adjustments: Share option charges (note 22) Social security charges on share options (note 22) Exceptional items (note 4) Defined benefit pension scheme administration costs (note 17) Pension finance charge (note 17) Underlying profit before tax Taxation (note 6) Tax relating to above adjustments Underlying profit after tax Underlying basic earnings per share Underlying diluted basic earnings per share 2016 $’000 2015 $’000 24,479 22,695 2016 Number ‘000 2015 Number ‘000 28,050 27,928 81 173 28,131 28,101 2016 cents 87.27 87.02 2015 cents 81.26 80.76 2016 $’000 2015 $’000 34,151 31,157 425 5 2,940 311 521 222 82 858 394 836 38,353 33,549 (9,672) (8,462) (908) (500) 27,773 24,587 2016 cents 99.01 98.73 2015 cents 88.04 87.50 The basic weighted average number of shares excludes shares held in the 4imprint Group plc employee share trusts. The effect of this is to reduce the average by 4,900 (2015: 37,998). The basic earnings per share is calculated based on the profit for the financial period divided by the basic weighted average number of shares. For diluted earnings per share, the basic weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive ordinary shares. The potential dilutive ordinary shares relate to those share options granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares and are likely to vest at the balance sheet date. The underlying basic earnings per share is calculated before the after-tax effect of share option charges, exceptional items and defined benefit pension charges and is included because the Directors consider this gives a measure of the underlying performance of the business. 60 4imprint Group plc Annual Report and Accounts 2016 8 Dividends Equity dividends – ordinary shares Interim paid: 16.32c (2015: 12.09c) Final paid: 26.80c (2015: 21.90c) 2016 $’000 4,558 7,583 12,141 2015 $’000 3,336 6,268 9,604 In addition, the Directors are proposing a final dividend in respect of the period ended 31 December 2016 of 36.18c (29.52p) per share, which will absorb an estimated $10.15m of Shareholders’ funds. Subject to Shareholder approval at the AGM, the dividend is payable on 12 May 2017 to Shareholders who are on the register of members at close of business on 7 April 2017. These financial statements do not reflect this proposed dividend. 9 Property, plant and equipment Cost: At 3 January 2016 Additions Disposals Exchange At 31 December 2016 Depreciation: At 3 January 2016 Charge for the period Disposals Exchange At 31 December 2016 Net book value at 31 December 2016 Freehold land with a value of $721,000 (2015: $771,000) has not been depreciated. No assets are held under finance leases (2015: nil). Cost: At 28 December 2014 Additions Disposals Exchange At 2 January 2016 Depreciation: At 28 December 2014 Charge for the period Disposals Exchange At 2 January 2016 Net book value at 2 January 2016 Freehold land and buildings $’000 13,358 60 – (158) Plant, machinery, fixtures & fittings $’000 10,184 2,363 (216) (137) Computer hardware $’000 Total $’000 1,687 25,229 479 (394) (17) 2,902 (610) (312) 13,260 12,194 1,755 27,209 915 396 – (11) 1,300 11,960 4,954 1,107 (199) (78) 5,784 6,410 1,206 387 (393) (13) 7,075 1,890 (592) (102) 1,187 8,271 568 18,938 Freehold land and buildings $’000 5,795 7,611 – (48) Plant, machinery, fixtures & fittings $’000 7,705 2,735 (218) (38) Computer hardware $’000 Total $’000 1,749 250 (305) (7) 15,249 10,596 (523) (93) 13,358 10,184 1,687 25,229 4,280 1,151 713 204 – (2) 915 12,443 881 (188) (19) 4,954 5,230 6,144 1,449 (493) (25) 364 (305) (4) 1,206 7,075 481 18,154 61 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Financial Statements continued 10 Intangible assets Computer software Cost: At start of period Additions Disposals Exchange At end of period Amortisation: At start of period Charge for the period Disposals Exchange At end of period Net book value at end of period The average remaining life of intangible assets is 2.2 years (2015: 2.4 years). 11 Deferred tax assets At start of period Income statement credit Deferred tax credited/(charged) to other comprehensive income Deferred tax credited to equity Effect of change in UK tax rate – other comprehensive income Exchange At end of period 2016 $’000 2015 $’000 2,931 2,873 383 (538) (40) 427 (356) (13) 2,736 2,931 1,720 1,575 499 (536) (29) 1,654 1,082 510 (356) (9) 1,720 1,211 2016 $’000 2015 $’000 4,388 4,794 684 871 208 (235) (886) 208 (156) – (235) (223) 5,030 4,388 No deferred tax is recognised on the unremitted earnings of overseas subsidiaries. No tax is expected to be payable on them in the foreseeable future. $0.4m (2015: $0.6m) of the deferred tax asset is expected to reverse within the next twelve months. The movements in the net deferred tax asset (subject to the offsetting of balances within the same jurisdiction as permitted by IAS 12) during the period are shown in the following table. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. Deferred tax analysis At start of period Income statement credit Deferred tax credited/(charged) to other comprehensive income Deferred tax credited to equity Effect of change in tax rates Exchange At end of period 62 Depreciation/ capital allowances $’000 Pension $’000 (3) 4,391 246 (222) – (235) (727) 4 – – – – 1 Losses $’000 – 434 1,093 208 – (159) Total $’000 4,388 684 871 208 (235) (886) 3,453 1,576 5,030 4imprint Group plc Annual Report and Accounts 2016 Deferred tax assets have been recognised where it is considered that there will be sufficient taxable profit available in future against which the deductible temporary timing differences can be utilised. No provision has been made for deferred tax assets relating to losses carried forward in holding companies of $31.0m (2015: $40.0m). These losses have no expiry date and may be available for offset against future profits in these companies. 12 Inventories Finished goods and goods for resale 2016 $’000 2015 $’000 4,179 4,460 During both the current and previous period, inventory was carried at cost less appropriate provisions as this did not exceed the fair value less cost to sell. Provisions held against inventory total $275,000 (2015: $201,000). During the period a net amount of $74,000 has been charged in the income statement in respect of provisions for slow-moving and obsolete stock (2015: $56,000). The amount of inventory charged to the income statement is shown in note 2. 13 Trade and other receivables Trade receivables Less: Provision for impairment of trade receivables Trade receivables – net Other receivables Prepayments and accrued income 2016 $’000 2015 $’000 25,425 26,530 (147) (167) 25,278 11,840 2,648 26,363 12,600 3,543 39,766 42,506 Due to their short-term nature the fair value of trade and other receivables does not differ from the book value. The impairment of trade receivables charged to the income statement was $6,000 (2015: $167,000). There is no impairment of any receivables other than trade receivables. The ageing of past due trade receivables which are not impaired, based on the customer’s credit worthiness and payment history, is as follows: Time past due date Up to 3 months 3 to 6 months The ageing of impaired trade receivables is as follows: Time past due date Up to 3 months 3 to 6 months Over 6 months 2016 $’000 3,858 440 4,298 2016 $’000 – – 147 147 2015 $’000 4,179 772 4,951 2015 $’000 – 6 161 167 63 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Financial Statements continued 13 Trade and other receivables continued The carrying amounts of trade and other receivables are denominated in the following currencies: Sterling US dollars Euros Canadian dollars Movements in the provision for impairment of trade receivables are as follows: At start of period Utilised Provided Exchange translation At end of period 14 Cash and cash equivalents Cash at bank and in hand Short-term deposits Cash and cash equivalents 15 Trade and other payables – current Trade payables Other tax and social security payable Other payables Accruals Due to their short-term nature the fair value of trade and other payables does not differ from the book value. 16 Borrowings The Group had no drawdown on its borrowing facilities at 31 December 2016 (2015: no drawdown). The Group had the following undrawn committed borrowing facilities available at 31 December 2016: Borrowing facilities Expiring within one year Expiring in more than one year 2016 $’000 2015 $’000 2,014 35,385 34 2,333 2,520 37,768 52 2,166 39,766 42,506 2016 $’000 167 (23) 6 (3) 147 2015 $’000 172 (171) 167 (1) 167 2016 $’000 19,196 2,487 2015 $’000 5,463 12,918 21,683 18,381 2016 $’000 2015 $’000 33,223 29,370 1,224 244 5,672 879 315 6,690 40,363 37,254 Floating rate 2016 $’000 2015 $’000 1,730 1,482 20,000 13,000 Facilities comprised an unsecured US$20.0m line of credit, for 4imprint, Inc., which expires on 31 May 2018, a US$0.5m Canadian facility which expires on 31 August 2017 and an unsecured UK overdraft facility of £1.0m, for the Company, which expires on 31 December 2017. 64 4imprint Group plc Annual Report and Accounts 2016 17 Employee pension schemes The Group operates defined contribution plans for the majority of its UK and US employees. The regular contributions are charged to the income statement as they are incurred. The charges recognised in the income statement are: 2016 $’000 2015 $’000 Defined contribution plans – employers’ contributions (note 3) 1,078 959 The Group also sponsors a UK defined benefit pension scheme which is closed to new members and future accrual. During the year, the buy-in of the benefits of the majority of pensioner members was converted to a buy-out and liabilities and assets (the latter being the insurance policies purchased on buy-in) of $94.79m have been removed from the balance sheet. To facilitate the buy-out it was necessary to initiate the process of winding up the existing defined benefit scheme and to create a new defined benefit scheme, with equivalent benefits, for pensioner and deferred members not included in the buy-out. These members were transferred to this new scheme, except for those with small value pension pots who opted to take winding up lump sum payments of their pension entitlement ($1.98m of assets and liabilities removed). The amounts recognised in the income statement are as follows: Administration costs paid by the scheme Pension finance charge Exceptional items – buy-out and, in 2015, flexible retirement option costs paid by scheme Total defined benefit pension charge The amounts recognised in the balance sheet comprise: Present value of funded obligations Fair value of scheme assets Net liability recognised in the balance sheet 2016 $’000 311 521 1,320 2,152 2015 $’000 394 836 610 1,840 2016 $’000 2015 $’000 (34,357) (139,248) 15,067 116,134 (19,290) (23,114) The funds of the scheme are held in trust and administered by a corporate Trustee to meet pension liabilities for around 420 past employees of the Group. The level of retirement benefit is principally based on salary earned in the best three consecutive tax years in the ten years prior to leaving active service and is linked to changes in inflation both pre and post-retirement. The scheme is subject to the funding legislation outlined in the Pensions Act 2004 which came into force on 30 December 2005. This, together with documents issued by the Pensions Regulator, and Guidance Notes adopted by the Financial Reporting Council, set out the framework for funding defined benefit occupational pension plans in the UK. The Trustee of the scheme is required to act in the best interest of the scheme’s beneficiaries. The appointment of trustees is determined by the scheme’s trust documentation. It is policy that one third of all trustees should be nominated by the members. The scheme typically exposes the Company to actuarial risks such as investment risk, interest rate risk, mortality risk and longevity risk. A decrease in corporate bond yields, a rise in inflation or an increase in life expectancy would result in an increase to scheme liabilities. This would detrimentally impact the balance sheet position, potentially require an increase in future cash contributions from the Company and may give rise to increased charges in future income statements. Caps on inflationary increases are in place to protect the scheme against extreme inflation. Assets are held in a global absolute return fund, which is a multi-asset fund designed to provide positive returns in all market conditions and in a liability-driven investment fund designed to provide some hedge against movement in the liabilities due to interest rate fluctuation and inflation. The funds use derivatives to reduce risk. A full actuarial valuation was undertaken as at 5 April 2013 in accordance with the scheme funding requirements of the Pensions Act 2004. This actuarial valuation showed a deficit of £30.6m. The Company agreed a schedule of contributions with the Trustee. The recovery plan period was 6.3 years and took into account the material funding improvement between the date of valuation and date of the recovery plan (December 2013), as agreed with the scheme actuary. The improvement was principally due to an increase in UK gilt rates during that period. In 2014 accelerated contributions of $22.4m (£13.7m) were paid to the scheme to facilitate the buy-in. A further $14.5m (£10.0m) was paid to the scheme during the year to convert the policies to a buy-out. As a result of the buy-out transaction an interim schedule of contributions was agreed during 2016, based on maintaining the recovery plan period. Under this interim agreement £2.3m would be payable in 2017. A full actuarial valuation of the new scheme is currently being undertaken as at 30 September 2016 and once this is finalised a new schedule of contributions can be agreed. 65 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Financial Statements continued 17 Employee pension schemes continued For the purposes of IAS 19, draft numbers from the actuarial valuation as at 30 September 2016, which is being carried out by a qualified independent actuary, have been updated on an approximate basis to 31 December 2016. There have been no changes in the valuation methodology adopted for this period’s disclosures compared to the previous period’s disclosures. The principal assumptions applied by the actuaries, as determined by the Directors, at each period end were: Rate of increase in pensions in payment Rate of increase in deferred pensions Discount rate Inflation assumption – RPI – CPI 2016 2015 3.20% 2.10% 2.68% 3.30% 2.20% 2.66% 1.56% 3.52% 2.76% 1.66% The mortality assumptions adopted at 31 December 2016 have been updated to reflect the most recent version of the tables used in the last triennial valuation. The assumptions imply the following life expectancies at age 65: Male currently age 40 Female currently age 40 Male currently age 65 Female currently age 65 Changes in the present value of the net defined benefit obligation are as follows: Balance at 28 December 2014 Administration costs paid by the scheme Exceptional items – buy-out and flexible retirement option costs paid by the scheme Interest (expense)/income Return on scheme assets (excluding interest income) Re-measurement gains due to changes in demographic assumptions Re-measurement gains due to changes in financial assumptions Contributions by employer Benefits paid Exchange gain/(loss) Balance at 2 January 2016 Administration costs paid by the scheme Exceptional items – buy-out costs paid by the scheme – past service costs Interest (expense)/income Return on scheme assets (excluding interest income) Re-measurement gains due to changes in demographic assumptions Re-measurement losses due to changes in financial assumptions Contributions by employer Benefits paid Liabilities/(assets) removed on settlements Exchange gain/(loss) Balance at 31 December 2016 * At the period end $nil (2015: $108,410,000) of the obligations are covered by insured annuities. 66 2016 2015 23.6 yrs 24.4 yrs 25.8 yrs 26.5 yrs 21.9 yrs 22.2 yrs 23.9 yrs 24.2 yrs Present value of obligations* $’000 Fair value of scheme assets $’000 Net obligation $’000 (154,918) 130,903 (24,015) (394) (610) – – (5,226) 4,390 (394) (610) (836) – (4,832) (4,832) 4,321 1,276 – 9,188 7,115 – – 825 (9,188) (5,964) 4,321 1,276 825 – 1,151 (139,248) 116,134 (23,114) (311) (1,320) (1,452) (4,154) – 1,746 (18,007) – – – 3,633 3,323 – – (311) (1,320) (1,452) (521) 3,323 1,746 (18,007) – 17,353 17,353 8,571 (8,571) 96,770 (96,770) – – 23,048 (20,035) 3,013 (34,357) 15,067 (19,290) 4imprint Group plc Annual Report and Accounts 2016 The major categories of scheme assets as a percentage of total scheme assets are as follows: Global absolute returns funds Liability-driven investments Insured annuities Cash 2016 2015 $’000 5,749 7,597 – % 38.2 50.4 $’000 7,386 – – 108,410 1,721 11.4 338 % 6.4 – 93.3 0.3 The scheme holds no 4imprint Group plc shares or any property occupied by the Group. It is the policy of the Trustee and the Company to review the investment strategy from time to time and at the time of each funding valuation. The Trustee investment objectives and the processes undertaken to measure and manage the risks inherent in the scheme investment strategy are documented in the scheme’s Statement of Investment Principles. The assets were held in a quoted global absolute returns fund, designed to give positive investment returns in all market conditions, and a liability-driven investment fund designed to provide some hedge against movements in the liabilities due to interest rate fluctuation and inflation. The sensitivities on the key actuarial assumptions at the end of the period were: Discount rate Rate of inflation Rate of mortality Change in assumption Change in defined benefit obligation Decrease of 0.25% Increase of 0.25% Increase in life expectancy of one year Increase by 4.9% Increase by 1.8% Increase by 2.9% The sensitivities shown above are approximate. Each sensitivity considers each change in isolation and is calculated using the same methodology as used for the calculation of the defined benefit obligation at the end of the period. The inflation sensitivity includes the impact of changes to the assumptions for revaluation and pension increases. In practice it is unlikely that the changes would occur in isolation. The weighted average duration of the defined benefit obligation at 31 December 2016 is 20 years. 18 Deferred tax liability At start of period Charged to the income statement Prior period adjustment Deferred tax debited/(credited) to equity Effect of change in tax rates – income statement Exchange At end of period Deferred tax analysis At start of period Income statement debit/(credit) Prior period adjustment Deferred tax debited to equity Effect of change in tax rates Exchange At end of period 2016 $’000 808 289 (4) 516 (6) (2) 2015 $’000 298 798 (160) (128) – – 1,601 808 Other $’000 (862) (145) (2) 516 (5) – Total $’000 808 289 (4) 516 (6) (2) Depreciation/ capital allowances $’000 1,670 434 (2) – (1) (2) 2,099 (498) 1,601 Included in “Other” in the table above are deferred tax assets in respect of timing differences and future deductions relating to conditional share awards for US employees, of which $0.4m is expected to reverse within the next twelve months. 67 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Financial Statements continued 19 Provisions for other liabilities and charges At start of period Utilised in period Exchange differences At end of period Analysis of provisions Current Non-current Total Leases 2016 $’000 160 – (27) 133 2016 $’000 – 133 133 2015 $’000 229 (60) (9) 160 2015 $’000 – 160 160 The lease provisions relate to dilapidation costs of property leased by the Group. This is expected to be paid within one to two years. 20 Financial risk management The Group’s activities expose it to a variety of financial risks including currency risk, credit risk, liquidity risk and capital risk. Currency risk The Group operates internationally and is exposed to various currency movements. Risk arises predominantly from the remittance of overseas earnings in US dollars. In addition, Group subsidiaries may make both sales and purchases in a currency other than their functional currency and have foreign currency trade receivables and trade payables in relation to these transactions. The Group uses derivative financial instruments to partly hedge foreign currency cash flows arising from sales and purchases of goods, as well as remittances from its overseas subsidiaries. The Group does not hedge the currency exposure of profits and assets of its overseas subsidiaries or other financial transactions. At 31 December 2016 the Group had no forward currency contracts. The movement in the exchange rates compared to prior period increased profit after tax by $0.78m and increased net assets by $0.67m. Closing rate was US$1.23 (2015: US$1.48) and the average rate used to translate profits was US$1.35 (2015: US$1.53). A strengthening in the Sterling exchange rate by 15% (the approximate range of movement of the exchange rate during the year) would reduce profit in the period by $1.1m and net assets at period end by $1.1m. Credit risk Credit risk arises from deposits with banks and financial institutions, as well as credit exposure to trade receivable balances due from customers. The risk associated with banks and financial institutions is managed on a Group basis and all banking relationships must be approved by the Chief Financial Officer or the Board based on the credit rating of the bank. The Group holds cash balances on deposit with its principal US and UK banks. Financial instruments The table below sets out the Group’s financial instruments by category: Financial assets at amortised cost Trade and other receivables (excluding prepayments) Cash and cash equivalents Financial liabilities at amortised cost Trade and other payables (excluding non-financial liabilities) 68 2016 $’000 2015 $’000 37,118 21,683 38,963 18,381 (40,363) (37,254) 4imprint Group plc Annual Report and Accounts 2016 Trade receivables are amounts due from customers for goods sold in the ordinary course of business. Other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. If collection of the amounts is expected in one year or less they are classified as current assets. If not, they are presented as non-current assets. Cash was held with the following banks at the period end: Lloyds Bank JPMorgan Chase Bank, N.A. Other 2016 Rating A1 Aa2 2016 Deposit $’000 4,877 16,793 13 21,683 2015 Rating A1 Aa2 2015 Deposit $’000 14,569 3,803 9 18,381 There is no concentration of credit risk with respect to trade receivables as the Group has a large number of customers. Credit risk arising from customers is delegated to the senior management of each business to a maximum level per customer, above which it is referred to the Chief Financial Officer for approval. External credit agency assessment reports are referred to as part of this process. Liquidity risk Group borrowing requirements are managed centrally and the majority of borrowing arrangements are currently with the Group’s principal US bank and terms are agreed which are considered appropriate for the funding requirement of the Group at that time. Operating working capital is managed to levels agreed with the Group and cash forecasts are reviewed regularly by management. The Group monitors its levels of cash and indebtedness to ensure adequate liquid funds are available to meet the foreseeable requirements of the Group. The Group does not actively monitor a gearing ratio, but seeks to maintain an appropriate level of financial flexibility. Details of borrowing facilities are given in note 16. At 31 December 2016 the net cash position (note 14) of the Group was $21.68m (2015: $18.38m). Capital risk management The objective for managing debt and equity capital is to safeguard the Company’s ability to continue as a going concern, in order to provide returns for Shareholders and benefits for other stakeholders. In 2016 the Company has provided returns to Shareholders in the form of dividends, details of which are included in note 8. Shares were purchased by an employee benefit trust, to cover the SAYE options maturing within the next three years. 21 Share capital Issued and fully paid 28,085,530 (2015: 27,965,530) ordinary shares of 386/13p each All shares have the same rights. 2016 $’000 2015 $’000 18,842 18,777 The Company issued 120,000 ordinary shares in the period for a consideration of $65,000 to satisfy options under the Performance Share Plan (2015: nil). 69 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Financial Statements continued 21 Share capital continued At 2016 the following options have been granted and were outstanding under the Company’s share option schemes: Scheme Performance Share Plan UK SAYE US ESPP UK SAYE 2015 Incentive Plan Total Number of ordinary shares 2016 Number of option holders 2016 Date of grant 05/04/13 31/10/12 – – 11/05/16 117,330 11/05/16 09/03/16 27,496 26,128 Number of ordinary shares 2015 120,000 Subscription price Date exercisable From To nil Apr 2016 Apr 2023 36,464 266.0p Jan 2016 Jun 2016 – – – $16.49 July 2018 July 2018 1,022p July 2019 Dec 2019 nil Mar 2019 Mar 2026 – – 451 34 9 170,954 494 156,464 The weighted average exercise price for options outstanding at 31 December 2016 was 1,084p (2015: 61.99p). Details of share schemes are disclosed in note 22. 2015 Incentive Plan Under the 2015 Incentive Plan (the “Plan”) 50% of the annual bonus of the Chief Executive Officer, Chief Financial Officer and seven senior managers will be deferred into shares as awards of nil cost options or conditional shares, based on the share price at 31 December of the relevant year. The awards will be made in a 42 day period following the announcement of the Group’s full year results and the options will normally not be exercisable until three years from the date of the award, conditional upon the person still being in the employment of a Group company. It is expected that 16,150 options or conditional shares, with a total fair value of $353,000, will be awarded in respect of the 2016 bonus. 22 Share-based payments Share options may be granted to senior management and, in addition, SAYE or equivalent schemes exist for all UK and US employees. The exercise price for SAYE options is equal to the market rate, less any discount up to the limit imposed by the local tax authority at the pricing date. The fair value of the options is determined using the Black-Scholes model for SAYE and ESPP and is spread over the vesting period of the options. The significant inputs into the model are an expected life of between 2.2 and 3 years for the SAYE and ESPP options, the volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the last five years and the risk-free rate is based on zero coupon government bond yields. Charge resulting from spreading the fair value of options Social security costs in respect of share options Total 2016 $’000 425 5 430 2015 $’000 222 82 304 70 4imprint Group plc Annual Report and Accounts 2016 The fair value per option granted and the assumptions used in the calculation are as follows: Grant date Share price at grant date Exercise price Number of employees Shares under option Vesting period (years) Expected volatility Option life (years) Expected life (years) Risk-free rate Expected dividends expressed as a dividend yield Possibility of ceasing employment before vesting Expectations of meeting performance criteria Fair value per option US ESPP Scheme UK SAYE Scheme 11/05/16 11/05/16 1,361p $16.49 451 1,361p 1,022p 34 117,330 27,496 2.2 30% 2.2 2.2 3 30% 3.5 3 0.33% 0.53% 2.0% 5% 100% 310p 2.0% 5% 100% 403p In respect of the 2015 Incentive Plan the fair value of the awards of 26,128 options or conditional shares made in 2016 is based on the share price at 31 December 2015. The option life is from date of first notification of the Plan at the end of March 2015 until expected exercise in March 2019. The fair value of the expected awards of 16,150 options or conditional shares in respect of 2016 is based on the share price at 31 December 2016 and the option life is from 3 January 2016 to March 2020. A reconciliation of option movements over the period to 31 December 2016 is shown below: Outstanding at start of period Granted Forfeited/cancelled Exercised Outstanding at end of period Exercisable at end of period 2016 2015 Number of shares 156,464 178,984 Weighted average exercise price Number of shares Weighted average exercise price 62p 343,210 176.44p 954p – – (8,030) 1,181p (20,755) 9.68p (156,464) 62p (165,991) 305.17p 170,954 1,084p 156,464 61.99p – – 36,464 266.00p 71 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Financial Statements continued 22 Share-based payments continued 2016 2015 Range of exercise prices Nil £2.01 – 3.00 £10.01 – 11.00 £12.01 – 13.00 23 Other reserves Balance at 28 December 2014 Currency translation differences Balance at 2 January 2016 Currency translation differences Balance at 31 December 2016 Weighted average exercise price – – Number of shares 26,128 – 1,022p 27,496 $16.49 117,330 Weighted average remaining life (years) Expected Contractual Weighted average exercise price Number of shares Weighted average remaining life (years) Expected Contractual 2.2 2.2 to 9.2 – 120,000 – 2.5 1.5 – 3.0 1.5 266p 36,464 – – – – 0.3 0.0 – – Capital redemption reserve $’000 Cumulative translation differences $’000 369 – 369 – 369 4,642 417 5,059 992 6,051 7.3 0.5 – – Total $’000 5,011 417 5,428 992 6,420 The capital redemption reserve arose on the redemption of preference shares in 2000. The currency translation difference represents the accumulated exchange movements on non US dollar functional currency subsidiaries from 29 December 2003 (transition date to IFRS) to the balance sheet date. 24 Cash generated from operations Operating profit Adjustments for: Depreciation charge Amortisation of intangibles Profit on disposal of fixed assets Exceptional non-cash items Decrease in exceptional accrual/provisions Share option charges Defined benefit pension administration charge Contributions to defined benefit pension scheme Changes in working capital: Decrease/(increase) in inventories Decrease/(increase) in trade and other receivables Increase in trade and other payables Cash generated from operations 72 2016 $’000 2015 $’000 34,696 31,963 1,890 1,449 499 – 2,772 (4) 425 311 510 (81) 610 (63) 222 394 (17,354) (825) 280 1,933 3,667 (107) (5,676) 1,401 29,115 29,797 4imprint Group plc Annual Report and Accounts 2016 25 Financial commitments At 31 December 2016, the Group was committed to make payments in respect of non-cancellable operating leases in the following periods: 2016 2015 In one year In two to five years 26 Contingent liabilities The Group has no known contingent liabilities (2015: none). Land and buildings $’000 1,444 3,282 4,726 Other $’000 181 341 522 Land and buildings $’000 1,399 4,743 6,142 Other $’000 182 529 711 27 Capital commitments The Group had no capital commitments contracted for but not provided for in the financial statements at 31 December 2016 for property, plant and equipment (2015: $nil). 28 Related party transactions The Group did not participate in any related party transactions. Key management compensation is disclosed in note 3. 73 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Independent Auditors’ Report to the Members of 4imprint Group plc Report on the Company financial statements Our opinion In our opinion, 4imprint Group plc’s Company financial statements (the “financial statements”): • give a true and fair view of the state of the Company’s affairs as at 31 December 2016 and of its cash flows for the 52 week period (the “period”) then ended; • have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • have been prepared in accordance with the requirements of the Companies Act 2006. What we have audited The financial statements, included within the Annual Report and Accounts (the “Annual Report”), comprise: • the Company balance sheet as at 31 December 2016; • the Company cash flow statement for the period then ended; • the Statement of changes in Company Shareholders’ equity for the period then ended; and • the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union, and applicable law, and as applied in accordance with the provisions of the Companies Act 2006. Other required reporting Consistency of other information and compliance with applicable requirements Companies Act 2006 reporting In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and the Directors’ Report for the financial period for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. In addition, in light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we are required to report if we have identified any material misstatements in the Strategic Report and the Directors’ Report. We have nothing to report in this respect. ISAs (UK & Ireland) reporting Under International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”) we are required to report to you if, in our opinion, information in the Annual Report is: • materially inconsistent with the information in the audited financial statements; or • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in the course of performing our audit; or • otherwise misleading. We have no exceptions to report arising from this responsibility. Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or • the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Directors’ remuneration Directors’ Remuneration Report – Companies Act 2006 opinion In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Other Companies Act 2006 reporting Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. 74 4imprint Group plc Annual Report and Accounts 2016 Responsibilities for the financial statements and the audit Our responsibilities and those of the Directors As explained more fully in the Statement of Directors’ Responsibilities set out on page 40, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. What an audit of financial statements involves We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: • whether the accounting policies are appropriate to the Company’s circumstances and have been consistently applied and adequately disclosed; • the reasonableness of significant accounting estimates made by the Directors; and • the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic Report and Directors’ Report, we consider whether those reports include the disclosures required by applicable legal requirements. Other matter We have reported separately on the Group financial statements of 4imprint Group plc for the 52 week period ended 31 December 2016. Ian Marsden (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Manchester 8 March 2017 75 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Company Balance Sheet at 31 December 2016 Non-current assets Property, plant and equipment Investments Deferred tax assets Other receivables Current assets Other receivables Cash and cash equivalents Current liabilities Other payables Net current assets Non-current liabilities Retirement benefit obligations Provisions for other liabilities and charges Amounts due to subsidiary companies Net assets Shareholders’ equity Share capital Share premium reserve Capital redemption reserve Retained earnings Total equity Note 2016 £’000 2015 £’000 B C D E 38 49 104,182 104,182 4,088 2,961 255,965 60,733 364,273 167,925 E 421 594 3,527 9,537 3,948 10,131 F (1,149) (1,512) 2,799 8,619 G H (15,679) (15,597) (108) (108) J (130,050) (60,733) (145,837) (76,438) 221,235 100,106 L 10,802 10,756 38,575 38,575 208 208 M 171,650 50,567 221,235 100,106 Company’s income statement Under Section 408 of the Companies Act 2006 an income statement for the Company is not presented. Profit after tax and before external dividends payable for the period of £138,720,000 (2015: £10,264,000) is included in the financial statements of the Company. The financial statements on pages 76 to 85 were approved by the Board of Directors on 8 March 2017 and were signed on its behalf by: Kevin Lyons-Tarr Chief Executive Officer David Seekings Chief Financial Officer 76 4imprint Group plc Annual Report and Accounts 2016 Statement of Changes in Company Shareholders’ Equity for the 52 weeks ended 31 December 2016 Balance at 28 December 2014 Profit for the period Other comprehensive income/(expense) Re-measurement gains on post-employment obligations Deferred tax relating to post-employment obligations Effect of change in UK tax rate Total comprehensive income Proceeds from options exercised Own shares purchased Own shares utilised Share-based payment charge Dividends Balance at 2 January 2016 Profit for the period Other comprehensive income/(expense) Re-measurement losses on post-employment obligations Deferred tax relating to post-employment obligations Deferred tax relating to losses Effect of change in UK tax rate Total comprehensive income Shares issued Proceeds from options exercised Own shares purchased Own shares utilised Share-based payment charge Deferred tax relating to losses Dividends Share capital £’000 Share premium reserve £’000 Capital redemption reserve £’000 Own shares £’000 Profit and loss £’000 Total equity £’000 Retained earnings 10,756 38,575 208 (945) 46,911 95,505 10,264 10,264 501 (102) (154) 501 (102) (154) 10,509 10,509 578 (970) 145 578 (480) – 145 (6,151) (6,151) (480) 970 10,756 38,575 208 (455) 51,022 100,106 46 138,720 138,720 (9,554) (9,554) (165) 807 (174) (165) 807 (174) 129,634 129,634 46 97 (377) – 314 154 97 (496) 314 154 (8,739) (8,739) (377) 496 Balance at 31 December 2016 10,802 38,575 208 (336) 171,986 221,235 77 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information 2016 52 weeks £’000 2015 53 weeks £’000 Note K (14,634) (1,891) 6,441 4,755 (5,699) (4,731) (13,892) (1,867) (13) (13) 46 – – – 16,588 13,188 (8,739) (6,151) 7,895 7,037 (6,010) 5,170 9,537 4,367 3,527 9,537 1,505 2,022 820 8,717 3,527 9,537 FINANCIAL STATEMENTS Company Cash Flow Statement for the 52 weeks ended 31 December 2016 Cash flows from operating activities Cash used in operations Finance income Finance costs Net cash used in operating activities Cash flows from investing activities Purchase of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Dividends received Dividends paid to Shareholders Net cash generated from financing activities Net movement in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period Analysis of cash and cash equivalents Cash at bank and in hand Short-term deposits 78 4imprint Group plc Annual Report and Accounts 2016 Notes to the Company’s Financial Statements General information 4imprint Group plc, registered number 177991, is a public limited company incorporated and domiciled in the UK and listed on the London Stock Exchange. Its registered office is 7/8 Market Place, London W1W 8AG. The Company’s financial statements are presented in Sterling. Numbers are shown in pounds thousands. Accounting policies The principal accounting policies adopted in the preparation of these financial statements are the same as those adopted in the consolidated financial statements on pages 51 to 55 except for the investments policy noted below. These policies have been consistently applied to all the periods presented. Basis of preparation The financial statements have been prepared under the historical cost convention in accordance with IFRS as adopted by the EU, IFRS IC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The standards used are those published by the International Accounting Standards Board (IASB) and endorsed by the EU at the time of preparing these statements (March 2017). After making enquiries, the Directors have reasonable expectations that the Company has adequate resources to continue to operate for a period of not less than twelve months from the date these financial statements were approved. Accordingly they continue to adopt the going concern basis in preparing the financial statements. Use of assumptions and estimates The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experiences and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Critical accounting policies Critical accounting policies are those that require significant judgement or estimates and potentially result in materially different results under different assumptions or conditions. Management considers the following to be the only critical accounting policy of the Company. Pensions As disclosed in note 17 on pages 65 to 67, the Company sponsors a closed defined benefit scheme. Year end recognition of the liabilities under this scheme and the return on assets held to fund these liabilities require a number of significant actuarial assumptions to be made including inflation, discount rate and mortality rates. Small changes in assumptions can have a significant impact on the expense recorded in the income statement and on the pension liability in the balance sheet. Investments Investments in subsidiaries are stated at cost. Impairment reviews are carried out if there is some indication that the carrying value of the investments may have been impaired. Where, in the opinion of the Directors, an impairment of the investment has arisen, provisions are made in accordance with IAS 36 “Impairment of Assets”. 79 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Company’s Financial Statements continued A. Employees Wages and salaries Social security costs Pension costs – defined contribution plans Share option charges Social security (credit)/charges in respect of share options 2016 £’000 795 97 19 285 (21) 2015 £’000 972 110 18 117 21 1,175 1,238 Fixtures & fittings £’000 261 – 261 13 274 191 21 212 24 236 38 49 Shares in subsidiary undertakings £’000 104,182 The average number of people, including Executive Directors, employed by the Company during the period was 5 (2015: 6). B. Property, plant and equipment Cost: At 28 December 2014 Additions At 2 January 2016 Additions At 31 December 2016 Depreciation: At 28 December 2014 Charge for the period At 2 January 2016 Charge for the period At 31 December 2016 Net book value at 31 December 2016 Net book value at 2 January 2016 C. Investments Cost: At 2 January 2016 and 31 December 2016 80 4imprint Group plc Annual Report and Accounts 2016 Subsidiary undertakings The subsidiaries at 31 December 2016 are set out below. All of these subsidiaries are wholly-owned and have ordinary share capital only, apart from 4imprint USA Limited and 4imprint US Group Inc, which also have preference shares. Company 4imprint, Inc. 4imprint Direct Limited 4imprint UK Holdings Limited 4imprint USA Limited 4imprint North America Limited 4imprint US Group Inc. 4imprint Limited Cavendish Place Newco No.1 Limited 4imprint Pension Trustee Company Limited 4imprint 2016 Pension Trustee Company Limited Country of incorporation and operation Business USA England England England England USA England England England England Promotional products Promotional products Holding company Holding company Holding company Holding company Dormant Dormant Dormant Dormant The dormant companies are exempt from statutory audit. There is no requirement, in the USA, for statutory audits of the US subsidiaries. The registered address of all subsidiaries registered in England is 7/8 Market Place, London W1W 8AG. The registered address of 4imprint, Inc. is 101 Commerce Street, Oshkosh, WI 54901, USA and for 4imprint US Group Inc. is 103 Foulk Road, Suite 202, Wilmington, DE19803, USA. D. Deferred tax assets At start of period Income statement credit Deferred tax credited/(charged) to other comprehensive income At end of period The Company’s deferred tax relates to the defined benefit pension scheme and carried forward tax losses. The deferred income tax credited/(charged) to other comprehensive income is as follows: Tax relating to post-employment obligations Effect of change in UK tax rate Tax relating to losses 2016 £’000 2015 £’000 2,961 3,081 505 622 136 (256) 4,088 2,961 2016 £’000 (165) (174) 961 622 2015 £’000 (102) (154) – (256) 81 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Company’s Financial Statements continued E. Other receivables Amounts due from subsidiary companies Other receivables Prepayments and accrued income Less non-current portion: Amounts due from subsidiary companies 2016 £’000 2015 £’000 256,154 61,105 180 52 167 55 256,386 61,327 (255,965) (60,733) 421 594 Current amounts due from subsidiary companies are repayable on demand. The amounts are not interest-bearing. Non-current amounts due from subsidiary companies are due after five years. All amounts are interest-bearing at market rates of interest. The carrying amounts of the Company’s trade and other receivables are denominated in the following currencies: Sterling US dollars F. Other payables – current Other payables Other tax and social security Amounts due to subsidiary companies Accruals 2016 £’000 126,217 130,169 256,386 2015 £’000 301 61,026 61,327 2016 £’000 191 33 516 409 2015 £’000 206 39 705 562 1,149 1,512 The amounts due to subsidiary companies are not interest-bearing and are repayable on demand. G. Retirement benefit obligations The amount recognised in the balance sheet represents the net liability in respect of the closed defined benefit scheme. Full details of the defined benefit scheme are contained in note 17 on pages 65 to 67. The Sterling analysis of the balance sheet amount is as follows: Present value of funded obligations Fair value of scheme assets Net obligations recognised in the balance sheet 2016 £’000 2015 £’000 (27,926) (93,965) 12,247 78,368 (15,679) (15,597) 82 4imprint Group plc Annual Report and Accounts 2016 Changes in the present value of the net defined benefit obligation are as follows: Balance at 28 December 2014 Administration costs paid by the scheme Exceptional items – buy-out and flexible retirement option costs paid by the scheme Interest (expense)/income Return on scheme assets (excluding interest income) Re-measurement gain due to changes in demographic assumptions Re-measurement gain due to changes in financial assumptions Contributions by employer Benefits paid Balance at 2 January 2016 Administration costs paid by the scheme Exceptional items – buy-out costs paid by the scheme – past service costs Interest (expense)/income Return on scheme assets (excluding interest income) Re-measurement gain due to scheme experience Re-measurement gains due to changes in demographic assumptions Re-measurement loss due to changes in financial assumptions Contributions by employer Benefits paid Liabilities/(assets) removed on settlement Balance at 31 December 2016 H. Provisions for other liabilities and charges At start of period Utilised At end of period Analysis of provisions Current Non-current Total Present value of obligations £’000 Fair value of scheme assets £’000 Net obligation £’000 (99,562) 84,128 (15,434) (258) (399) (3,419) – 2,827 835 – – – 2,872 (3,161) – – 540 6,011 (6,011) (258) (399) (547) (3,161) 2,827 835 540 – (93,965) 78,368 (15,597) (230) (975) (1,072) (3,068) – 42 1,247 (13,297) – – – 2,683 2,454 – – – (230) (975) (1,072) (385) 2,454 42 1,247 (13,297) – 12,134 12,134 6,329 (6,329) 77,063 (77,063) – – (27,926) 12,247 (15,679) 2016 £’000 108 – 108 2016 £’000 – 108 108 2015 £’000 147 (39) 108 2015 £’000 – 108 108 The provisions relate to dilapidation costs in respect of property leases and are expected to be paid within one to two years. J. Amounts due to subsidiary companies – non-current The amounts due to subsidiary companies of £130,050,000 (2015: £60,733,000) are due after five years. The loans are interest-bearing at market rates of interest. 83 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information FINANCIAL STATEMENTS Notes to the Company’s Financial Statements continued K. Cash generated from operations Operating loss Adjustments for: Depreciation charge Exceptional non-cash items Decrease in exceptional accrual Share option charges Defined benefit pension administration charge Contributions to defined benefit pension scheme Changes in working capital: (Increase)/decrease in trade and other receivables Decrease in trade and other payables (Decrease)/increase in payables to subsidiary undertakings Cash used in operations 2016 £’000 2015 £’000 (4,644) (2,537) 24 2,047 (3) 314 230 21 399 (41) 145 258 (12,134) (540) (190) (272) (6) 124 (226) 506 (14,634) (1,891) The exceptional non-cash items relate to pensioner buy-out costs of £975,000 (2015: £399,000, including flexible retirement option costs) paid by the pension scheme and a past service charge of £1,072,000 in respect of equalisation of the Guaranteed Minimum Pension for pensioner members of the defined benefit pension scheme. L. Share capital Allotted and fully paid 28,085,530 (2015: 27,965,530) ordinary shares of 386/13p each 2016 £’000 2015 £’000 10,802 10,756 During the period 120,000 ordinary shares were issued (2015: nil) for a consideration of £46,000 to satisfy options exercised under the Performance Share Plan. The options that have been granted and were outstanding under the Company’s share option schemes at the year end are shown in note 21 on pages 69 and 70. Full details of the share option schemes are given in note 22 on pages 70 to 72. Employees of the Company had interests in 5,828 SAYE options (2015: 14,208). M. Distributable reserves The profit and loss reserve of £171,650,000 in the Company includes £125,915,000, which is non-distributable. N. Financial commitments The Company had financial commitments for leases of land and buildings of £62,000 at 31 December 2016 (2015: £109,000). These are payable as follows: within one year £48,000 (2015: £48,000); in two to five years £14,000 (2015: £61,000). O. Contingent liabilities The Company had no known contingent liabilities at 31 December 2016 (2015: none). 84 4imprint Group plc Annual Report and Accounts 2016 P. Related party transactions During the period the Company has been party to a number of transactions with fellow subsidiary companies: Income statement Finance income due from subsidiary companies Finance costs due to subsidiary companies Balance sheet Interest-bearing loans due from subsidiary companies at end of period Interest-bearing loans due to subsidiary companies at end of period 2016 £’000 2015 £’000 6,424 5,699 4,731 4,731 255,965 130,050 60,733 60,733 Key management compensation, comprising remuneration of the Directors based in the UK, charged to the Company’s income statement was: Salaries, fees and short-term employee benefits Social security costs Pension contributions Share option charges All related party transactions were made on terms equivalent to those that prevail in arm’s length transactions. 2016 £’000 465 58 – 1 2015 £’000 641 82 7 2 524 732 85 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportFinancial StatementsAdditional Information ADDITIONAL INFORMATION Five Year Financial Record In 2014 the presentational currency was changed to US dollars and prior periods have been restated. The SPS business was classified as a discontinued operation in 2013 and the 2012 comparatives have been restated. In addition, 2012 has also been restated for amendments to IAS 19 and to include income from delivery receipts and other activities in revenue. Income statement Revenue Underlying operating profit Defined benefit pension scheme administration costs Share option related charges Exceptional items Operating profit Finance income Finance costs Net pension finance charge Profit before tax Taxation Profit from continuing operations Profit/(loss) from discontinued operations Profit for the period Basic earnings per ordinary share Dividend per share – paid and proposed Balance sheet Non-current assets (excluding deferred tax) Deferred tax assets Net current assets Net assets held for sale Retirement benefit obligations Other liabilities Shareholders’ equity 2016 $’000 2015 $’000 2014 $’000 2013 $’000 2012 $’000 558,223 497,219 415,773 332,936 290,813 38,377 33,519 27,759 19,494 14,506 (311) (430) (2,940) (394) (304) (858) (544) (666) (748) (694) (2,493) (1,030) (2,407) (397) (938) 34,696 31,963 24,142 15,856 11,844 22 (46) (521) 37 (7) 107 (7) 88 (27) 315 (249) (836) (903) (1,445) (1,824) 34,151 31,157 23,339 14,472 10,086 (9,672) (8,462) (6,982) (3,857) (3,253) 24,479 – 22,695 – 16,357 1,381 10,615 (4,825) 6,833 14,796 24,479 22,695 17,738 5,790 21,629 87.27c 52.50c 81.26c 38.89c 59.73c 32.41c 40.11c 27.56c 26.00c 23.55c 2016 $’000 2015 $’000 2014 $’000 20,020 19,365 10,403 5,030 4,388 4,794 2013 $’000 10,152 6,324 25,299 28,781 23,186 29,850 – – – 9,460 2012 $’000 21,472 10,147 36,767 – (19,290) (23,114) (24,015) (27,398) (36,985) (1,734) (968) (298) (719) (9,122) 29,325 28,452 14,070 27,669 22,279 Net cash 21,683 18,381 18,301 25,990 17,251 86 4imprint Group plc Annual Report and Accounts 2016 Registered Office and Company Advisers 4imprint Group plc 7/8 Market Place London W1W 8AG Telephone +44 (0)20 7299 7201 +44 (0)20 7299 7209 Fax hq@4imprint.co.uk E-mail Registered number 177991 England Independent Auditors PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors 101 Barbirolli Square Lower Mosley Street Manchester M2 3PW Joint stockbrokers Peel Hunt LLP Moor House 120 London Wall London EC2Y 5ET Liberum Capital Limited Ropemaker Place 25 Ropemaker Street London EC2Y 9LY Registrar and transfer office Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Bankers Lloyds Bank plc JPMorgan Chase Bank, N.A. 87 4imprint Group plc Annual Report and Accounts 2016OverviewGovernanceStrategic ReportAdditional InformationFinancial Statements Notes 88 4imprint Group plc Annual Report and Accounts 2016 Group plc Group office 4imprint Group plc 7/8 Market Place London W1W 8AG Telephone +44 (0)20 7299 7201 +44 (0)20 7299 7209 Fax hq@4imprint.co.uk E-mail Trading offices USA 4imprint, Inc. 101 Commerce Street Oshkosh WI 54901, USA Telephone +1 920 236 7272 +1 920 236 7282 Fax sales@4imprint.com E-mail UK 4imprint Direct Limited 5 Ball Green Cobra Court Trafford Park Manchester M32 0QT Freephone 0800 055 6196 Telephone +44 (0)161 850 3490 +44 (0)161 864 2516 Fax sales@4imprint.co.uk E-mail Market Beating Organic Growth Annual Report and Accounts 2016 4 i m p r i n t G r o u p p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 6