A world of celebration
IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
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IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
We transform paper and a whole lot
more into products that help the world
celebrate life’s special occasions.
We are proud to serve the best
retailers around the globe with a
complete end-to-end service from
design to distribution.
We are
Design Group
Find out more online at
www.thedesigngroup.com
WHAT’S INSIDE
OVERVIEW
STRATEGIC REPORT
GOVERNANCE
A summary of the
Group’s progress
and highlights of our
performance for 2017/18.
02 Financial highlights
03 Operational highlights
04 At a glance
A review of the Group’s
strategy with a more
detailed look at activity
during the financial year
together with its risk
management.
06 Executive review
24 Diversity
26 Business model
28 Our strategy
30 Risk management
34 Corporate, social and
environmental responsibility
Information on how
the Group is governed
and activities of the
Board.
36 Board of Directors
38
Chairman’s corporate
governance review
41 Directors’ remuneration report
47 Directors’ report
49 Statement of Directors’
responsibilities
FINANCIALS – GROUP
FINANCIALS – COMPANY
The Group’s consolidated
financial statements and
comprehensive notes
covering the year ended
31 March 2018.
The Company financial
statements and
comprehensive notes
covering the year ended
31 March 2018.
50 Independent auditor’s report
96 Company balance sheet
54 Consolidated income statement
55 Consolidated statement of
comprehensive income
97
Company statement of changes
in equity
98 Company cash flow statement
56 Consolidated statement of
99 Notes to the Company financial
changes in equity
statements
57 Consolidated balance sheet
58 Consolidated cash flow statement
59 Notes to the consolidated
financial statements
01
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 FINANCIAL
HIGHLIGHTS
Underlying fully diluted
earnings per share
(pence)(a)
Average leverage(b)
21.8
+20%
on 2017
18.2
4.1
1.5
3.2
35%
improvement
on 2017
13.2
11.5
2.3
1.5
2015
2016
2017
2018
2015
2016
2017
2018
Dividends
(pence)
Net cash/(debt)
(£million)
6.0
+33%
on 2017
2015
2016
3.0
2017
4.4
2018
4.5
£1.4
million
improvement
on 2017
2.5
(17.5)
1.0
2015
2016
2017
2018
(29.4)
(a) Underlying fully diluted earning per share before exceptional items and LTIP charges. Fully diluted earnings per share stated after exceptional gains
of 1.4p (2017: 0.4p cost) and LTIP charges of 2.7p (2017: 2.8p) is 20.5p (2017: 15.0p).
(b) Average leverage is calculated as average monthly net debt divided by EBITDA before exceptional items and LTIP charges.
02
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
OPERATIONAL
HIGHLIGHTS
UK
In the UK, our re-organised
business delivered 5% sales and
6% profits(b) growth. In September
2017 we commenced the
manufacturing of ‘not-for-resale’
paper bags in our facilities
in Wales.
USA
In the USA, revenue grew(a)
by 5% and profits(b) by 35%
through discerning revenue
growth. Our project to upgrade IT
systems will further enhance our
capacity and capability for
ongoing growth.
Europe
In Continental Europe
revenue grew(a) by 10% and
profits(b) by 29% through sales
of broader product categories to
key customers. In March 2018
our new ‘state-of-the-art’
high speed printing press
commenced production.
All regions have
delivered both sales
and profi ts growth.
China
Record levels of gift
bag and greetings
cards production
in China.
Australia
In Australia, we delivered
10% revenue growth(a) and
68% profits(b) growth refl ecting
continued focus on value-added
services and products. In
January 2018 we completed
the acquisition
of Biscay.
(a) Sales growth in local currencies.
(b) Underlying profi t growth is stated in local currencies, being profi ts before interest, tax, exceptional items, LTIP charges and management recharges.
03
AT A GLANCE
We’re truly international, with 10,000 customers selling our products through
over 200,000 stores across more than 80 countries, we enjoy considerable
market presence around the world. Focused on our four major product
categories of Celebrations, Stationery and Creative Play, Gifting and Bags
‘not-for-resale’, we leverage our Group size and expertise whilst retaining
local market knowledge and relationships through our local businesses.
ROW
£6.4m
2%
Australia
£36.9m
11%
Europe
£58.1m
18%
USA
£136.8m
42%
UK
£89.3m
27%
04
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
This blend of global scale and local knowledge allows us to offer our
customers a high quality ‘one-stop-shop’ solution from small independents
to large multinational retailers and e-tailers. In addition to our own generic
brands, our design-led product offerings include an excellent portfolio of
licensed and customer bespoke products.
Revenue by product
38%
62%
Manufactured
Sourced
Revenue by season
51%
Christmas
Revenue by brand
51%
45%
Everyday
49%
49%
Designed for you/Customer bespoke
Designed for you/Customer bespoke
Design Group/Licensed brands
Design Group/Licensed brands
4%
Minor
Seasons
05
EXECUTIVE REVIEW
A record year of
financial progress.
Paul Fineman
Chief Executive Officer
Giles Willits
Chief Financial Officer
06
Financial overview
We are delighted to report that the
year has seen our diversified business
deliver very healthy profit and earnings
per share growth driven by strong
performance across all segments. The
Group’s focus on cash generation has
resulted in the business being cash
positive at the year end, as well as
another year of improvement in average
leverage, despite a record level of
capital investment and the acquisition
of Biscay.
It is particularly pleasing to report that
the Group has successfully mitigated
the widely reported cost headwinds
within the marketplace, with both gross
and net margins increasing in the
year. This success reflects the broad
and diverse nature of our customer
base, product categories and brands
supported by our focus on efficiency,
product mix and innovation.
During the year, Group sales increased
by 5% to £327.5 million with profit
before tax, exceptional items and
LTIP charges increasing by 32%
to £21.4 million. Average leverage
improved from 2.3 times to 1.5 times,
whilst the year-end positive net cash
balance increased from £3.0 million in
2017 to £4.4 million in 2018, reflecting
the effectiveness of our focus on
converting profit into cash and the
highly cash generative dynamics within
our business.
The combination of reduced leverage
and significant cash generation
has underpinned a 33% increase
in dividends from a level of 4.5p for
2016/17 to a total of 6.0p for 2017/18
with dividend cover at 3.6 times
compared to 4.0 times in the prior year.
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 Fully diluted earnings per share
(pre-exceptional items and LTIP
charges) are up by 20% on the prior
year, to 21.8p (2017: 18.2p). After
allowing for exceptional items and LTIP
charges, diluted earnings per share
was up by 37% to 20.5p (2017: 15.0p).
Our investment in fast payback
initiatives and the very latest
manufacturing technology suitable
for high speed production of several
product categories reflects our
determination to remain at the
forefront of efficient and responsible
manufacturing and to continue to add
value for our customers in all areas
of our activities. This investment will
underpin our ability to profitably drive
further growth opportunities.
Our strategy
The success of the Group has been
driven by our relentless focus on
growing the business, delivering
efficiency improvements and taking
advantage of the increased scale
of the Group. Our strategy is based
on leveraging the strengths of our
business and the many opportunities
to grow in the market.
Our business has been built through
developing the following core
capabilities:
• our customers – mass, discount and
specialist ‘experiential’ retailers are
outpacing their competition with
many customers consolidating their
supplier relationships;
• technology – technological
•
development is changing consumer
habits, providing consumers with
new channels to purchase their
celebration products, while also
giving access to consumer insight to
drive improved retail execution; and
industry – the pressures of raw
material inflation and increased
environmental compliance have
driven increasing demands
from customers, creating
consolidation opportunities within
the fragmented supply base and
giving an advantage to those with
economies of scale.
Together our core strengths and the
market dynamics offer the Group
significant opportunities to grow
the business – as such our strategy
focuses on the following:
• Working with the winners:
– increasing revenue through
organic growth with both
existing and new customers,
suppliers and product areas
benefiting from the shifting
retail marketplace.
• design and innovation in our chosen
• Design and innovation:
product categories;
• manufacture and sourcing of a
broad portfolio of products;
• geographic and channel diversity
•
in key markets;
leveraging our global scale to deliver
low cost solutions; and
• a focus on developing value, with
award winning services for our
customers.
Our future growth focuses on taking
advantage of the key trends which
include:
• the market – consumers increasingly
expect innovation and value in
our core and adjacent categories
and the number of occasions to
celebrate during the year continues
to expand;
– developing new opportunities
in new channels and adjacent
product categories; and
– expanding our presence in the
growing market for celebration
events throughout the year.
• Efficiency and scale:
– driving margins through
investment in process
and people; and
– pursuing accretive M&A
opportunities focused
on unlocking synergies
through economies of scale
and strengthening our
‘one-stop-shop’ position
with customers.
During the year the Group made
significant progress delivering its
strategy. We grew revenue across all
the regions by working with many of
the world’s most successful retailers.
In particular during 2017/18 sales to
our top ten customers grew on average
13% while our business with two of
the world’s largest discount grocers
grew on average 95%. Our focus
on design and innovation helped us
increase the number of products sold
by over 100 million units and included
the introduction of a new category,
bags ‘not-for-resale’, as well as
significantly more greetings cards and
photo frames. Investment in efficiency
was reflected through our increased
capital expenditure, which helped drive
improved margins, while the acquisition
of Biscay underpinned the potential that
further M&A can bring to the Group.
Our strategy focuses on delivering
the following key commitments to
shareholders:
• sustained double digit growth
in earnings attributable to
shareholders;
• maintaining average leverage
between 1.5 times and 2.5 times;
and
• a progressive dividend policy and
our commitment of moving dividend
cover over time towards at least
2.5 times earnings per share.
Outlook
Following the transformation of the
Group over recent years, there is
considerable scope for further growth
across all aspects of the business.
We remain focused on the profitable
development of our business and
confident that we have the team and
agility to deliver further successes.
We will continue to create value for all
stakeholders through our strategy of
developing diversified income streams
across broad categories and markets,
both organically and through well
considered acquisitions. With a strong
orderbook in place and a positive
start to the new financial year, we are
excited about the opportunities to
deliver further growth in 2018/19.
07
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 CREATING MEMORIES
In 2017/18 we
sold over
115
million
gift bags
and bags
‘not-for-resale’
08
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 09
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
EXECUTIVE REVIEW
CONTINUED
Operational regional highlights
Our Group increasingly leverages our global scale as a diversified, design-led, multi-product category and multi-channel
business supported by world class manufacturing and sourcing operations. With an effective mix of creativity and reliability,
our teams strive to deliver commercially successful design, product development and innovation across our global customer
base. The success of this can be seen by the resulting growth in all of our regions in 2017/18, despite the cost headwinds we
experienced in the year in respect of paper price inflation.
Segmental sales
Profit(a)
Margin
% Group
revenue
38% UK and Asia £m
37% Americas
16% Europe
$m
€m
11% Australia
AU$m
(2%) Elims/central
costs
£m
100% Total
2018
123.3
158.8
58.5
63.1
(4.8)
327.5
2017
% growth
117.0
151.6
53.1
57.4
(3.1)
311.0
5.4
4.8
10.1
10.0
—
5.3
2018
7.9
12.3
7.5
4.9
(4.0)
22.8
2017
% growth
7.5
9.1
5.8
2.9
(4.1)
17.5
5.6
34.6
29.0
68.4
—
30.4
(a) Segmental profit is calculated as operating profit before exceptional items, LTIP charges and management recharges.
2018
%
6.4
7.8
12.9
7.8
—
7.0
2017
%
6.4
6.0
11.0
5.1
—
5.6
UK and Asia
With sales volumes and value at record
levels, our UK and Asia business
accounted for 38% (2017: 38%) of our
Group’s revenue for the year. Sales
in the UK and Asia increased 5.4%
to £123.3 million (2017: £117.0 million)
delivering a profit up 5.6%
at £7.9 million (2017: £7.5 million).
In order to present a unified set of
product and supply solutions to our
total customer base, leverage our
scale across all areas of our activities
and utilise the strengths and deep
knowledge that our respective teams
possess, we decided in 2016/17 to
re-organise our three UK businesses
under one overall leadership team.
In 2017/18 we have begun to see
the tangible benefits of increased
cohesiveness, with a return to profit
growth in the region and encouraging
momentum across many areas of our
UK based business.
Whilst our share of the UK market for
gift packaging remains substantial
there is still scope for profitable
growth across this and all other
categories, both online and through
‘brick and mortar’ retailers. This
growth opportunity is underpinned by
the excellent performance of our gift
wrap and paper bag manufacturing
operation in Wales and card, bag
and cracker production facility in
Huizhou, China.
A new initiative to develop new income
streams in adjacent categories
and channels resulted in the UK
manufacturing paper bags for the
fast growing ‘not-for-resale’ market,
with a focus on the supply of higher
end fashion and beauty brands. With
production commencing in September
2017, we are confident that there
are many excellent opportunities for
growth within this new channel and
we are already providing retail brands
with a significant volume of bags, with
orders in place which will grow the
business further still in 2018/19.
10
IG Design Group plc
2017/18 has been a year of excellent progress
as illustrated by some of the highlights below:
Europe
Our business in Europe delivered
a strong performance in 2017/18
accounting for 16% (2017: 15%)
of the Group’s revenue. Sales
increased 10.1% to €58.5 million
(2017: €53.1 million) with margins up
to 12.9% (2017: 11.0%) delivering
a €1.7 million improvement in profit
year on year.
Having established strong trading
relationships over a number of years
with each of Europe’s top ten retail
groups, we have enjoyed excellent
growth in the year. This is supported
by well executed capital investment
programmes and by our dedicated
team. Their focus on design-led and
constantly refreshed, innovative
products provides our customers
with an exciting and value-added
offering through strong programmes
of innovative product development.
Sales of bespoke gift products have
been especially strong, with on-trend
photo frames and photo-based gift
accessories achieving record volumes.
Our efficiency has been further
enhanced through our latest
investment in a new ‘state-of-the-art’
printing press which commenced
production in the Netherlands in March
2018, underpinning our competitive
market position for the future.
Americas
Our Americas business provided
a 37% share of overall Group sales
(2017: 38%). Sales increased 4.8% to
$158.8 million (2017: $151.6 million)
reflecting growth across all channels.
This drove a 34.6% increase in profit
to $12.3 million (2017: $9.1 million)
supported by profit margins which
increased to 7.8% in the year.
The year featured strong growth
in our Creative Play product sales
under the recently launched Anker
Play Products brand, spearheaded
by a specialist and dedicated team
developing innovative products, such
as play themed educational, art and
craft and construction ranges for Mass
and Value Retailers. We plan to further
develop sales of Anker Play Products,
both within the Americas, and
throughout our global customer base.
Sales of dated products, such as
calendars, grew and alongside the
challenges of integrating a new
business, the synergy opportunities
that were identified during the
acquisition of Lang Companies Inc.
(“Lang”) have continued to be
delivered, with further areas of
improvement in progress.
New initiatives include the investment
in a new IT platform to enable
our future growth trajectory to be
efficiently delivered and supported by
user friendly systems and enhanced
commercial and operational capability.
Australia
Our business in Australia accounted for
11% of overall Group sales (2017: 11%).
Sales at AU$63.1 million were up 10%
year on year with profits up 68.4% as
a result of significant margin gains
which increased to 7.8% (2017: 5.1%)
in the year.
Having won a three-year contract
for the supply of greetings cards to
Australia’s largest discount retailer in
2016/17, we saw the benefits of this
flow through during the year combined
with the economies of scale that put us
in an excellent position to further grow
our market share in this higher margin
product category. This has been
further enhanced with the acquisition
in January 2018 of Biscay, with
operational and commercial integration
firmly on track to complete during the
first half of 2018/19.
11
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
CREATING MEMORIES
In 2017/18 we
sold over
1
billion
metres of
gift wrap
12
IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
13
EXECUTIVE REVIEW
CONTINUED
Our products and brands
Our business provides our broad
customer base with a ‘one-stop-shop’
product offering which is a
compelling blend of great design
and value for money products
across the Celebrations and
greetings based categories.
More than ever before, it is the
combination of our ability to create
commercially impactful designs
and innovative product formats
across our full product portfolio,
together with a long track record
of delivering first class customer
service, that underpins our growth.
Our culture is one of ongoing
improvement, with a determination
to perpetually ‘raise the bar’ in
all aspects of our business in
order to remain our customers’
preferred ‘partner of choice’.
Whilst an increasingly global
business, we are mindful that local
knowledge and understanding is
vital in ensuring commercial success.
We have evolved into a diversified,
multi-category, multi-channel
and multi-product manufacturer
and supplier with our activities
and sales generated across four
core categories:
•
•
•
‘Celebrations’, including
gift packaging, greetings and
partyware products;
‘Stationery and Creative Play’,
including home, school and
office products;
‘Gifting’, our design-led giftware
products category; and
• Our most recently introduced
category ‘Bags not-for-resale’
focused on branded store bags.
All our core product categories grew in
the year, with strong growth specifically in
Stationery and Creative Play and Giftware
driven by our focus on new higher margin
sales initiatives in these areas.
31 March 2018
31 March 2017
%
74
10
13
3
£m
243.5
31.2
42.6
10.2
327.5
%
77
9
11
3
£m
240.4
26.9
35.2
8.5
311.0
The increasing retail focus on
celebrating Valentines, Easter, and
other non-Christmas occasions
provides an exciting growth
opportunity for all the business units
across the Group.
The multi-faceted activities across our
Group’s businesses are underpinned
by our team of experts within our
sourcing and manufacturing operations
based in Hong Kong and China,
together with a broadening base
throughout Asia. They have further
continued to maintain their track record
of delivering an excellent standard of
service that encourages the ongoing
loyalty of our large customer base.
Our team
As always, it is the dedication and
passion of our talented team across all
disciplines and throughout our Group
that fuels our success. It was therefore
especially pleasing to have been highly
commended as ‘Company of the Year’
during the 2017 Employee Engagement
Awards, representing a further
acknowledgement of our evolution as
one global group of businesses.
It is, once again, our privilege and
pleasure to thank all of our colleagues
for their contribution during what has
been a year of great achievement and
overall improvement in performance in
highly competitive markets.
Sales by product category
Celebrations
Stationery and Creative Play
Giftware
Bags ‘not-for-resale’
Total
We estimate that over 650 million
items, representing over 40,000 SKUs
have been manufactured, sourced and
delivered to our customers during the
year, of which 49%, £160 million sales,
carry our Group’s generic and licensed
brands. Key areas of growth year on
year include Celebrations and Creative
Play products.
The business has also successfully
broadened the revenue generated
throughout the year outside of
specific Christmas based products
by increasing the percentage of sales
generated in our ‘Everyday’ and
‘Minor’ seasons, which together now
account for 49% of the total revenues
of the Group, up from 45% in the
previous year.
14
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
Profit before
tax, exceptional
items and LTIP
charges up 32%
to £21.4 million
Average leverage(a)
reduced by 35%
from 2.3 times in
2017 to 1.5 times
in 2018
Non-UK revenues
by customer
destination are 73%
of Group revenues
At £9.4 million,
investment in fast
payback capital
expenditure was
at record levels
Our Group has
delivered a 1.3
percentage point
gross margin
increase whilst
sustaining a highly
competitive offering
Biscay acquired for
£5.1 million in cash,
January 2018
Commenced
manufacturing
of bags ‘not-for-
resale’ in Wales,
September 2017
Upgrading of IT
systems in USA,
providing enhanced
future efficiencies,
proceeding on time
and on budget
Highly commended
in the category
of ‘Company of
the Year 2017’
at the Employee
Engagement
Awards
(a) Average leverage is calculated on average monthly net debt divided by EBITDA before exceptional items and LTIP charges.
15
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
CREATING MEMORIES
In 2017/18 we
sold almost
13
million
creative play
products
16
IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
17
EXECUTIVE REVIEW
CONTINUED
Detailed financial review
The Group has delivered a strong financial performance for the year to 31 March 2018 underpinning our ambitions for
future growth.
Revenue
Gross profit
Gross margin
Overheads
Operating profit before exceptional items and LTIP charges
Finance charge
Profit before tax, exceptional items and LTIP charges
Exceptional items
LTIP charges
Profit before tax
Tax
Profit after tax
31 March
2018
£m
327.5
70.0
31 March
2017
£m
311.0
63.9
21.4%
20.6%
(47.2)
22.8
(1.4)
21.4
0.5
(2.2)
19.7
(5.4)
14.3
(46.4)
17.5
(1.2)
16.3
(1.1)
(2.2)
13.0
(2.7)
10.3
%
change
5%
9%
2%
30%
13%
32%
51%
39%
Revenues for the year of £327.5 million
have grown 5% over the previous
year (2017: £311 million). Using
like‑for‑like foreign exchange rates
this translates into an increase of 6%.
The main drivers of the growth were
our European and Australian territories,
although all areas delivered year on
year improvement.
The Group remains focused on further
improving margins in future years,
by continuing to drive operational
efficiencies through sourcing and
manufacturing as well as balancing
the mix of products toward higher
margin categories and channels such
as increased sales of Design Group
branded products.
Overall underlying operating profit
before exceptional items and LTIP
charges increased by 30% to
£22.8 million (2017: £17.5 million) and
33% at like‑for‑like exchange rates.
Operating profit margins pre‑tax,
exceptional and LTIP charges continue
to rise, at 7.0% for the year (2017: 5.6%)
driven by a move in product mix toward
higher‑margin product categories,
improved efficiencies, and a continued
focus on cost management. Our focus
on operating efficiencies and optimised
procurement shows in the gross
margin, which has increased to 21.4%
(2017: 20.6%).
The tight management of cost
continues at an overhead level, where
we have successfully kept selling
and administration overheads growth
to a low level. Overheads (before
exceptional items and LTIP charges)
have increased by just under 2%
in the year, representing our focus
on managing these costs as the
business grows which reflects in the
fall in overheads as a percentage of
sales. We anticipate that this trend
will continue, with overheads rising
at a lower rate than our sales growth
around the Group.
Overall our underlying profit before
tax, exceptional items and LTIP
charges increased 32% in the year
to £21.4 million (2017: £16.3 million).
Whilst we focus on profits before
exceptional items and LTIP charges
as our core measure of profitability,
it is encouraging to note that
the growth story continues after
these items are included with
total profit before tax 51% ahead
of last year. This result includes
an overall exceptional gain of
£0.5 million (2017: loss £1.1 million)
and an LTIP charge of £2.2 million
(2017: £2.2 million).
Profit after tax for the year
increased by 39% to £14.3 million
(2017: £10.3 million); after removing the
effect of exceptional items and LTIP
charges, underlying profitability after
tax increased by 24% to £15.4 million
(2017: £12.4 million).
18
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
Finance charge
The Group continues to benefit
from having the whole Group
(except for our Australia business)
under a single banking deal with
competitive interest rates. Despite
the continued growth in activity,
underlying finance costs, excluding
hedge accounting adjustments of
£nil (2017: £0.7 million), have reduced
to £1.4 million (2017: £1.9 million)
reflecting improvement in average debt
year on year. Interest cover increased
to 16.4 times in 2018, up from 14.2
times in 2017. With interest rates now
forecast to rise over coming periods
careful management of our cash and
working capital balances is as critical
as ever.
Exceptional items
The exceptional credit in the year of
£0.5 million before tax (2017: loss of
£1.1 million) related to three items;
firstly the sale of our site in Hirwaun,
Wales, which we sold for £2.5 million
generating a profit on disposal of
£1.1 million after accounting for
its book value, sale and related
re-organisation costs. Secondly, the
transaction costs for the acquisition
of Biscay which totalled £0.3 million;
and thirdly the balance of restructuring
costs in respect of Lang and the
US print platform, which totalled
£0.2 million.
LTIP charges
LTIP charges were consistent year
on year, with a charge of £2.2 million
taken to the income statement in the
year (2017: £2.2 million). This year saw
LTIP vesting under the 2014-2017 LTIP
scheme and the resultant exercises
of these awards that occurred in the
year, together with some exercises
of historical LTIP and share option
schemes, gave rise to significant cash
tax savings. In total, £1.2 million of
tax credits arose as a result of share
option exercises.
Taxation
The Group continues to manage its
tax affairs in an open and transparent
manner, observing full compliance with
all applicable rules and regulations
in countries in which it operates and
not entering into any tax avoidance
or otherwise aggressive tax planning
schemes. The headline taxation
charge has increased to £5.4 million
(2017: £2.7 million) as a result of both
the increase in profitability around
the Group and the deferred tax
credit netted in last year’s charge
that arose on changes in historical
loss recognition. The effective
underlying tax charge on profits
before exceptional items and LTIP
charges is also up on the prior year
at 28.3% (2017: 24.2%).This is close
to the underlying blend of statutory
rates in the countries in which we
operate and represents the impact of
increased trading in Australia and the
USA where the rates have been 30%
and until recently 35%, respectively.
The reduction in the US federal rate of
corporation tax will mean a fall in this
blend of statutory rates in future years
and result in a fall in our effective rate
accordingly. However, in this year the
effect has been mixed with the benefit
to current tax of the fall in the rate in
the last quarter more than offset by the
impact of revaluing down our deferred
tax assets in the USA. Based on our
current mix of profits forecast across
the Group we anticipate the effective
tax rate in 2018/19 dropping to 23.9%.
Other than in the UK and Asia
segment, where we continue to have
unrecognised tax losses that are
harder to access, all historical losses
are now recognised as deferred tax
assets or have been taken as relief
against current tax charges. Actual
taxation paid in cash during the
year was higher than the prior year
at £3.1 million (2017: £2.0 million) as
our businesses in Australia and the
Netherlands do not have losses to
offset their profits and we have used
up our historical losses in the USA
during the period. With improving and
sustained profitability, we also expect to
pay cash tax in the UK from next year.
Earnings per share
Our key measure for monitoring growth
in earnings per share is underlying,
fully diluted earnings per share as this
marks the performance of the business
after accounting for the dilutive effect
of share options and one-off effect of
exceptional items. Underlying, fully
diluted earnings per share before
exceptional items and LTIP charges
grew 20% to 21.8p (2017: 18.2p)
reflecting the strong financial
performance in the year. Basic earnings
per share were 21.4p (2017: 15.7p).
31 March
2018
pence
31 March
2017
pence
21.8
18.2
(2.7)
(2.8)
Underlying fully
diluted EPS
Cost per share
on LTIP charge
Gain/(cost) per share
on exceptional items
Fully diluted EPS
1.4
20.5
(0.4)
15.0
Dividends
On the back of the strong financial
performance the Board is pleased to
announce a final dividend of 4.00p
(2017: 2.75p) bringing our total dividend
in respect of the year to 6.00p per
share, up 33% (2017: 4.50p). This is
covered by more than three and a
half times earnings compared to four
times in 2016/17. This improvement in
pay-out is in line with our progressive
dividend policy and our commitment
of moving our dividend cover over time
towards at least two and a half times
earnings per share.
Return on capital employed
The Group remains focused on
improving the return on capital
employed in the business, and each
region has its own target to improve
its return on the average net capital
employed. Overall, the Group saw the
return on average net capital employed
(excluding cash) increase to 22.2% in
2017/18 from 16.9% in 2016/17.
19
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
£9.4 million
invested in fast
pay back capital
projects.
Capital
investment
A year of record Ievels
of capital investment.
With a long established track record
of well executed, on time and on
budget capital investments, we were
delighted to have identified further
projects throughout the Group.
These included the installation,
in March 2018, of a new
‘state-of-the-art’ high speed
printing press in the Netherlands.
Capable of printing at unprecedented
speeds, combined with accuracy
and efficiency, we are well placed
to remain at the forefront of
competitiveness and capability.
In the UK, in September 2017
we commenced manufacturing
‘not-for-resale’ paper bags with a
particular focus on the higher end
fashion and beauty brands.
Our ability to provide significant
volumes of high quality metalised
paper, together with specialist and
value adding finishes, was also
enhanced by our investment in
the latest metalising technology,
installed within in our operation in
Wales in the summer of 2017.
In the USA, such is our confidence
in future growth prospects, that we
have invested in a new IT platform
to help facilitate growth and
provide “user friendly” and intuitive
information across all disciplines of
our business.
We encourage our teams to
identify further compelling capital
investment projects, that give us
the opportunity to improve the
efficiency of the business or offer
our customers new innovative
products solutions.
‘State-of-the-art’ high
speed printing press
IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
EXECUTIVE REVIEW
CONTINUED
Cash flow and net cash
At 31 March 2018, the net cash position
has improved on the prior year, up at
£4.4 million (2017: £3.0 million). Due to
the seasonal nature of our business,
the Group spends a lot of the year in a
net debt position and therefore average
leverage, being average monthly net
debt divided by EBITDA, is the key
measure the Group adopts to manage
debt. We seek to maintain our average
leverage position in the range between
1.5 times and 2.5 times over the long
term. Average leverage for the year
to 31 March 2018 was 1.5 times,
down from 2.3 times in the prior year,
demonstrating the continued focus on
our balance sheet and working capital
management throughout the year.
This puts the Group in a solid position
to fund future growth as and when the
right opportunities come along.
The strong profit performance in the
year was supported by excellent cash
conversion with our cash generation
from operations at £21.7 million
(2017: £31.5 million) delivering an
EBITDA to cash conversion of 77.5%.
EBITDA increased to £28.0 million,
which is up 25% compared to
£22.4 million in 2016/17.
EBITDA(a)
Change in trade and other receivables
Change in inventory
Change in creditors, provisions and accruals
Exceptional items from operations
LTIP
Cash generated from operations
Proceeds from sale of property, plant and equipment
Net capital expenditure
Business acquired
Tax paid
Interest paid
Dividends paid to non-controlling interests
Equity dividends paid
Proceeds from issue of share capital
Other
Movement in net cash
Opening net cash
Closing net cash (see note 16)
(a) Before exceptional items and LTIP charges.
31 March
2018
£m
31 March
2017
£m
28.0
(9.1)
0.4
3.3
(0.5)
(0.4)
21.7
2.6
(9.4)
(5.1)
(3.1)
(1.5)
(0.6)
(3.0)
0.1
(0.3)
1.4
3.0
4.4
22.4
(0.8)
2.7
8.2
(0.7)
(0.3)
31.5
0.1
(5.1)
(2.7)
(2.0)
(1.9)
(0.9)
(2.1)
5.1
(1.5)
20.5
(17.5)
3.0
Working capital
As always, the management of working
capital across the Group remains a
priority. The main driver of the working
capital outflow in the year was the
increase in trade debtors, partially
offset by increased trade creditors,
which reflects the overall growth of
the business year on year, the phasing
of sales in the final quarter and the
acquisition of Biscay during the year.
We actively track both debtor days and
credit rating profiles to ensure that our
credit risk on debtors remains as low
as possible, and have had only a very
low experience of bad debt write-offs
in the year, which at £0.2 million, is
under 0.1% of turnover (2017: 0.2%).
Stock levels within the business are
largely flat, despite an increase in
inventory in Australia following the
acquisition of Biscay, reflecting tighter
management of stock levels elsewhere
in the Group.
Capital expenditure
Over the course of the year we have
invested significantly in our business.
In total we have spent £9.4 million, of
which only approximately £3-4 million
represents maintenance spend,
replacing or maintaining existing capital
items. The balance has been spent
on increasing capacity, improving our
production and operating efficiency
and developing new product offerings.
Significant capital projects completed
and ongoing in the year include:
• the acquisition of a second,
state-of-the-art printing press
in the Netherlands. Our new
market-leading press is our fastest,
most efficient yet. It came online at
year end, meaning the production
efficiencies we will gain over the
older press it replaces will benefit
the new financial year;
22
• the introduction of a new bag
machine in our UK factory to
provide ‘not-for-resale’ branded
bags for retailers. This is now
fully operational and delivering
incremental profit in this new
revenue stream for the Group; and
• an ERP system implementation
programme in the USA. Our
business in the US has grown
rapidly over the last two years
and the new ERP will support the
delivery of operational efficiencies
as well as future growth.
Beyond these significant programmes,
we have had a large number of smaller
capital spend projects in areas where we
have identified opportunities to gain fast
returns from investing in our operations.
In all cases we seek rapid payback from
our investment and monitor projects
closely both during implementation and
then through the payback period to
ensure this is achieved.
Biscay acquisition
The Group acquired the trade and
certain assets of Biscay Greetings Pty
Limited (“Biscay”) in January 2018.
Biscay is a leading greetings card
and paper products business based
in Australia. The acquisition brings
significant further strength to our
greetings cards business in Australia,
growing our share of the market with
both an enlarged product range, mix and
customer base. The acquisition includes
natural synergies in procurement,
warehouse operations and logistics with
the financial impact of this expected
to start delivering in the year ending
31 March 2019. The purchase price
was AUD 8.9 million with a further
AUD 3.0 million required for working
capital on acquisition. Full details of the
assets acquired, which included stock,
customer lists and the Biscay brand, can
be found in note 31 to the consolidated
financial statements. The acquisition was
funded entirely using local debt facilities.
Treasury
We are now in our second year of
our global financing deal, with all
wholly owned parts of the Group funded
through a single global deal with HSBC.
The HSBC agreement includes a suite
of central and locally provided facilities
structured to provide a flexible cost
effective solution allowing the Group
to make the most efficient use of our
cash and facilities across our areas of
operation. Westpac continues to support
our Australian business including the
provision of additional funding this year
to finance the acquisition of Biscay.
The HSBC facilities comprise:
• a revolving credit facility (“RCF”)
•
of £18.0 million, which after recent
extension, runs to May 2021;
invoice financing arrangements
for an initial term of three years in
the UK, European, US and Asian
markets; and
• a further flexible RCF with availability
varying from month to month. This
is reviewed annually but capable
of extension to match the maturity
of the core RCF. This working
capital RCF is designed to meet our
requirements during those months
when stock is being built but will
be undrawn for that part of the year
where the invoice financing facilities
are sufficient to meet our needs.
In total, the available facilities at over
£127.9 million are more than sufficient
to cover our peak requirements.
The facilities have flexible elements
within them that mean they can also
grow with us. The facilities, which do
not amortise with time, include an
additional uncommitted amount to
finance potential acquisitions.
There are financial covenants, tested
quarterly, attached to our facilities as
follows:
•
•
interest cover, being the ratio
of earnings before interest,
depreciation and amortisation to
interest on a rolling twelve-month
basis; and
leverage, being the ratio of debt to
pre-exceptional EBITDA on a rolling
twelve-month basis.
There is a further covenant tested
monthly in respect of the working
capital RCF by which available asset
cover must not fall below agreed levels
relative to amounts drawn.
The Group now has no interest rate
hedges in place and elects to accept
floating interest rates across a range
of currencies. While we will keep this
under review, our debt is at its lowest
point in many years and may fall further
relative to profitability. While global
rates are rising, they remain low and
interest margins have further capacity
to fall as leverage performance
improves and we are therefore
comfortable with this position.
Foreign exchange
The effect on foreign exchange on the
Group’s results has been less significant
this year compared to the impact of
the large swings seen in 2016/17. The
overall impact on sales and profits from
currency movements is not significant.
However, we adopt an active hedging
policy where required. In particular, cash
flow hedging ensures further foreign
exchange movements remain mitigated
as far as possible. A reasonable
proportion of this hedging is achieved
through natural hedges whereby our
purchases and sales in US dollars are
offset. The balance of our hedging is
achieved through forward exchange
contracts and similar derivatives.
Financial position and
going concern basis
The Group’s net assets increased
by £10.5 million to £100.5 million
at 31 March 2018 (31 March 2017:
£90.1 million).
The Directors acknowledge guidance
issued by the Financial Reporting
Council relating to going concern.
The Directors consider it appropriate
to prepare the consolidated financial
statements on a going concern basis,
as set out in note 1 to the consolidated
financial statements.
Paul Fineman
Chief Executive Officer (CEO)
Giles Willits
Chief Financial Officer (CFO)
8 June 2018
23
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 OUR PEOPLE, OUR PRODUCTS,
OUR CULTURE
Diversity
DESIGN
Design is at the heart of
everything we do. With
multiple design studios across
the globe, Design Group
prides itself on always being
at the very cutting edge of
design trends and product
development.
PRODUCTION
Our state-of-the-art facilities,
streamlined procedures and
a dedicated workforce is
what enables Design Group
to produce high-quality
products, on a global scale,
all year round.
24
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
We work with more than 10,000 customers throughout the world,
with operations in the UK, Europe, Australia, Asia and the Americas.
DISTRIBUTION
Making use of our extensive
network of local and
international contacts,
Design Group’s distribution
operation allows for our
products to reach consumers
in all four corners of the world.
CUSTOMERS
We are proud to serve
the best retailers around
the world with a complete
end-to-end service from
design to distribution.
It is our aim to be a partner
of choice to our customers.
25
BUSINESS MODEL
IG Design Group plc is a global manufacturer and distributor of design-led
Celebration, Creative Play, Giftware, Bags ‘not-for-resale’ and related products.
What we do
Our business model
What makes Design Group unique and able to do what we do
Quality, innovative design
• Design is at the heart of everything we do
• Each business unit has a dedicated design team, continuously
innovating fresh designs, including generic, customer bespoke
and licensed branded offerings
• Our businesses can all access these great designs through our
global design hub
Manufacturing and sourcing expertise
• We manufacture a number of our core products in-house, including
gift wrap, crackers, bags and cards
• Our manufacturing bases are in the UK, China, the USA, Netherlands
and Poland
• We continuously invest in our manufacturing process and have
some of the most efficient production facilities in the industry
• For the rest of our products, we create suitable designs and then
work with carefully selected partners to produce them
International operations and capability
• We have operations in six countries and four continents, selling
to over 80 countries
• This allows us to know and understand different customer and
supplier markets well
• We are one of a very few in our industry with this scale, which
is increasingly important as global retailers consolidate
• Our multi-currency cost and sales base also acts as a natural hedge
to currency fluctuations
Fully empowered business units
• Each business has local teams with expert knowledge of their markets
• Business units have control over their operating decisions, working
together across the Group where it is efficient and effective to do so
• This helps ensure our products are relevant and on-trend,
whilst leveraging our global scale when it counts
Trusted partner to our customers
• Customers rely on our ability to deliver everything from small
catalogue orders to large international programmes
• We have a track record of delivering on time and to
high-quality standards
• We offer everything from ‘free on board’, where the customer handles
shipping, to merchandising solutions, where we put items into stores,
depending on customer needs
We transform paper and a
whole lot more into products
that help celebrate life’s
special occasions.
Our products are found
within four core categories:
1 Celebrations: gift
packaging, greetings
and partyware
2 Stationery and Creative
Play: including home,
school and office
3 Giftware: design-led gifts
4 ‘Not-for-resale’:
packaging such as
branded store bags
We supply our products to
everyone from small local
independent retailers to
large international ‘multiples’,
online e-tailers and more.
We deliver all this through our
local teams in each business
unit, who combine their
strong market knowledge,
design and product
expertise, to provide an
end-to-end solution offering
for our customers.
26
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 Our strategy
How we use our business model to create value
Our results
The results of using our business model
and delivering our strategy
Our key focus is to continue to drive the Group
forward and keep us reaching for the high
standards and targets we set ourselves.
We do this by leveraging our strengths and the
many opportunities to grow in the market.
Our strategy focuses on:
• Working with the winners
• Design and innovation
• Efficiency and scale
It has been another very successful year for us.
We have had further growth in the stationery
and creative play market, and developed
new customer relationships particularly in the
USA where we continue to grow rapidly and
Australia through our acquisition of Biscay. The
introduction of a bag machine in our UK factory
to focus on ‘not-for-resale’ bags is leveraging
existing expertise to develop new opportunities
for the Group and further balance our business.
To find out more on each of these areas,
see the following sections:
• Executive review
pages 06 to 23
• Corporate, social and environmental
responsibility pages 34 to 35
Managing risks
The potential obstacles to achieving our objectives
Delivering on our strategy to achieve a great result for our shareholders and wider stakeholder
community is not without challenge. To find out more on the risks that we face and how we manage
them, see pages 30 to 33.
27
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 OUR STRATEGY
Our strategy leverages our core strengths and the many
opportunities to grow in our market.
Strategy
How
Link to business model
Working with
the winners
• Increasing revenue through organic
growth with both existing and
new customers, suppliers and
product areas
Design and
innovation
• Developing new opportunities
in new channels and adjacent
product categories while
expanding our presence in the
growing market for celebrating
events throughout the year
Fully empowered
operating units
Trusted partner to
our customers
Manufacturing and
sourcing expertise
International operations
and capability
Quality, innovative design
Trusted partner to
our customers
Efficiency
and scale
• Driving margins through
investments in process and people
• Pursuing accretive M&A
opportunities focused on unlocking
synergies through economies
of scale and strengthening our
‘one-stop-shop’ position with
customers
International operations
and capability
Manufacturing and
sourcing expertise
Fully empowered
operating units
28
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 Achievements for the year
• Continued success with large
and growing customers, including
95% average growth in business
with two of the world’s largest
discounters
• Introduction of new product
category with ‘not-for-resale’
bag production starting in Wales,
leveraging existing capability
into new areas
• Stationery and Creative Play sales
up 15% on prior year with USA up
25% as Anker Play Products brand
continues to grow and innovate,
as well as share concepts around
the Group
• Continued development and use
of the Group-wide Digital Asset
Management platform, to share
concepts, designs and ideas
around the business
• Addition of second ‘best-in class’
high-speed printing press in
the Netherlands, significantly
increasing capacity and efficiency
• Acquisition of Biscay growing and
strengthening customer base,
product offering and operating
scale in Australia
• Successful re-organisation of
UK business under one leadership
team to leverage scale and
improve delivery with a cohesive,
unified solution to customers
and suppliers
29
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 RISK MANAGEMENT
The Group actively monitors the risks related to its
business and the environment in which it operates.
The following is a summary of the principal risks
faced by the Group and the mitigating actions
taken in respect of these risks.
Risk
Description of risk
Mitigation
Link to
business
model
Strategic risks
Failure to
integrate an
acquisition
The Group is acquisitive with the purchase
and integration of carefully selected target
businesses an important generator of growth.
A failure to appropriately evaluate an acquisition
target’s business before it is bought, or to
successfully integrate its operations into the
Group and deliver any required synergies
post-integration, could have a significantly
adverse impact on Group results.
Key
management
risk
Competitor
action
The Group operates subsidiaries in a number
of geographical locations across four
continents with tight margins requiring close
attention to detail both in supply and sale.
A number of our businesses benefit from
close local entrepreneurial management from
skilled management teams particularly in this
challenging economic climate. Loss of key
management personnel could adversely impact
the results of one or more of those businesses.
Much of the Group’s business is in categories
with high price sensitivity. This can give rise
to margin pressure which is compounded
where there is oversupply. There is a risk that
competitors from within territory or from the
Far East are able to offer prices that are not
commercially viable for the Group to compete
with, resulting in a loss of market share.
We operate strict evaluation criteria for any
potential acquisition and review targets against
this throughout the M&A process, which includes
the use of third-party due diligence professionals
for technical areas such as tax, legal and, where
complex, financial diligence. Deal evaluation
includes sensitivity analysis and risk evaluation.
Any acquisition that completes will be overseen by
one or more senior management team members
who will be responsible for closely monitoring
and reporting to the Board on the businesses
performance against acquisition deal targets
and expectations. Synergy target performance is
monitored specifically, as is payback together with
other KPIs specific to the individual acquisition.
The Group considers succession planning and
seeks to develop strong teams around key
individuals to reduce the impact of potential loss.
The Group’s activities in Asia are particularly
integral to the supply chain for our UK operations.
The China factory benefits from carefully selected
local management but is also monitored by the UK
management team by way of on-site reviews and
regular monitoring of key performance indicators.
The following active strategies are employed to
manage the risk of margin erosion and loss of
business:
•
•
•
the Group focuses on design, product quality
and service delivery to differentiate in order to
maximise customer retention;
the Group maintains a blended and diversified
portfolio of products and clients, both by
market segment and geography, to avoid
over-dependence on a single market; and
the Group closely manages the costs and
margin on a product-by-product basis to
ensure prices are as competitive as possible
whilst still being profitable for the business.
30
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 Link to
business
model
Risk
Description of risk
Mitigation
Economic
uncertainty
The Group remains reasonably insulated from
demand-side risk arising from local economic
conditions due to the relatively low value of our
products, with an average retail price of less
than £2, and their everyday nature. However,
international economic uncertainty such as that
driven by Brexit can have a more significant
impact on our supply-side risks.
In particular, as an international group we can
be impacted by international trade agreements
between our core territories of operation and
significant movements in our main cost areas of
raw materials, freight and people.
The Group regularly monitors the economic
conditions in which it operates. The underlying
cost base is closely monitored and reported
regularly to management and the Board.
Changes to international trade agreements are
monitored by management with the input of
external specialists. Where the impact is expected
to be significant, impact analysis and response
plans are presented to the Executive Committee
for review and implementation.
The Group and UK business are monitoring the
developments in Brexit negotiations for potential
impacts on the business and planning possible
mitigating actions accordingly. The annual renewal
of our sales contracts also provides significant
mitigation in this regard.
Commercial and operational risks
Margin
erosion
Supply
chain
The Group’s core products are low ticket items
and price competition is significant. Cost inflation
is a particular pressure, and combined with
customer pressure on pricing and the relatively
high risk of inventory obsolescence due to high
seasonality and fashions in some products, this
can lead to significant margin pressure and risk
of margin erosion.
The Group seeks to maximise operating
efficiencies, investing in its production facilities
to ensure they are as efficient as possible and
monitoring the production processes to make
sure that they are optimised. Product costings are
carefully reviewed and managed, with any very
low margin products requiring additional review
and approval.
The Group uses a large number of external
suppliers, with bought-in goods for resale
purchased mainly from Asia. Issues with the
quality or integrity of supply chain, particularly
at peak season, could result in contractual
penalties or adversely impact the Group’s ability
to maintain supply to its customers.
The Group, along with the market as a whole, is
experiencing an increase in raw material prices
in Asia. Continued cost headwinds also increase
the risk of margin erosion and put a focus onto
competitor action.
KPIs including inventory turn and ageing are
monitored by the Board. The Group maintains a
blend of business between customer brands and
its own brands and inventory levels are closely
monitored with slow moving or obsolete stock
provided for where necessary.
The Group manufactures, where expedient and
efficient to do so, its own goods in China and
other locations throughout the world. Suppliers
are carefully selected and their performance
monitored closely through means such as clear
contractual terms of business, robust quality
control and on-site visits. Alternative routes of
supply are maintained wherever possible to ensure
keen pricing and continuity of supply. The Group
also insures against supplier failure in so far as it is
possible and cost-effective to do so.
The Group endeavours to mitigate raw material
price inflation where possible via supplier
negotiation, sales mix management, cost
engineering and sales price negotiations with
customers to reflect the cost increases.
Key to business model links
Quality, innovative design
Manufacturing and sourcing expertise
International operations and capability
Fully empowered business units
Trusted partner to our customers
31
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 RISK MANAGEMENT
CONTINUED
Risk
Description of risk
Mitigation
Link to
business
model
Commercial and operational risks continued
Operational
disruption
The Group operates four major factories plus
several trading sites across the world including
China, the UK, the USA, Australia and mainland
Europe. The Group’s business is dependent
on the ongoing operation of these facilities,
particularly at peak season. A significant
operational disruption could adversely affect its
ability to make and supply products to customers
on a timely basis.
Customer
default
While few customers went into administration
relative to the credit crunch period of 2008 to
2011, there remains a risk of retail customer
failure. These manifest through loss of sales, bad
debt and potentially inventory obsolescence if
a customer stops trading or we elect not to do
business with them.
Financial and regulatory risks
Availability
of liquidity
The Group’s operations are highly seasonal and
significant flexible working capital funding is
required during the course of the annual trading
cycle. The Group is dependent on the continuing
support of its principal bank for these working
capital facilities. A reduction in the availability
of these facilities would materially impact the
Group’s ability to fulfil its obligations as they
fall due.
The Group has implemented policies and
procedures to efficiently and safely manage its
operations and to maintain continuity of supply.
The factories operate to quality standards and are
subject to regular customer, internal, health, safety
and environmental audits. The Group insures
against a range of known operational risks and
maintains an actively managed programme with its
insurers and advisers to manage both operational
risks and insurance premiums.
The Group maintains tight credit control
procedures, regularly reviews credit limits and
avoids concentrating on any one geographic
location or placing over-reliance on any one
customer. The largest single customer accounts
for approximately 7.8% of overall sales. We closely
monitor our debts and bespoke inventory levels,
taking specific provisions against both as required
together with other specific measures to mitigate
for any risk of non-recovery.
The Group budgets carefully and cautiously and
operates regular forecasting and cash monitoring
processes against facilities available. Based on
budgeted requirements, the Group maintains
borrowing lines with HSBC and Westpac to a range
of maturities, estimated to be sufficient to cover
funding requirements. These borrowing lines range
from one year to three years with the capacity to
extend easily. Facilities have just been refreshed
and are entirely appropriate to the Group’s
current needs.
The Group works closely and transparently with its
lending banks, ensuring that the cash flow cycle is
understood by and closely monitored by all parties,
demonstrating the careful cash management
practices embedded in the operation.
32
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 Risk
Description of risk
Mitigation
Link to
business
model
Currency
exposure
The Group is exposed to currency risk, which
impacts in three principal ways:
•
translation of the results of our overseas
businesses, which account for almost two
thirds of sales and a greater proportion
of profit before tax: much of the Group’s
business is seasonal meaning that
short-term currency fluctuations can have a
disproportionate effect on results depending
on when they occur;
• purchases and sales are often not made in
the same currency, or in our local operating
currencies, giving a risk of foreign exchange
differences affecting profit: in particular
approximately half of the Group’s sales are
of items which are bought or manufactured
in Asia and are paid for using US dollar or
Chinese renminbi; and
the Group is funded in a mixture of
currencies, tailored where possible to match
the needs of each business and to reduce the
effect of currency fluctuations on the Group’s
financial results. However, the main banking
facility is denominated mostly in sterling with
some balances drawn in US dollar: hence
should exchange rates move adversely this
has implications on the available headroom.
•
Due to its international nature the Group is
subject to multiple regulatory, tax and legal
jurisdictions. This gives rise to a significant
compliance requirement, which is further
complicated by the high level of international
trading. Local and international regulations
are regularly changing and growing in volume,
particularly as a result of increased global
regulations.
A failure to comply with local rules and
regulations could result in significant fines or
other sanctions.
Legal and
regulatory
environment
These risks are managed through a mixture of
natural hedges and, where appropriate, spot
purchases, forward contracts and occasionally
other similar instruments.
This is achieved by a central treasury team working
on behalf of the business units to maximise the
natural hedge opportunities and scale of the
Group, working together with local finance teams
where appropriate. Translation risks are only
hedged selectively, where the Board judges it to be
appropriate.
The revised financing facilities have plenty of
headroom to accommodate such fluctuations and
are in part denominated in local currency.
Longer-term movements in rates are managed
through our pricing, product design and/or
sourcing decisions.
The Group’s ability to operate internationally is of
critical importance and as a result understanding
and complying with local and international
regulations is an area of permanent focus. To
ensure it remains compliant as the business and
regulations change, the Group employs specialist
advisers in each of its main territories and at
head office. Active dialogue is also maintained
with relevant parties, such as tax authorities, to
ensure transparency and a proactive approach to
compliance.
The Group also operates an internal audit function,
outsourced to a specialist firm with a local
presence in each of our countries of operation,
who perform reviews of the business units
including local compliance processes.
Key to business model links
Quality, innovative design
Manufacturing and sourcing expertise
International operations and capability
Fully empowered business units
Trusted partner to our customers
33
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 CORPORATE, SOCIAL AND
ENVIRONMENTAL RESPONSIBILITY
We are committed to improving our environment
and helping the communities where we work.
Employee engagement
We invest in our people; from training
and education offered throughout
the Group, through to opportunities
for career progression. The Group
offers an environment in which our
employees are encouraged to grow
and deliver their very best. It’s these
same opportunities which allow
Design Group to attract and retain
the brightest talent.
We were delighted that our
commitment to our team was
recognised with a ‘Highly Commended’
award in the Employee Engagement
Awards 2017, in the Company of
the Year category.
Health, safety and human rights
The Group is committed to providing
a safe workplace for all employees in
every area of our business. A strong
and visible commitment to health and
safety is present throughout the Group.
It is our aim to exceed the requirements
of health and safety legislation and we
deploy experts to ensure continuous
improvement of health and safety
across all our businesses.
We take human rights seriously and
continuously strive to strengthen and
protect the systems and management
in this area. We have taken steps to
promote and improve our commitment
to removing abuse and exploitation
in the workplace.
Receiving highly commended award at the Employee Engagement Awards 2017
Our employees, shareholders,
communities, partners and customers
are all vital to the success of our
business, which is why we take
our corporate social responsibility
seriously.
Throughout all of our operations,
we work hard to comply with the
highest possible standards, in line
with our unwavering commitment to
our employees, our customers and
our planet. In upholding the highest
standards of ethical behaviour, it is our
aim to foster the relationships we have
with all of our stakeholders, continuing
to build a more considerate and
sustainable business.
Stakeholders
All of our stakeholders – our
customers, employees, suppliers and
investors – are vital to the success of
the Group. But it’s our people who
make the Group the reliable and agile
business it is.
Through recognising that each of our
customers is unique and so requires a
different service to satisfy their needs
and expectations, we work hard to
build deep and lasting relationships
with our customers. Our product
offering, unique design capabilities
and our fundamental aim of becoming
a partner of choice to our customers
allows the Group to make the most out
of every commercial opportunity that
presents itself.
By leveraging recent and ongoing
investments in equipment and
technology, as well as a broad portfolio
of expertise, the Group continues
to offer our customers a portfolio of
products and service that enables us
to compete and grow.
34
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
Through regular audits – ethical, quality
and technical – we work to ensure
the factories with which we produce
goods meet relevant requirements,
which comply with standards set
by Business Social Compliance
Initiative (“BSCI”), Ethical Trading
Initiative (“ETI”), Workplace Conditions
Assessment (“WCA”), and Consumer-
Trade Partnership Against Terrorism
(“CTPAT”).
We are SEDEX members and we
work with ‘Stronger Together’ in our
commitment to respecting human
rights throughout our supply base.
These processes give us a 360 view
into our supply chain, meaning we are
confi dent that our products meet our
high expectations.
Social and community
Through a number of projects and
initiatives, we engage with our
communities – both internally and
externally – to have a positive impact
wherever we can.
Equal opportunities
The Group is committed to treating
all employees equally. In particular as
an equal opportunities employer, we
believe all our employees, regardless of
gender, should receive equivalent rates
of pay for equivalent roles. In the UK
we recently published our Pay Gender
Report which highlighted that there
was a pay gap in the amounts paid on
average to men and women in the UK.
This gap was principally explained by
higher numbers of male senior managers
in the UK team. We remain focused on
increasing the female proportions of the
UK management team and narrowing
the gap in the future.
Sustainability and environment
In every area of our business, we
have a deep-rooted belief in doing
our part to protect the environment
and preserve our planet.
From using vetted suppliers who
share our environmentally aware
views and commitments, through to
our ongoing efforts to cut waste and
recycle materials wherever possible,
sustainability is a part of everything
we do.
As well as operational commitments,
we encourage an ethos of
energy-saving and environmental
protection, encouraging our suppliers
and our employees to consider the
impact their actions have on the wider
world. This culture of preservation is
backed by operational effi ciency in all
aspects of our business, with measures
in place to make the most out of the
resources and supplies we have.
Continuous reviews take place within
the Group, with the aim of enhancing
our overall environmental performance,
reducing waste and holding ourselves
to account.
Accreditations include:
Supply chain
With a supply chain monitored and
measured by independent audits we
aim to ensure that raw materials are
sustainably sourced, whilst detailed
evaluations allow us to certify that new
suppliers work in an environmentally
considerate way.
With quality assurance and control
teams across the world, we have
the people and procedures in place
to ensure that our products are
sustainably tested and adhere to
recognised standards and directives.
35
IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
BOARD OF DIRECTORS
Giles Willits
Chief Financial Offi cer
Giles has more than 20 years’
experience in senior leadership and
fi nancial roles in multiple household
name businesses. He was most
recently the Chief Financial Offi cer
of Entertainment One Ltd (LSE: ETO),
having joined prior to its IPO on AIM
in 2007.
Giles was also formerly Director of
Group Finance at J Sainsbury plc
and Woolworths Group plc and
qualifi ed as a chartered accountant
at PriceWaterhouseCoopers.
Giles sits on the board of Shearwater
Group plc as a non-executive director.
Paul Fineman
Chief Executive Offi cer
Paul joined the Board in May 2005
as Chief Executive Offi cer of Anker
International PLC. He was appointed
Group Managing Director in January
2008 and then appointed Group CEO
in January 2009. Paul was awarded
Chief Executive Offi cer of the Year by
the Quoted Company Awards 2017.
Lance Burn
Executive Director
Lance joined the Board in October
2012 and has been Managing
Director of IG Design Group UK
Limited since 2009 and the Group’s
subsidiary operation in China since
2011. Lance’s previous roles included
directing businesses for Rank
Hovis McDougal plc, Saint Gobain
Solaglas UK and also international
overseas-based roles for Pepsico
International in Africa and India.
John Charlton
Non-Executive Chairman
John joined the Board in April 2010
and was appointed Chairman of the
Board on 7 September 2011. John is a
member of the Audit and Remuneration
Committees and chairs the Nomination
Committee. John is also Chairman
of SA Greeting (Pty) Ltd and was
Chairman of Amscan International Ltd.
In his executive career, he was
previously Senior Vice President
International of American Greetings
Corporation and Chief Executive of
UK Greetings Ltd.
Committees
36
IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
Mark Tentori
Non-Executive Director
Mark joined the Board as a
Non-Executive Director and
Chair of the Audit Committee on
1 January 2016. He is a member of
the Remuneration and Nomination
Committees. Mark is currently
Portfolio Partner at Charterhouse
Capital Partners LLP. Prior to this,
Mark held a number of CFO and COO
roles in public and private companies
operating in a wide range of sectors
and geographic locations. These
included CFO of Deb Group Ltd,
United Coffee and LINPAC Group Ltd.
Mark also spent ten years with Price
Waterhouse where he qualifi ed as a
Chartered Accountant.
Committees
Elaine Bond
Non-Executive Director
Elaine joined the Board as a
Non-Executive Director on
1 February 2012. Elaine chairs
the Remuneration Committee
and is a member of the Audit and
Nomination Committees. She was
previously Group Operations Director
of UK Greetings Ltd, the UK subsidiary
of American Greetings.
Committees
Anders Hedlund
Founder and Non-Executive
Deputy Chairman
Anders founded the Group in 1979
and was joint Chief Executive Offi cer
of the Group until December 2007,
when he was appointed as Nominee
Non-Executive Director.
Audit Committee
Remuneration Committee
Nomination Committee
Chair
37
CHAIRMAN’S CORPORATE GOVERNANCE REVIEW
A year of excellent
progress and
strong financial
performance.
John Charlton
Chairman
Dear shareholder
We are delighted to be able to report
a further year of excellent progress
and a strong financial performance
of our Group during the year ended
31 March 2018. I am delighted that
once again we have exceeded the
goals that we set ourselves in terms
of profit and earnings per share.
Furthermore, we are particularly
pleased with the excellent levels of
cash generation that we have achieved,
which have supported our increased
level of capital expenditure to improve
our efficiency, the acquisition of Biscay
in Australia and an increased dividend.
We once again end the year being cash
positive, with a further reduction in
average leverage.
We shall continue to put considerable
effort into strengthening our position as
one of the world’s leading designers,
manufacturers, importers and
distributors of each of the core product
categories on which we focus.
The Board continues to operate
under a governance structure, which is
designed to be flexible and efficient in
creating sustainable long-term growth
in shareholder value. As advised in
previous reports, as Chairman, my role
is to lead the Board and help promote a
culture of respect, integrity, openness,
honesty and fulfilment within each
of the businesses in our Group. We
believe strongly in these objectives
and we endeavour to practise these in
the way that we communicate with our
customers, suppliers, shareholders,
advisers and of course all our teams
employed in our Group.
Corporate governance
As previously reported, the UK
Corporate Governance Code
(formerly the Combined Code) sets
out standards of good practice
in relation to board leadership
and effectiveness, remuneration,
accountability, audit, risk management
and relations with shareholders.
Whilst there is not yet an obligation
in effect for AIM-listed companies to
comply fully with a code of governance,
your Board endorses the principles
of effective corporate governance
and we are committed to maintaining
the highest standards of ethics and
professional competence. That said,
the Directors do not consider that
full compliance with every aspect
of the Corporate Governance Code
is appropriate for our Group at this
stage in its development. In light
of the recent changes to AIM rules
regarding corporate governance, we
are undertaking a review of those areas
of the Corporate Governance Code
that we do not currently comply with.
We will publish the results of this before
28 September 2018.
38
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 Board of Directors
The principal duty of the Board is to
represent and protect the interests
of the Company’s shareholders.
To this end the Board plays an
important role in working with the
executive management to ensure that
our businesses are well governed,
financially strong, and that we mitigate
any risks that the executive team
identifies. Your Board continues to
work hard to strike that essential
balance between achieving our
short-term objectives and longer-term
growth and development. As a Board,
we work closely with the executive
team in developing proposals on
strategy for each of our businesses
and for our Group as a whole.
Division of responsibilities
There is a distinct and defined
division of responsibilities between
the Chairman and the Chief Executive
Officer (CEO). The Chairman is
primarily responsible for the effective
working of the Board, in conjunction
with management and the CEO for
the operational management of the
business and for the implementation
of the strategy agreed by the Board.
Composition of the Board
There has been one change to the
composition of our Board during
the year. As previously announced,
during the summer of 2017, Anthony
Lawrinson – our Chief Financial
Officer – tendered his resignation from
the Board, for personal and family
reasons and relinquished his position
at the end of December 2017. Anthony
joined the Board in October 2011 and
we are indebted to him for his excellent
stewardship of the financial affairs of
the Group during his period with us.
We thank Anthony for his valuable
contributions on the Board and his
wise counsel.
However, we are delighted to have
secured the services of Giles Willits,
who joined our Group in January 2018
as Chief Financial Officer. Giles has
more than 20 years’ experience in
senior leadership roles in a number
of household name businesses.
He was most recently Chief Financial
Officer of Entertainment One Ltd – a
FTSE 250 company. Apart from this,
there were no other changes to the
composition of the Board during the
year. We continue to operate with three
Executive Directors balanced by three
Non-Executive Directors, with myself
as Chairman. Our Non-Executive
Directors have an important role of
constructively challenging and working
closely with the Executive Directors
to develop and agree proposals on
strategy, to scrutinise management’s
performance in meeting agreed
goals and objectives and monitoring
performance reports.
Anders Hedlund, who founded our
Group, is a Nominee Non-Executive
Director. Anders Hedlund is presumed
not independent, because as founder,
he has served on the Board since the
Company’s inception, his family hold
significant interests in the shareholding
of the Company and he also fulfils
a consultancy role within one of the
Group’s businesses. As reported in
the financial statements, there are
also some related party transactions
between certain of the subsidiaries
within our Group and companies
under the ultimate control of the
Hedlund family.
As at the date of this report, all of the
other Non-Executive Directors are
considered independent under the
UK Corporate Governance Code.
The Board has three Committees –
Remuneration, Audit and Nomination.
Each of these committees comprises
myself and our two Non-Executive
Directors: Elaine Bond and Mark
Tentori. Elaine chairs the Remuneration
Committee, Mark the Audit Committee,
and I chair the Nomination Committee.
The Nominations Committee is
responsible for filling Board vacancies,
reviewing the Board composition and
the roles of Board members.
The Audit Committee satisfies itself
on the integrity of financial information
and that controls and risk management
systems within our businesses are
robust and defensible. The Committee
meets as required during the year and
at least twice with the Group’s external
auditor. Its role is to review the interim
and final financial statements for
approval by the Board, to ensure that
operational and financial controls are
functioning properly, and to provide
the forum through which the Group’s
external auditor reports to the Board.
On completion of the audit, the
Committee reviewed the performance
of its external auditor KPMG LLP, with
feedback from executive management.
The Committee has resolved to
propose KPMG’s re-appointment at
the next Annual General Meeting.
Mazars LLP provides internal audit
services to the Group and have
visited and carried out a series of
audits in each of our subsidiaries and
reported back on findings to our Audit
Committee. The risk-based audit plan
for 2018/19 has now been agreed
by the Audit Committee and Mazars
will continue to report back on their
findings to the Audit Committee.
The Remuneration Committee
determines appropriate levels of
remuneration and compensation for
Executive Directors. The Committee
meets as required during the year
and is closely involved in agreeing
the positions within our senior
management team that should
participate in our Long Term Incentive
Plan (“LTIP”), together with the
level of awards. The Remuneration
Committee is also responsible for
agreeing the performance criteria for
annual bonuses and LTIP for Executive
Directors and senior management.
39
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 CHAIRMAN’S CORPORATE GOVERNANCE REVIEW
CONTINUED
The Board receives operational and
financial information and reports
from the CEO/CFO to assist in
monitoring and assessing the ongoing
performance of the businesses
on a monthly basis.
Each of our Board committees now
embraces the practice of annual self
reviews of effectiveness and this
process will also include the Board
as a whole, as we strive to continually
‘raise the bar’ in terms of our
contributions and effectiveness.
Accountability and audit
All Directors have accepted a duty of
care and accountability to act in the
interests of the Group. As stated, the
Audit Committee oversees how the
Board monitors risk and reviews the
adequacy of the risk management
framework.
Risk management
The Board of Directors has overall
responsibility for the establishment
and oversight of the Group’s risk
management framework. The Group’s
risk management systems, policies
and procedures are established to
identify and analyse the risks faced
by the Group, to set appropriate risk
limits and controls, and to monitor the
risks and adherence to limits. Such a
system is designed to manage, rather
than eliminate, the risk of failure to
achieve business objectives and can
only provide a reasonable and not
absolute assurance against material
misstatement or loss.
Board process and information
The Board met seven times during
the year and also carried out an
in-depth review of 2018/19 budgets,
annual operating plans and strategic
objectives with the Executive Directors.
This took place over two days during
March 2018. The Board aims to meet
at least six times a year for formal
Board meetings and up to six further
times in between for informal business
reviews, to review budgets and to focus
on strategy. As previously advised,
where possible and cost effective, the
Board tries to meet on the premises of
various of its subsidiaries during the
year, which provides an opportunity for
the Directors to visit our businesses,
meet with the senior management
and be seen by our teams as a Board
that genuinely wishes to be involved.
To this end, during October 2017
the full Board spent a week visiting
our businesses in USA, meeting
with the senior management teams
and discussing strategic objectives
over the next three years.
Dialogue occurs regularly between
Directors outside of scheduled
meetings. Meeting agendas include
review and approval of minutes
recorded, matters arising, a review
of material operational matters relating
to our businesses and other special
items for discussion or consideration.
Board papers are usually circulated at
least three business days in advance
to allow Directors adequate time
to prepare.
Our Non-Executive Directors also
meet as a team outside of Board
meetings to discuss the performance
of our Board as a whole and various
topics and matters that require their
specific input and attention.
Risk management processes are
reviewed regularly by the Audit
Committee to reflect changes in
market conditions and the Group’s
activities. The Board’s oversight
covers all controls, including financial,
operational and compliance controls
and general risk management. It
is based principally on reviewing
reports from management to consider
whether significant risks are identified,
evaluated, managed and controlled and
whether any significant weaknesses
are promptly remedied and indicate the
need for more extensive monitoring.
Whilst this report is intended to
provide an overview of the policies
and procedures that we adopt in
following good corporate governance,
I wish to take this opportunity to thank
my fellow Directors for their hard work,
commitment, loyalty and support that
they give to our Group. As always,
may I also on behalf of the Board
place on record our sincere thanks
and appreciation to all our teams
throughout the Group. It is through
their efforts and support that we are,
once again, able to report another
year of very strong progress. We value
greatly their commitment and loyalty.
Finally, let me take this opportunity
to thank our shareholders, customers,
suppliers, bankers and advisers
for their support and contributions
to all our businesses throughout
the world. As always, we never take
your support for granted and we
are very appreciative of the strong
working relationship and partnership
that we continue to enjoy with you.
We endeavour to commit to excellence
in all that we do, in order to be the
‘partner of choice’!
John Charlton
Chairman
8 June 2018
40
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 DIRECTORS’ REMUNERATION REPORT
This report sets out
the remuneration
of IG Design Group
Directors for the
year to March 2018.
Elaine Bond
Chair of the Remuneration
Committee
This report sets out the remuneration
of IG Design Group Directors for
the year to March 2018 and is in
three parts: (1) overview of the year;
(2) remuneration strategy and policy;
and (3) regulatory disclosures.
Part 1: overview of the year
Company performance
The Group has substantially exceeded
its financial targets this year with profit
before tax, exceptional items and LTIP
charges up 32% at £21.4 million from
£16.3 million, net cash increased by
£1.4 million to £4.4 million, and fully
diluted earnings per share before
exceptional items and LTIP charges
at 21.8p up 3.6p or 20%. The key
financial objectives were sustainable
growth in profits and associated
earnings per share, along with further
increases in net cash. These measures
were therefore used to determine the
Executive Directors’ annual bonuses.
Similar measures around sustainable
growth in earnings and associated
cash flow generation will continue to
be the key financial objectives moving
forwards.
Annual bonus and base salaries
The bonus opportunity for Executive
Directors and senior management
during the last year was based on the
achievement of targets around:
• Group profit before tax, LTIP
charges and Board approved
exceptional items;
• closing net cash; and
• fully diluted earnings per share
calculated before LTIP charges and
Board approved exceptional items.
Similar measures were applied
within the individual businesses.
The level of bonuses is approved by
the Remuneration Committee, which
retains reasonable discretion over
the level of pay-out depending on the
quality of the financial performance
in achieving the result. The bonus
scheme for the coming year for
Executive Directors and other senior
management again includes the same
or similar objectives relating to profit,
net debt and earnings per share.
This year’s results for profit, net cash
and earnings per share will result in
annual bonuses for Executive Directors
of 86% of the stretch award.
41
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 DIRECTORS’ REMUNERATION REPORT
CONTINUED
Part 1: overview of the year
continued
Executive share options 2008
In September 2008, the Board put in
place an HMRC approved employee
share option scheme to assist in the
motivation of Executive Directors and
senior managers. Some Directors and
managers received shares that were
in addition to the HMRC approved
amounts (being 214,285 options each)
and these are denoted as ‘unapproved’.
Executive share awards were
made at the prevailing market rate
on the date of the grant. Options
are normally exercisable between
three and ten years after grant and
upon the achievement of stated
performance criteria. The options
issued in December 2008 were
not subject to performance criteria
(other than continued employment),
except for unapproved options issued
to Executive Directors.
No further options are being granted
under this scheme. These options may
be exercised between 17 December
2011 and 17 December 2018.
There are no Directors currently holding
share options under this scheme
(2017: nil). There have been no grants
under this scheme during the year.
Long Term Incentive Plan
On 31 March 2014, the Company
announced the introduction of a new
Long Term Incentive Plan (“LTIP”).
Under the LTIP, ordinary shares of
5p each (“ordinary shares”) may be
awarded annually to Executive Board
Directors of the Company, Managing
Directors and other selected senior
management team (“SMT”) members
within the Group. Ordinary shares
only vest to the degree that stretching
performance conditions are met.
The maximum dilution under the
LTIP is 15% over a ten-year period,
excluding the 2012-2015 award set out
below and disregarding prior option
schemes. The scheme rules which
have been agreed by the Remuneration
Committee include reasonable
provisions in the event of change of
control, suitable flexibility to modify
performance targets in specified
situations and also a mechanism
for claw-back under certain
circumstances. The Board retains the
flexibility for the Employee Benefit
Trust to buy ordinary shares to mitigate
future dilution.
The performance period for each
award under the LTIP is expected to
be three years. The cost to employees
of ordinary shares issued under the
LTIP, if the performance criteria is
met, will be nil. In principle the number
of ordinary shares to be granted to
each employee under the LTIP will
not in value be more than 100% of
the relevant employee’s salary with
the exception of the Group CEO who
can receive up to 150% annually,
although the rules allow up to an upper
maximum of 150% for all relevant
employees. The grant is based on
the relevant share price at the time
of grant.
Details of LTIP awards to Directors
under all LTIP schemes are shown in
the Directors’ report on page 48.
LTIP 2012-2015 awards
Of a maximum of 1,400,000 shares
1,107,652 shares vested in June 2015
with the balance lapsing. Of these,
425,000 have not yet been exercised.
75,000 shares were exercised during
the year (2017: nil).
LTIP 2014-2017 awards
The maximum award of 1,330,351
shares (after adjusting for the effect
of dividends) vested in favour of
18 members of the leadership teams
across the Group in June 2017.
During the year 633,111 shares were
exercised (2017: nil), and the balance
of 667,240 have yet to be exercised.
LTIP 2015-2018 awards
Provisional share awards totalling
1,176,860 were issued during 2015/16
to 26 members of the leadership teams
across the Group. A further 100,474
shares were awarded to Paul Fineman
in January 2018. For the effect of
dividends and lapses see note 25.
The performance conditions applied
are a) compound annual growth rate
(“CAGR”) in fully diluted earnings per
share (measured before LTIP charges
and exceptional items), b) CAGR of
profit before tax, LTIP and exceptional
items and c) average leverage. Vesting
increases on a straight-line basis and
the full number of shares are issuable
when all three stretch targets are met.
For more details on the performance
conditions see note 25.
The results achieved by the Group for
the three-year period have met all of
the stretch performance conditions so
the maximum award will vest.
1,213,794 shares (after adjusting for
the effect of dividends and leavers)
formally vested on 6 June 2018
following Remuneration Committee and
Audit Committee approval of the results
for the year ended 31 March 2018.
42
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 LTIP 2016-2019 awards
Provisional share awards totalling
827,220 were issued during 2016/17
to 23 members of the leadership
teams across the Group. A further
72,885 shares were awarded to
Paul Fineman in January 2018.
For the effect of dividends and
lapses see note 25. The performance
conditions applied are a) CAGR in fully
diluted earnings per share (measured
before LTIP charges and exceptional
items) and b) CAGR of profit before tax,
LTIP and exceptional items. Vesting
increases on a straight-line basis and
the full number of shares are issuable
when both stretch targets are met.
For more details on the performance
conditions see note 25.
LTIP 2017-2020 awards
Provisional share awards totalling
347,101 were issued in August and
September 2018 to 24 members of the
leadership teams across the Group.
A further 129,380 shares were awarded
to Paul Fineman and 168,463 to Giles
Willits in January 2018. For the effect
of dividends and lapses see note 25.
The performance condition applied
is CAGR in fully diluted earnings per
share (measured before LTIP charges
and exceptional items). Vesting
increases on a straight-line basis and
the full number of shares are issuable
when the stretch target is met. For
more details on the performance
conditions see note 25.
The mid-market price of the Company’s
shares on 31 March 2018 was 398.5p
per share; the highest and lowest
mid-market prices of the Company’s
shares during the year were 435.0p
and 317.5p respectively.
2017/18 annual bonus
The aggregate annual bonus of the
Executive Directors to be paid in respect
of the year ended 31 March 2018
has decreased from £789,910 in the
prior year to approximately £448,950.
This remuneration is directly linked to
meeting profit, net cash and earnings
per share targets.
The Committee believes the
Company’s remuneration strategy,
and the structures implementing that
strategy, have contributed positively
to maintaining the stable and highly
motivated management team of
the Company, who have continued
to deliver consistently strong
performances for shareholders.
Part 2: remuneration
strategy and policy
The Group’s remuneration policy is
to ensure that the remuneration of
Executive Directors is sufficiently
competitive to enable the Group to
retain and motivate existing Directors
and attract high-quality performers
in the future. The Group aims to
incentivise and reward its Executive
Directors in a way that is consistent
with the Group’s commercial
objectives and to align the interests
of the Directors with those of the
shareholders. To achieve this, the
Executive Directors’ total remuneration
comprises both fixed remuneration and
variable reward, the latter reflecting
Company performance. The main
elements of remuneration for Executive
Directors are set out on page 45.
Only the basic salary is pensionable.
The Group’s remuneration policy in
respect of Non-Executive Directors
is to pay annual fees which reflect
the responsibilities and duties placed
upon them, whilst also having regard to
market practice.
The remuneration of the Non-Executive
Directors and of the Chairman is set by
the Board.
The Remuneration Committee
(the “Committee”) has carefully
reviewed the level of performance
related remuneration earned by the
Executive Directors. The Committee
considers that it is a strong reflection
of the Group’s operating and financial
performance over the past year and
that it is aligned with the financial
interests of shareholders generally.
Other Remuneration
Committee highlights
During the year, the Committee
considered the following:
• overall remuneration structure and
levels for Executive Directors and
other senior management members;
• targets for the annual bonus
potential for Executive Directors and
senior management for 2018/19,
including the consistency of bonus
targets with other management
and staff. Changes were made to
the Group bonus scheme based
on the achievement of targets
around Group profit before tax,
LTIP charges and approved
exceptional items, closing net cash
and underlying fully diluted earnings
per share calculation; and
• awards under the new LTIP scheme,
and appropriate performance
criteria. The performance criteria
were reviewed and simplified
with the 2017-2020 scheme being
based on underlying earnings per
share only.
43
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 Assistance to the Committee
During the period the Committee
received input from the CEO, the
CFO, the Senior Human Resources
Manager and various professional firms
in the UK and USA in connection with
remuneration matters.
Dilution of share capital
by employee share plans
The Company monitors and has
complied with dilution limits in its
various share scheme rules. The Board
retains the flexibility of using Employee
Benefit Trusts to buy ordinary shares to
mitigate future dilution.
Pension plan auto-enrolment
Following the introduction of
auto-enrolment in 2012, employees
now have the option of joining the
Group’s defined contribution personal
pension scheme or opting out of
pension provision.
Specific information in respect
of Executive Directors’ pension
entitlements is detailed on page 45.
Service contracts
The Executive Directors have service
contracts which can be terminated by
the Company with no greater than one
year’s notice. Non-Executive Directors
do not have service contracts and
their appointments may be terminated
without compensation at any time. All
Non-Executive Directors have letters
of appointment and their appointment
and subsequent re-appointment is
subject to approval by shareholders.
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Part 3: additional
regulatory disclosures
The Remuneration Committee
The Remuneration Committee
consists of:
• Elaine Bond (Chair of the
Committee);
• John Charlton (Non-Executive
Chairman); and
• Mark Tentori (Non-Executive
Director).
Role of the Committee
The Committee determines the
remuneration of the Group’s Executive
Directors, and reviews that of senior
executives who report directly to the
Group CEO. It is also responsible
for determining the targets for
performance-related pay schemes,
approving any award of the Company’s
shares under share options or incentive
schemes to employees, and overseeing
any major changes in employee benefit
structures. The Committee members
have no conflicts of interest arising
from cross-directorships and no
Director is permitted to be involved
in any decisions as to his or her own
remuneration.
The Committee workplan
The Committee takes the following
approach in the course of the year:
Standing compliance items:
• minutes of the last meeting, action
log and matters arising;
• feedback from the Board meetings;
• compensation authorisation for CEO
direct reports, prior to appointment,
as necessary;
• approval of payments to CEO direct
reports to apply on termination of
employment, as necessary;
• approval of any remuneration
consultants to advise the
Committee, as necessary;
• due regard to published information
regarding pay, bonuses and other
executive benefits in companies
comparable to the Company
(benchmarking), as proposed by
the CEO or work independently
commissioned by the Committee;
and
• due regard to published documents
regarding remuneration and
changes to the UK Corporate
Governance Code (as advised by
the Company Secretary).
Meeting dates and key matters
May
• Agree bonus targets for next
financial year
• Agree any changes to remuneration
for Chairman, CEO, CEO direct
reports and information on SMT
members
• Agree bonus awards for current
financial year
June
• Review detail of LTIPs vesting
• Agree LTIP awards
• Agree LTIP scheme for next
financial year
• Review and agreement of service
agreements for CEO direct reports
and SMT (to include notice periods
and compensation commitment on
early termination)
• Agree remuneration section of
Company annual report
• Review travel policy of all businesses
November
• Annual review of International
expense claims policy
• Review and agreement of pension
contribution arrangements and
benefits in kind awards for CEO
direct reports and SMT
• Annual review of terms of reference
• Review of training requirements for
the Committee members
• Review self assessment of the
Committee
44
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 Directors’ remuneration(a)
The summary of Directors’ remuneration is as follows:
Remuneration
Pension contribution
Total remuneration
Aggregate for all Directors
Highest paid Director
2018
£000
1,637
9
1,646
2017
£000
1,850
10
1,860
2018
£000
678
—
678
2017
£000
646
—
646
The remuneration in respect of the year ended 31 March 2018 to the Directors, by individual, was as follows:
Year ended 31 March 2018
Executive Directors
Lance Burn
Paul Fineman
Anthony Lawrinson(c)
Giles Willits(d)
Total Executive
Non‑Executive Directors
Elaine Bond
John Charlton
Anders Hedlund
Mark Tentori
Total Non‑Executive
Total Directors
(a) Audited.
(b) The benefits relate primarily to private health benefits.
(c) Anthony Lawrinson resigned on 31 December 2017.
(d) Giles Willits was appointed on 2 January 2018.
Salary/fees
£
Bonus
£
Benefits(b)
£
Subtotal
£
Pension
£
Total
£
251,318
120,000
2,680
373,998
9,031
383,029
384,800
275,200
17,701
677,701
189,102
—
4,731
193,833
78,506
53,750
412
132,668
—
—
—
677,701
193,833
132,668
903,726
448,950
25,524 1,378,200
9,031 1,387,231
39,212
74,382
91,502
40,896
245,992
—
—
—
—
—
1,979
7,183
3,284
—
41,191
81,565
94,786
40,896
12,446
258,438
—
—
—
—
—
41,191
81,565
94,786
40,896
258,438
1,149,718
448,950
37,970 1,636,638
9,031 1,645,669
The bonuses are the expected amounts based on the results for the current year and are expected to be paid in June/July 2018
once the year-end statutory accounts have been approved.
The highest paid Director is Paul Fineman (2017: Paul Fineman).
The Group operated a Group personal pension plan to which the Group contributed for one Director (2017: one). The Group also
contributes to the personal pension plan of one Director (2017: one), and provides death in service life assurance to the value of
between four and six times pensionable salary.
An expense of £1,353,000 has been recognised in the year in respect of share-based payments relating to Directors in respect
of the Long Term Incentive Plan (2017: £1,027,000).
45
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Part 3: additional regulatory disclosures continued
Directors’ remuneration(a) continued
The remuneration in respect of 31 March 2017 of the Directors by individual was as follows:
Salary/fees
£
Bonus
£
Benefits(b)
£
Subtotal
£
Pension
£
Total
£
218,139
231,661
2,307
452,107
9,816
461,923
321,897
310,138
13,494
645,529
245,966
248,111
5,477
499,554
—
—
645,529
499,554
786,002
789,910
21,278
1,597,190
9,816
1,607,006
38,349
74,382
89,489
40,000
242,220
—
—
—
—
—
1,802
6,268
2,772
—
40,151
80,650
92,261
40,000
10,842
253,062
—
—
—
—
—
40,151
80,650
92,261
40,000
253,062
1,028,222
789,910
32,120 1,850,252
9,816 1,860,068
Year ended 31 March 2017
Executive Directors
Lance Burn
Paul Fineman
Anthony Lawrinson(c)
Total Executive
Non‑Executive Directors
Elaine Bond
John Charlton
Anders Hedlund
Mark Tentori
Total Non‑Executive
Total Directors
(a) Audited.
(b) The benefits relate primarily to private health benefits.
(c) Anthony Lawrinson resigned on 31 December 2017.
On behalf of the Board
Elaine Bond
Chair of the Remuneration Committee
8 June 2018
46
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
DIRECTORS’ REPORT
The Directors present their annual
report on the affairs of the Group,
together with the financial statements
and independent auditor’s report for
the year ended 31 March 2018.
There are no specific restrictions on
the size of a holding nor on the transfer
of shares, which are both governed by
the general provisions of the articles of
association and prevailing legislation.
Directors
The Directors of the Company
during the period under review,
and subsequently to the date of
this report, were:
• Elaine Bond
• Lance Burn
• John Charlton
• Paul Fineman
• Anders Hedlund
• Anthony Lawrinson
Details on share-based payments
are set out in note 25 to the financial
statements and the Directors’
remuneration report. No person has
any special rights or control over the
Company’s share capital and all issued
shares are fully paid.
At 31 March 2018, the Company
had been notified of the following
substantial shareholders comprising
3% or more of the issued ordinary
share capital of the Company:
(resigned 31 December 2017)
% of issued share capital
• Mark Tentori
• Giles Willits
(appointed 2 January 2018)
Results and dividends
Results for the year ended
31 March 2018 are set out in the
consolidated income statement
on page 54. The Directors are
recommending a final dividend of
4.00p per share per share which, if
approved at the AGM will result in a
full year dividend of 6.00p per share
for 2017/18.
Articles of association
A copy of the full articles of
association are available on request
from the Company Secretary and
are also available on the Group’s
website www.thedesigngroup.com.
Any amendments to the articles of
association can be made by a special
resolution of the shareholders.
Share capital and
substantial shareholders
Details of the issued share capital,
together with details of the movements
during the year, are shown in note 22 to
the consolidated financial statements.
The Company has one class of
ordinary share which carry no right
to fixed income. Each ordinary share
carries the right to one vote at general
meetings of the Company.
Hedlund family(a)
Miton Group
Paul E Fineman(b)
Schroders Plc
Close Brothers AM
Octopus
Mr N Fisher and family
Hargreave Hale Ltd
35.08%
7.97%
7.24%
5.81%
4.33%
4.49%
3.94%
3.01%
(a) In addition to the Hedlund family’s beneficial
interest set out above, the Hedlund family is also
interested in a further 1,150,790 ordinary shares,
representing a further 1.80% of the current issued
share capital of the Company. These ordinary
shares are held by West Coast Trust, a trust for
the benefit of Anders Hedlund’s adult children,
which holds 900,790 ordinary shares and Claes
Hedlund, Anders Hedlund’s brother, who owns
250,000 ordinary shares. In total the Hedlund
family is interested in 23,568,994 ordinary shares,
representing 36.89% of the current issued share
capital of Company.
(b) This includes a non-beneficial interest in 174,608
ordinary shares at 5p each.
Acquisition of the
Company’s own shares
At the AGM held on 31 August 2017,
the Company was authorised in
accordance with Section 701 of the Act
to make market purchases (within the
meaning of Section 693(4) of the Act) of
up to 6,264,183 ordinary shares (being
approximately 10% of the share capital)
on such terms and in such manner
as the Directors of the Company
may from time to time determine.
This authority was not used during
the year or up to the date of this
report. Shareholders will be asked to
renew these authorities at the AGM
as detailed in the next AGM notice.
The Company held no treasury shares
during the year.
Directors’ indemnities and
Directors and officers’ liability
insurance
The Company has purchased
Directors’ and officers’ liability
insurance during the year as allowed
by the Company’s articles.
Financial risk management
Details of the Directors’ assessment
of the principal risks and uncertainties
which could impact the business are
outlined in the risks management
section on pages 30 to 33. The Board
manages internal risk through the
ongoing review of the Group’s risk
register and the Board manages
external risk through the monitoring
of the economic and regulatory
environment and market conditions.
Going concern
The Directors continue to adopt the
going concern basis in preparing the
annual report and financial statements.
Further details are set out in note 1 to
the consolidated financial statements.
Post balance sheet events
There have been no material post
balance sheet events.
Political donations
No political donations were made
during the period under review.
47
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
DIRECTORS’ REPORT
CONTINUED
Employees
The Group recognises the benefits
of keeping employees informed on
matters affecting them as employees
and on the various factors affecting
the performance of the Group. This is
achieved through employee briefings
that are held in most businesses at
least twice a year and regular team
briefings.
The Group conforms to current
employment laws on the employment
of disabled persons and, where we are
informed of any employee disability,
management makes all reasonable
efforts to accommodate that
employee’s requirements.
Health and safety
The Group is committed to maintaining
high standards of health and safety in
every area of the business.
It is the aim of the Group to exceed
the requirements of health and safety
legislation and we have established
a health and safety co-ordinator to
ensure continuous improvement of
health and safety across the Group.
Directors’ interests
The Directors who held office during the year had the following direct interests in the ordinary shares of the Company:
Lance Burn and Anthony Lawrinson exercised options during the year and made gains of £465,750 and £302,250 respectively.
Interest at the end of year
Elaine Bond
Lance Burn
John Charlton(a)
Paul Fineman(b)
Anders Hedlund(c)
Anthony Lawrinson(f)
Mark Tentori
Giles Willits
Interest at the beginning of year
Elaine Bond
Lance Burn
John Charlton(a)
Paul Fineman(b)
Anders Hedlund(c)
Anthony Lawrinson
Ordinary
shares
15,816
—
619,655
4,453,534
448
LTIP
vested
2012-2015(e)
LTIP
vested
2014-2017(e)
LTIP
vested(d)
2015-2018(e)
LTIP not
yet vested
2016-2019(e)
LTIP not
yet vested
2017-2020(e)
—
—
—
—
—
—
—
—
—
133,678
192,963
111,857
62,282
—
—
—
—
—
—
312,916
226,741
132,414
—
25,000
425,000
290,462
166,888
7,404
93,573
—
—
—
—
—
—
—
—
—
—
—
—
—
172,415
Ordinary
shares
15,816
—
619,655
4,453,534
448
LTIP
vested
2012-2015(e)
LTIP not
yet vested(d)
2014-2017(e)
LTIP not
yet vested
2015-2018(e)
LTIP not
yet vested
2016-2019(e)
—
—
—
—
—
—
—
—
268,678
192,191
110,259
—
—
—
—
—
207,774
148,999
—
—
—
500,000
290,462
166,219
119,199
In addition to the above holdings:
(a) 37,500 (2017: 37,500) shares are held by the wife of John Charlton.
(b) Paul Fineman owns a non-beneficial interest in 174,608 (2017: 174,608) ordinary shares of 5p each.
(c) 17,142,640 (2017: 17,142,640) and 5,275,116 (2017: 5,275,116) ordinary shares of 5p each are respectively registered in the names of AC Artistic Limited (“Artistic”) and
Malios Limited, companies incorporated in the British Virgin Islands, and under the ultimate control of the Hedlund family. In addition to the Hedlund family’s beneficial
interest set out above, the Hedlund family also holds interests in a further 1,150,790 ordinary shares, representing a further 1.80% of the current issued share capital
of the Company. These ordinary shares are held by West Coast Trust, a trust for the benefit of Anders Hedlund’s adult children, which holds 900,790 ordinary shares
and Claes Hedlund, Anders Hedlund’s brother, who owns 250,000 ordinary shares. In total the Hedlund family has interests in 23,568,994 ordinary shares, representing
36.89% of the current issued share capital of the Company.
(d) All of these shares formally vest on 6 June 2018 following the Remuneration Committee and Audit Committee approval of the results for the year ended 31 March 2018.
(e) For details of the executive share option and LTIP schemes see page 42 and 43.
(f)
Interest at date of resignation 31 December 2017.
Disclosure of information
to the auditor
In the case of each Director in office
at the date the Directors’ report is
approved, the following applies:
• The Director knows of no
information, which would be relevant
to the auditor for the purpose of
their audit report, of which the
auditor is not aware; and
• The Director has taken all steps that
he/she ought to have taken as a
director to make him/herself aware of
any such information and to establish
that the auditor is aware of it.
48
Giles Willits
Director
8 June 2018
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
The Directors are responsible for
preparing the annual report and the
Group and Parent Company financial
statements in accordance with
applicable law and regulations.
Company law requires the Directors to
prepare Group and Parent Company
financial statements for each financial
year. As required by the AIM Rules
of the London Stock Exchange they
are required to prepare the Group
financial statements in accordance
with International Financial Reporting
Standards as adopted by the European
Union (IFRSs as adopted by the EU)
and applicable law and have elected
to prepare the Parent Company
financial statements in accordance
with UK accounting standards and
applicable law (UK Generally Accepted
Accounting Practice), including
FRS 102 The Financial Reporting
Standard applicable in the UK and
Republic of Ireland.
The Directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the Parent Company’s transactions and
disclose with reasonable accuracy at
any time the financial position of the
Parent Company and enable them to
ensure that its financial statements
comply with the Companies Act 2006.
They are responsible for such internal
control as they determine is necessary
to enable the preparation of financial
statements that are free from material
misstatement, whether due to fraud or
error, and have general responsibility
for taking such steps as are reasonably
open to them to safeguard the assets
of the Group and to prevent and detect
fraud and other irregularities.
Under applicable law and regulations,
the Directors are also responsible for
preparing a Strategic report and a
Directors’ report that complies with
that law and those regulations.
The Directors are responsible for
the maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the UK governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
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 Parent
Company and of their profit or loss
for that period. In preparing each
of the Group and Parent Company
financial statements, the Directors
are required to:
• select suitable accounting policies
and then apply them consistently;
• make judgements and estimates
that are reasonable, relevant,
reliable and prudent;
• for the Group financial statements,
state whether they have been
prepared in accordance with IFRSs
as adopted by the EU;
• for the Parent Company financial
statements, state whether
applicable UK accounting standards
have been followed, subject to
any material departures disclosed
and explained in the financial
statements;
• assess the Group and Parent
Company’s ability to continue as
a going concern, disclosing, as
applicable, matters related to going
concern; and
• use the going concern basis of
accounting unless they either intend
to liquidate the Group or the Parent
Company or to cease operations, or
have no realistic alternative but to
do so.
49
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF IG DESIGN GROUP PLC
1 Our opinion is unmodified
We have audited the financial
statements of IG Design Group plc
(“the Company”) for the year ended
31 March 2018 which comprise the
Consolidated Income Statement,
the Consolidated Statement of
Comprehensive Income, the
Consolidated Statement of Changes
in Equity, the Consolidated Balance
Sheet, the Consolidated Cash Flow
Statement, the Company Balance
Sheet, the Company Statement of
Changes in Equity, the Company
Cash Flow Statement and the related
notes, including the accounting
policies in note 1.
Basis for opinion
We conducted our audit in
accordance with International
Standards on Auditing (UK)
(“ISAs (UK)”) and applicable law.
Our responsibilities are described
below. We have fulfilled our
ethical responsibilities under,
and are independent of the Group
in accordance with, UK ethical
requirements including the FRC
Ethical Standard as applied to
listed entities. We believe that the
audit evidence we have obtained is
a sufficient and appropriate basis
for our opinion.
In our opinion:
• the financial statements give a true
and fair view of the state of the
Group’s and of the Parent Company’s
affairs as at 31 March 2018 and
of the Group’s profit for the year
then ended;
• the Group financial statements
have been properly prepared in
accordance with International
Financial Reporting Standards as
adopted by the European Union;
• the Parent Company financial
statements have been properly
prepared in accordance with UK
accounting standards, including
FRS 102, the Financial Reporting
Standard applicable in the UK and
Republic of Ireland; and
• the financial statements have been
prepared in accordance with the
requirements of the Companies
Act 2006.
Overview
Materiality:
Group financial statements as a whole
£0.8m (2017: £0.6m)
4.1% (2017: 4.7%) of profit before tax
Coverage
98.2% (2017: 88.8%) of Group profit before tax
Risks of material misstatement
vs. 2017
Recurring risks
Group revenue recognition
Recoverability of Parent Company’s investment in subsidiaries
2 Key audit matters: our
assessment of risks of
material misstatement
Key audit matters are those matters
that, in our professional judgement,
were of most significance in the
audit of the financial statements
and include the most significant
assessed risks of material
misstatement (whether or not due
to fraud) identified by us, including
those which had the greatest effect
on: the overall audit strategy; the
allocation of resources in the audit;
and directing the efforts of the
engagement team. These matters
were addressed in the context of
our audit of the financial statements
as a whole, and in forming our
opinion thereon, and we do not
provide a separate opinion on
these matters. In arriving at our
audit opinion above, the key audit
matters, in decreasing order of
audit significance, were as follows
(unchanged from 2017):
50
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 Group revenue
recognition
(£327.5m;
2017: £311.0m)
Refer to page 62
(accounting
policy) and page
67 (financial
disclosures)
Parent:
Recoverability of
Parent Company
Investment in
Subsidiaries
(£28.0m;
2017: £27.9m)
Refer to page 99
(accounting
policy) and page
103 (financial
disclosures)
The Risk
2017/18
The majority of the revenue of the Group is derived
through the provision of goods to customers during the
year, with the amount of revenue recognised being net
of discounts, allowances for volume rebates and other
payments. The volume of orders close to year end gives
rise to a risk that revenue may be recognised in the
wrong period.
Processing error
As a result of the wide range of products and customers
to the Group, there are a significant number of sales
agreements within the business. The agreements are
often bespoke and vary from customer to customer in
terms of rights to return, volume rebates and fixed price
discounts. This gives rise to the risk that revenue may
be recognised in the wrong period.
Low risk, high value:
The carrying amount of the Parent Company’s
investments in the subsidiary company held at cost
less impairment represents 40% (2017: 41%) of the
Parent Company’s total assets.
Their recoverability is not at a high risk of significant
misstatement or subject to significant judgement.
However, due to its materiality in the context of the Parent
Company financial statements, this is considered to be
the area that had the greatest effect on our overall Parent
Company audit.
Our response
Our audit procedures included:
Tests of details:
• Selecting a sample of revenue transactions
recognised close to the year end and agreeing them
to proof of delivery in order to assess whether the
revenue has been recognised in the correct period;
Inspecting a sample of credit notes raised post year
end to determine whether they related to revenue
recognised in the year;
•
• For a sample of revenue transactions with customers
with a specific sales agreement in place inspecting
signed contracts to assess whether revenue has
been recognised in accordance with the specific
contract terms;
• Obtaining 100% of the journals posted in respect
of revenue and, using computer assisted audit
techniques, analysing these to identify and investigate
any entries which appeared unusual based upon the
bespoke characteristics of the journal, considering
in particular whether the non-revenue side of
the journal entry was as expected, based on our
business understanding.
Our procedures included:
Test of details:
• Comparing the carrying amount of 100% of
investments with the relevant subsidiaries draft
balance sheet to identify whether their net
assets, being an approximation of their minimum
recoverable amount, were in excess of their carrying
amount and assessing whether those subsidiaries
have historically been profit-making.
Assessing subsidiary audits:
• Assessing the work performed by the subsidiary audit
teams on all of those subsidiaries and considering the
results of that work, on those subsidiaries’ profits and
net assets. Considering the results of our audit work
on the profits and net assets of those subsidiaries.
51
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 5 We have nothing to report
on the other information in
the annual report
The Directors are responsible for
the other information presented in
the annual report together with the
financial statements. Our opinion
on the financial statements does
not cover the other information and,
accordingly, we do not express
an audit opinion or, except as
explicitly stated below, any form
of assurance conclusion thereon.
Our responsibility is to read the
other information and, in doing so,
consider whether, based on our
financial statements audit work,
the information therein is materially
misstated or inconsistent with
the financial statements or our
audit knowledge. Based solely on
that work we have not identified
material misstatements in the other
information.
Strategic report and
Directors’ report
Based solely on our work on the
other information:
•
• we have not identified material
misstatements in the strategic
report and the Directors’ report;
in our opinion the information given
in those reports for the financial
year is consistent with the financial
statements; and
in our opinion those reports have
been prepared in accordance with
the Companies Act 2006.
•
INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF IG DESIGN GROUP PLC
The Group audit team instructed
component auditors as to the
significant areas to be covered,
including the relevant risks detailed
above and the information to be
reported back. The Group audit
team determined the component
materialities, which ranged from
£0.2 million to £0.7 million, having
regard to the mix of size and risk
profile of the Group across the
components. The work on two of
the fourteen in scope components
(2016: three of the fourteen
components) was performed by
component auditors, and the rest,
including the audit of the Parent
Company, was performed by the
Group team.
The Group audit team visited
all eight (2017: six) component
locations subject to full scope audits
to assess the audit risk and strategy.
Telephone conference meetings
were held with all component
auditors on completion of the
component audits where the audit
findings were reported to the Group
audit team in more detail, and any
further work required by the Group
audit team was then performed by
the component auditor.
4 We have nothing to report
on going concern
We are required to report to you
if we have concluded that the
use of the going concern basis
of accounting is inappropriate
or there is an undisclosed
material uncertainty that may
cast significant doubt over the
use of that basis for a period of
at least twelve months from the
date of approval of the financial
statements. We have nothing to
report in these respects.
3 Our application of materiality
and an overview of the scope of
our audit
Materiality for the Group financial
statements as a whole was set at
£0.8m (2017: £0.6m), determined
with reference to a benchmark
of Group profit before tax of
£19.7m, of which it represents
4.1% (2017: 4.7%). Materiality for
the Parent Company financial
statements as a whole was set at
£0.7m (2017: £0.3m), determined
with reference to a benchmark of
Company net assets, of which it
represents 1.1% (2017: 0.4%).
We agreed to report to the
Audit Committee any corrected
or uncorrected identified
misstatements exceeding
£37,500 (2017: £30,000), in addition
to other identified misstatements
that warranted reporting on
qualitative grounds.
Of the Group’s fourteen
(2017: fourteen) reporting
components, which includes the
Parent Company, we subjected
eight (2017: eight) to full scope
audits for Group purposes.
The components within the scope
of our work accounted for 88.9%
of total Group revenue, 98.2% of
Group profit before tax and 88.6%
of total Group assets. We performed
agreed upon procedures on one
(2017: one) reporting component
representing 6.9% of Group
revenue, -1.3% of Group profit
and 6.4% of total Group assets.
The remaining 4.2% of total Group
revenue, 3.3% of Group profit before
tax and 5.0% of total Group assets
is represented by five (2017: five)
reporting components, none of
which individually represented
more than 3% of any of total Group
revenue, Group profit before tax
or total Group assets. For these
residual components, we performed
analysis at an aggregated Group
level to re-examine our assessment
that there were no significant risks of
material misstatement within these.
52
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 6 We have nothing to report
on the other matters on which
we are required to report by
exception
Under the Companies Act 2006, we
are required to report to you if, in
our opinion:
• adequate accounting records
have not been kept by the Parent
Company, or returns adequate for
our audit have not been received
from branches not visited by us; or
• the Parent Company financial
statements are not in agreement
with the accounting records and
returns; or
• certain disclosures of Directors’
remuneration specified by law are
not made; or
• we have not received all the
information and explanations
we require for our audit.
We have nothing to report in
these respects.
8 The purpose of our audit
work and to whom we owe
our responsibilities
This report is made solely to the
Company’s members, as a body,
in accordance with Chapter 3
of Part 16 of the Companies Act
2006. Our audit work has been
undertaken so that we might state
to the Company’s members those
matters we are required to state
to them in an auditor’s report and
for no other purpose. To the fullest
extent permitted by law, we do not
accept or assume responsibility to
anyone other than the Company
and the Company’s members, as
a body, for our audit work, for this
report, or for the opinions we
have formed.
Peter Selvey
(Senior Statutory Auditor)
for and on behalf of KPMG LLP,
Statutory Auditor
Chartered Accountants
Altius House,
North Fourth Street,
Milton Keynes
MK9 1NE
8 June 2018
7 Respective responsibilities
Directors’ responsibilities
As explained more fully in their
statement set out on page 49,
the Directors are responsible for:
the preparation of the financial
statements including being
satisfied that they give a true and
fair view; such internal control as
they determine is necessary to
enable the preparation of financial
statements that are free from
material misstatement, whether
due to fraud or error; assessing
the Group and Parent Company’s
ability to continue as a going
concern, disclosing, as applicable,
matters related to going concern;
and using the going concern basis
of accounting unless they either
intend to liquidate the Group or
the Parent Company or to cease
operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain
reasonable assurance about
whether the financial statements
as a whole are free from material
misstatement, whether due to
fraud or error, and to issue our
opinion in an auditor’s report.
Reasonable assurance is a high
level of assurance, but does not
guarantee that an audit conducted
in accordance with ISAs (UK)
will always detect a material
misstatement when it exists.
Misstatements can arise from fraud
or error and are considered material
if, individually or in aggregate, they
could reasonably be expected to
influence the economic decisions
of users taken on the basis of the
financial statements.
A fuller description of our
responsibilities is provided on the
FRC’s website at www.frc.org.uk/
auditorsresponsibilities.
53
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 CONSOLIDATED INCOME STATEMENT
YEAR ENDED 31 MARCH 2018
Revenue
Cost of sales
Gross profit
Selling expenses
Administration expenses
Other operating income
Operating profit/(loss)
Finance expenses
Profit/(loss) before tax
Income tax (charge)/credit
Profit/(loss) for the year
Attributable to:
Owners of the Parent Company
Non-controlling interests
Earnings per ordinary share
Earnings per share
Before
exceptional
items
£000
Notes
4
327,516
(257,532)
69,984
21.4%
(20,005)
(29,793)
2018
Exceptional
items
(note 10)
£000
Before
exceptional
items
£000
Total
£000
2017
Exceptional
items
(note 10)
£000
Total
£000
—
—
—
327,516
310,992
—
310,992
(257,532)
(247,058)
(1,532)
(248,590)
69,984
21.4%
63,934
(1,532)
62,402
20.6%
20.1%
—
(20,005)
(19,019)
—
(19,019)
(553)
(30,346)
(29,832)
495
(29,337)
7
5
8
9
385
1,092
20,571
(1,392)
19,179
(5,622)
13,557
539
—
539
238
777
1,477
21,110
(1,392)
19,718
(5,384)
210
15,293
(1,229)
14,064
(3,480)
14,334
10,584
—
210
(1,037)
14,256
—
(1,229)
(1,037)
13,027
761
(276)
(2,719)
10,308
13,545
789
9,650
658
Note
23
2018
Diluted
20.5p
Basic
21.4p
2017
Diluted
15.0p
Basic
15.7p
54
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 MARCH 2018
Profit for the year
Other comprehensive income:
Exchange difference on translation of foreign operations (net of tax)
Transfer to profit and loss on maturing cash flow hedges (net of tax)
Net (loss)/gain on cash flow hedges (net of tax)
Other comprehensive (loss)/income for period, net of tax items, which may be reclassified
to profit and loss in subsequent periods
Total comprehensive income for the year, net of tax
Attributable to:
Owners of the Parent Company
Non-controlling interests
2018
£000
2017
£000
14,334
10,308
(1,632)
3,213
(271)
(27)
223
271
(1,930)
12,404
3,707
14,015
12,001
403
12,404
12,795
1,220
14,015
55
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 MARCH 2018
Share
premium
and capital
redemption
reserve
£000
Share
capital
£000
Merger
reserves
£000
Hedging
reserves
£000
Translation
reserve
£000
Retained Shareholder
equity
earnings
£000
£000
Non-
controlling
interest
£000
Total
£000
2,963
4,852
17,164
(223)
(100)
43,346
68,002
3,370
71,372
At 31 March 2016
Profit for the year
—
Other comprehensive income —
Total comprehensive
income for the year
Equity-settled share-based
payment (note 25)
Tax on equity-settled
share-based payments
—
—
—
—
—
—
—
—
Shares issued
150
4,883
Options exercised (note 22)
19
34
Capital contribution from
non-controlling investor
Equity dividends paid
At 31 March 2017
Profit for the year
—
—
—
—
—
—
—
—
—
9,650
9,650
658
10,308
494
2,651
—
3,145
562
3,707
—
494
2,651
9,650
12,795
1,220
14,015
—
—
—
—
—
—
—
—
—
—
—
—
—
1,555
1,555
—
1,555
913
913
5,033
53
—
—
—
—
—
—
—
—
—
110
110
(2,134)
(2,134)
(867)
(3,001)
—
—
—
913
5,033
53
3,132
9,769
17,164
271
2,551
53,330
86,217
3,833
90,050
Other comprehensive income —
Total comprehensive
income for the year
Equity-settled share-based
payment (note 25)
Tax on equity-settled
share-based payments
Shares issued
Options exercised (note 22)
Equity dividends paid
—
—
—
—
62
—
—
—
—
—
—
—
46
—
—
—
—
—
13,545
13,545
789
14,334
(298)
(1,246)
—
(1,544)
(386)
(1,930)
—
(298)
(1,246)
13,545
12,001
403
12,404
—
—
—
—
—
—
—
—
—
—
—
1,677
1,677
—
1,677
—
—
—
—
(111)
—
(37)
(111)
—
71
—
—
—
(111)
—
71
(3,000)
(3,000)
(575)
(3,575)
At 31 March 2018
3,194
9,815
17,164
(27)
1,305
65,404
96,855
3,661
100,516
Merger reserve
The merger reserve comprises premium on shares issued in relation to business combinations.
Capital redemption reserve
The capital redemption reserve comprises amounts transferred from retained earnings in relation to the redemption of
preference shares. For ease of presentation, the amount of £1.34 million relating to the capital redemption reserve has been
included within the column of share premium and capital redemption reserve in the balances at both the beginning and end
of each year, with no movements during the year.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that qualify for hedge accounting and have not yet matured.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements
of foreign operations.
Shareholders’ equity
Shareholders’ equity represents total equity attributable to owners of the Parent Company.
56
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2018
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Current assets
Inventory
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
Total current assets
Total assets
Equity
Share capital
Share premium
Reserves
Retained earnings
Equity attributable to owners of the Parent Company
Non-controlling interests
Total equity
Non-current liabilities
Loans and borrowings
Deferred income
Provisions
Other financial liabilities
Deferred tax liability
Total non-current liabilities
Current liabilities
Bank overdraft
Loans and borrowings
Deferred income
Provisions
Income tax payable
Trade and other payables
Other financial liabilities
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
2018
£000
2017
£000
11
12
13
14
15
26
16
22
17
18
19
20
13
16
17
18
19
21
20
35,499
36,547
2,663
32,607
33,681
5,398
74,709
71,686
49,311
37,369
113
9,031
49,475
29,622
307
3,659
95,824
83,063
170,533
154,749
3,194
8,475
19,782
65,404
96,855
3,661
3,132
8,429
21,326
53,330
86,217
3,833
100,516
90,050
3,781
998
894
1,440
373
7,486
—
894
99
429
3,364
38,757
18,988
62,531
70,017
(39)
1,083
881
1,911
525
4,361
916
(232)
111
441
3,153
37,450
18,499
60,338
64,699
170,533
154,749
These financial statements were approved by the Board of Directors on 8 June 2018 and were signed on its behalf by:
Paul Fineman
Director
Giles Willits
Director
The notes on pages 59 to 95 form part of the financial statements.
57
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
CONSOLIDATED CASH FLOW STATEMENT
YEAR ENDED 31 MARCH 2018
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation
Amortisation of intangible assets
Impairment of goodwill
Finance expenses
Negative goodwill release to income
Income tax charge
(Profit)/loss on sales of property, plant and equipment
Loss on external sale of intangible fixed assets
Equity-settled share-based payment
Operating profit after adjustments for non-cash items
Change in trade and other receivables
Change in inventory
Change in trade and other payables
Change in provisions and deferred income
Cash generated from operations
Tax paid
Interest and similar charges paid
Net cash inflow from operating activities
Cash flow from investing activities
Proceeds from sale of property, plant and equipment
Acquisition of businesses
Capital contribution from non-controlling investor
Acquisition of intangible assets
Acquisition of property, plant and equipment
Receipt of government grants
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Repayment of secured borrowings
Net movement in credit facilities
Payment of finance lease liabilities
New bank loans raised
Loan arrangement fees
Equity dividends paid
Dividends paid to non-controlling interests
Net cash inflow/(outflow) from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at end of the period
58
Notes
2018
£000
2017
£000
11
12
12
8
10
9
14,334
10,308
4,345
4,571
818
36
1,392
—
5,384
(1,953)
1
798
—
1,229
(1,271)
2,719
24
51
25
2,257
2,216
26,614
20,645
(9,133)
819
3,612
(199)
21,713
(3,099)
(1,483)
17,131
2,596
(5,145)
—
(1,377)
(7,992)
15
(772)
2,670
8,940
44
31,527
(2,003)
(1,867)
27,657
58
(2,669)
110
(534)
(4,633)
40
31
12
11
(11,903)
(7,628)
22
71
5,086
(165)
(21,774)
—
(46)
5,108
(111)
24
(3,000)
(575)
1,282
6,510
2,743
(222)
9,031
16
(795)
(2,383)
—
(319)
(2,134)
(867)
(23,186)
(3,157)
6,872
(972)
2,743
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 MARCH 2018
1 Accounting policies
IG Design Group plc (the “Company”) is
a public limited company, incorporated
and domiciled in England and Wales.
The Company’s ordinary shares are
listed on the Alternative Investment
Market (“AIM”).
These financial statements consolidate
those of the Company and its
subsidiaries (together referred to
as the “Group”).
The Group financial statements
have been prepared and approved
by the Directors in accordance with
EU adopted International Financial
Reporting Standards.
The accounting policies set out below
have, unless otherwise stated, been
applied consistently to all periods
presented in these Group financial
statements.
Judgements made by the Directors
in the application of these accounting
policies that have significant effect
on the financial statements and
estimates with a significant risk of
material adjustment in the next year
are discussed in the policies below.
Going concern basis
The financial statements have been
prepared on the going concern basis.
In forming their conclusion that the
business is and will remain a going
concern, the Directors have reviewed
the budgets and forecasts prepared
and sensitivity analysis thereon. The
business is highly seasonal and this
results in peak funding demands.
To meet the funding requirements
the business has agreed funding
in place with HSBC as part of a
three year deal first put in place from
6 June 2016 and extended to May 2021.
After making enquiries, the Directors
have a reasonable expectation that
the Company and the Group have
adequate resources to continue
in operational existence for the
foreseeable future. Thus, they continue
to adopt the going concern basis of
accounting in preparing the financial
statements.
Measurement convention
The financial statements are prepared
on the historical cost basis except
derivative financial instruments which
are stated at their fair value.
Changes in accounting policies
The accounting policies adopted in the
preparation of the financial statements
are consistent with those followed in
the preparation of the Group’s annual
financial statements for the year ended
31 March 2017.
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by
the Group. The Group considers all
facts and circumstances in assessing
whether it has the power to control
the relevant activities of investee
and to benefit from the results
thereof, including rights arising from
shareholder agreements, contractual
arrangements and potential voting
rights held by the Group. The financial
statements of subsidiaries are included
in the consolidated financial statements
from the date that control commences
to the date that control ceased.
Business combinations are accounted
for using the acquisition method as at
the date on which control is transferred
to the Group.
For acquisitions on or after
1 January 2010, the Group measures
goodwill at the acquisition date as:
• the fair value of the consideration
transferred; plus
• the recognised amount of any
non-controlling interests in the
acquiree; plus
if the business combination is
achieved in stages, the fair value
of the existing equity interest in
the acquiree; less
•
• the net recognised amount
(generally fair value) of the
identifiable assets acquired
and liabilities assumed.
When the result is negative, a
‘bargain purchase’ gain is recognised
immediately in the income statement.
Provisional fair values allocated at
a reporting date are finalised within
twelve months of the acquisition date.
Foreign currency translation
The consolidated financial
statements are presented in pounds
sterling, which is the Company’s
functional currency and the Group’s
presentational currency.
Transactions in foreign currencies are
translated at the foreign exchange rate
prevailing at the date of the transaction.
Monetary assets and liabilities
denominated in foreign currencies at
the balance sheet date are translated at
the foreign exchange rate prevailing at
that date. Foreign exchange differences
arising on translation are recognised
in the income statement.
59
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
1 Accounting policies continued
Foreign currency translation
continued
The assets and liabilities of foreign
operations, including goodwill and
fair value adjustments arising on
consolidation, are translated at foreign
exchange rates prevailing at the
balance sheet date. The revenues and
expenses of foreign operations are
translated at an average rate for the
period where this rate approximates to
the foreign exchange rates prevailing
at the dates of the transactions.
Exchange differences arising from this
translation of foreign operations, and
of related qualifying hedges, are taken
directly to the translation reserve. They
are released into the income statement
upon disposal or loss of control and
on maturity or disposal of the hedge,
respectively.
Exchange differences arising from
a monetary item receivable from or
payable to a foreign operation, the
settlement of which is neither planned
nor likely in the foreseeable future,
are considered to form part of a net
investment in a foreign operation and
are recognised in other comprehensive
income in the translation reserve. The
cumulative translation differences
previously recognised in other
comprehensive income (or where
the foreign operation is part of a
subsidiary, the parent’s interest in the
cumulative translation differences) are
released into the income statement
upon disposal of the foreign operation
or on loss of control of the subsidiary
that includes the foreign operation.
Classification of financial
instruments issued by the Group
Financial instruments issued by the
Group are treated as equity (i.e.
forming part of shareholders’ funds)
only to the extent that they meet the
following two conditions:
Trade and other payables
Trade and other payables are stated at
their nominal value which is considered
to be their fair value. Subsequent to
initial recognition they are measured
at amortised cost using the effective
interest method.
• they include no contractual
obligations upon the Group to
deliver cash or other financial assets
or to exchange financial assets or
financial liabilities with another party
under conditions that are potentially
unfavourable to the Group; and
• where the instrument will or may
be settled in the Company’s own
equity instruments, it is either a
non-derivative that includes no
obligation to deliver a variable
number of the Company’s own
equity instruments or is a derivative
that will be settled by the Company
exchanging a fixed amount of
cash or other financial assets for
a fixed number of its own equity
instruments.
To the extent that this definition is
not met, the proceeds of issue are
classified as a financial liability. Where
the instrument so classified takes
the legal form of the Company’s own
shares, the amounts presented in these
financial statements for called up share
capital and share premium exclude
amounts in relation to those shares.
Trade and other receivables
Trade and other debtors are
recognised initially at transaction
price less attributable transaction
costs. Trade and other debtors
are subsequently reviewed for
recoverability and impairment with
any losses taken to profit and loss
immediately. If the arrangement
constitutes a financing transaction,
for example if payment is deferred
beyond normal business terms, then
it is measured at the present value
of future payments discounted at
a market rate of instrument for a
similar debt instrument.
Cash and cash equivalents
Cash and cash equivalents comprise
cash balances. Bank overdrafts
that are repayable on demand and
form an integral part of the Group’s
cash management are included
as a component of cash and cash
equivalents for the purposes of the
cash flow statement.
Interest‑bearing borrowings
Interest-bearing borrowings are
recognised initially at fair value
less attributable transaction costs.
Subsequent to initial recognition,
interest-bearing borrowings are stated
at amortised cost using the effective
interest method.
Derivative financial instruments
and hedging
Derivative financial instruments
Derivative financial instruments are
recognised at fair value. The gain or
loss on remeasurement to fair value is
recognised immediately in the income
statement. However, where derivatives
qualify for hedge accounting,
recognition of any resultant gain or
loss depends on the nature of the
item being hedged.
Cash flow hedges
Where a derivative financial instrument
is designated as a hedge of the
variability in cash flows of a recognised
asset or liability, or a highly probable
forecast transaction, the effective part
of any gain or loss on the derivative
financial instrument is recognised
as other comprehensive income in
the hedging reserve. Any ineffective
portion of the hedge is recognised
immediately in the income statement.
60
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 Amounts previously recognised in
other comprehensive income are
transferred to the income statement
in the periods when the hedged item
affects profit or loss (for instance when
the forecast sale that is hedged takes
place). The gain or loss relating to the
effective portion of forward foreign
exchange contract hedging export
sales is recognised in the income
statement within ‘sales’. However,
when the forecast transaction that is
hedged results in the recognition of
a non-financial asset (for example,
inventory), the gains or losses
previously recognised in other
comprehensive income are transferred
from other comprehensive income and
included in the initial measurement
of the cost of the asset. The deferred
amounts are ultimately recognised
in cost of goods sold (in the case
of inventory).
When a hedging instrument expires or
is sold, terminated or exercised, or the
entity revokes designation of the hedge
relationship but the hedged forecast
transaction is still expected to occur,
the cumulative gain or loss at that
point remains in other comprehensive
income and is recognised in
accordance with the above policy when
the transaction occurs. If the hedged
transaction is no longer expected to
take place, the cumulative unrealised
gain or loss recognised in other
comprehensive income is recognised in
the income statement immediately.
Property, plant and equipment
Property, plant and equipment is stated
at cost less accumulated depreciation
and impairment losses.
Where separately identifiable parts
of an item of property, plant and
equipment have different useful lives,
they are accounted for as separate
items of property, plant and equipment.
Leases in which the Group assumes
substantially all the risks and rewards
of ownership of the leased asset are
classified as finance leases.
Where land and buildings are held
under finance leases the accounting
treatment of the land is considered
separately from that of the buildings.
Leased assets acquired by way of a
finance lease are stated at an amount
equal to the lower of their fair value and
the present value of the minimum lease
payments at inception of the lease,
less accumulated depreciation and
impairment losses. Lease payments
are accounted for as described below.
Depreciation is charged to the income
statement on a straight-line basis over
the estimated useful lives of each
part of an item of property, plant and
equipment. The estimated useful lives
are as follows:
• freehold buildings
• leasehold land
and buildings
• plant and equipment
• fixtures and fittings
• motor vehicles
25-30 years
life of lease
4-25 years
3-5 years
4 years
No depreciation is provided on
freehold land.
Included within plant and machinery
are assets with a range of depreciation
rates. These rates are tailored to the
nature of the assets to reflect their
estimated useful lives.
Depreciation methods, useful lives and
residual values are reviewed at each
balance sheet date.
Business combinations
and goodwill
Subject to the transitional relief in
IFRS 1, all business combinations
are accounted for by applying the
purchase method. Goodwill represents
amounts arising on acquisition of
subsidiaries. In respect of business
acquisitions that have occurred since
1 April 2006, goodwill represents the
difference between the cost of the
acquisition and the fair value of the net
identifiable assets acquired.
Identifiable intangibles are those which
can be sold separately or which arise
from legal rights regardless of whether
those rights are separable.
Goodwill is stated at cost less any
accumulated impairment losses.
Goodwill is allocated to cash-generating
units and is not amortised but is tested
every half year for impairment.
In respect of acquisitions prior to
1 April 2006, goodwill is included on
the basis of its deemed cost, which
represents the amount recorded under
UK GAAP at that time which was
broadly comparable save that only
separable intangibles were recognised
and goodwill was amortised. Goodwill
written off to reserves under UK GAAP
prior to 1998 has not been reinstated.
If the cost of an acquisition is less
than the fair value of the Group’s share
of the net assets of the subsidiary
acquired, the difference is recognised
directly in the income statement.
Computer software
Computer software is capitalised at its
initial cost and amortised over one to
five years.
Other intangible assets
Expenditure on internally generated
goodwill and brands is recognised in
the income statement as an expense
as incurred.
Other intangible assets that are
acquired by the Group are stated at
cost less accumulated amortisation
and impairment losses.
Amortisation
Amortisation is charged to the income
statement on a straight-line basis
over the estimated useful lives of
intangible assets unless such lives are
indefinite. All other intangible assets
are amortised from the date they are
available for use. The estimated useful
life of computer software and other
intangibles are three to five years.
Amortisation charges are included
under ‘administrative expenses’ in
the income statement.
61
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
1 Accounting policies continued
Inventories
Inventories are stated at the lower of
cost and net realisable value. Cost
is based on a weighted average and
includes expenditure incurred in
acquiring the inventories and bringing
them to their existing location and
condition. In the case of manufactured
inventories and work in progress,
cost includes an appropriate share
of overheads based on normal
operating capacity.
Impairment
The carrying amounts of the Group’s
assets other than inventories and
deferred tax assets are reviewed at
each balance sheet date to determine
whether there is any indication of
impairment. If any such indication
exists, the asset’s recoverable amount
is estimated.
An impairment loss is recognised
whenever the carrying amount of
an asset or its cash-generating unit
exceeds its recoverable amount.
Impairment losses are recognised
in the income statement.
Impairment losses recognised in
respect of cash-generating units are
allocated first to reduce the carrying
amount of any goodwill allocated to
cash-generating units and then to
reduce the carrying amount of the
other assets in the unit on a pro rata
basis. A cash-generating unit is the
smallest identifiable group of assets
that generates cash inflows that are
largely independent of the cash inflows
from other assets or groups of assets.
The recoverable amount of the Group’s
assets is the greater of their fair value
less costs to sell and value in use. In
assessing value in use, the estimated
future cash flows are discounted to
their present value using a pre-tax
discount rate that reflects current
market assessments of the time, value
of money and the risks specific to
the asset. For an asset that does not
generate largely independent cash
inflows, the recoverable amount is
determined for the cash-generating
unit to which the asset belongs.
An impairment in respect of goodwill
is not reversed. In respect of other
assets, an impairment is reversed
when there is an indication that the
impairment may no longer exist
and there has been a change in the
estimates used to determine the
recoverable amount. An impairment
is reversed only to the extent that
the asset’s carrying amount does
not exceed the carrying amount that
would have been determined, net of
depreciation or amortisation, if no
impairment had been recognised.
Provisions
A provision is recognised in the
balance sheet when the Group
has a present legal or constructive
obligation as a result of a past event
and it is probable that an outflow of
economic benefits will be required to
settle the obligation. If the effect is
material, provisions are determined by
discounting the expected future cash
flows at a pre-tax rate that reflects
current market assessments of the time
value of money and, where appropriate,
the risks specific to the liability. Where
discounting is used, the increase in the
provision due to the passage of time is
recognised as borrowing costs.
Revenue recognition
Revenue represents the amounts, net
of discounts, allowances for volume
and promotional rebates and other
payments to customers (excluding value
added tax) derived from the provision
of goods and services to customers
during the year. Sales of goods are
recognised when a Group entity has
delivered products to the customer
or transferred legal title and the
collectability of the related receivable
is reasonably assured. Provisions are
made for volume and promotional
rebates where they have been agreed
or are reasonably likely to arise, based
upon actual and forecast sales.
Where goods are sold on a sale
or return basis revenue is initially
booked net of any expectation of the
proportion that will be returned by the
customer, which is based on historical
experience. This is updated for the
final value of returns on payment by
the customer.
Where goods are sold on a
consignment basis the revenue is
booked when the goods have been
sold by the customer.
Exceptional items
Exceptional items are those items of
financial performance which, because
of size or incidence, require separate
disclosure to enable underlying
performance to be assessed.
Government grants
Capital-based government grants are
included within other financial liabilities
in the balance sheet and credited to
operating profit over the estimated
useful economic lives of the assets to
which they relate.
Supplier income
The Group does not have material
retrospective supplier incentive
arrangements, but where these do
arise, they are recognised within cost
of sales on an accruals basis as earned
for each relevant supplier rebate.
Expenses
Operating lease payments
Payments made and lease incentives
received under operating leases are
recognised in the income statement
on a straight-line basis over the term
of the lease.
Finance lease payments
Minimum lease payments are
apportioned between the finance
charge and the reduction of the
outstanding liability. The finance
charge is allocated to each period
during the lease term so as to produce
a constant periodic rate of interest on
the remaining balance of the liability.
62
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 Finance income and expenses
Finance expenses comprise interest
payable, finance charges on finance
leases and unwinding of discounts
on provisions.
Net movements in the fair value of
derivatives which have not been
designated as an effective hedge,
and any ineffective portion of fair value
movement on derivatives designated
as a hedge are also included within
finance income or expense.
Interest income and interest payable
is recognised in the income statement
as it accrues, using the effective
interest method.
Taxation
Tax on the profit or loss for the year
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 it is recognised in
other comprehensive income or equity
respectively.
Current tax is the expected tax
payable on the taxable income for
the year, using tax rates enacted or
substantively enacted at the balance
sheet date and any adjustment to tax
payable in respect of previous years.
Deferred tax is provided on temporary
differences between the carrying
amounts of assets and liabilities
for financial reporting purposes
and the amounts used for taxation
purposes. The following temporary
differences are not provided for: the
initial recognition of goodwill; the
initial recognition of assets or liabilities
that affect neither accounting nor
taxable profit other than in a business
combination; and differences relating
to investments in subsidiaries to the
extent that they will probably not
reverse in the foreseeable future.
The amount of deferred tax provided
is based on the expected manner of
realisation or settlement of the carrying
amount of assets and liabilities, using
tax rates enacted or substantively
enacted at the balance sheet date.
The fair value is determined by using
an appropriate pricing model. The fair
value cost is then recognised over the
vesting period, ending on the date on
which the relevant employees become
fully entitled to the award.
A deferred tax asset is recognised only
to the extent that it is probable that
future taxable profits will be available
against which the asset can be utilised.
Dividend distribution
Final dividends to shareholders of
IG Design Group plc are recognised
as a liability in the period that they
are approved by shareholders.
Employee benefits
Pensions
The Group operates a defined
contribution personal pension scheme.
The assets of this scheme are held
separately from those of the Group in an
independently administered fund. The
pension charge represents contributions
payable by the Group to the fund.
The Netherlands subsidiary operates
an industrial defined benefit fund,
based on average wages, that has
an agreed maximum contribution.
The pension fund is a multi-employer
fund and there is no contractual or
constructive obligation for charging
the net defined benefit cost of the plan
to participating entities other than
an agreed maximum contribution for
the period, that is shared between
employer (4/7) and employees (3/7).
The Dutch Government is not planning
to make employers fund any deficits in
industrial pension funds; accordingly
the Group treats the scheme as a
defined contribution scheme for
disclosure purposes. The Group
recognises a cost equal to its
contributions payable for the period.
Share-based
payment transactions
The cost of equity-settled transactions
with employees is measured by
reference to the fair value of the options
at the date on which they are granted.
The quantum of awards expected to
vest and the relevant cost charged is
reviewed annually such that at each
balance sheet date the cumulative
expense is the relevant share of the
expected total cost, pro-rated across
the vesting period.
No expense is recognised for awards
that are not expected to ultimately
vest, for example due to an employee
leaving or business performance
targets not being met. The annual
expense for equity settled transactions
is recognised in the income statement
with a corresponding entry in equity.
Social security charges
on share-based incentives
Employer’s social security charges
are accrued, where applicable, at a
rate which management expects to be
the prevailing rate when share-based
incentives are exercised and is
based on the latest market value of
options expected to vest or having
already vested.
Borrowing costs
Borrowing costs directly attributable
to the acquisition, construction or
production of an asset that necessarily
takes a substantial period of time to
get ready for its intended use or sale
are capitalised as part of the cost of
the respective asset. Costs directly
attributable to the arrangement of new
borrowing facilities are included within
the fair value of proceeds received and
amortised over the life of the relevant
facilities. All other borrowing costs are
expensed in the period they occur.
Borrowing costs consist of interest
and other costs that an entity incurs
in connection with the borrowing
of funds.
63
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
1 Accounting policies continued
Use of non‑GAAP measures
The Directors believe that reporting
profits, EPS and average leverage
before exceptional items and LTIP
charges provides useful information for
shareholders on underlying trends and
performance.
These are the measures used internally
and are considered more useful
measures for understanding the true
performance of the business. These
measures are not defined by IFRS
and therefore may not be directly
comparable to other companies’
adjusted profit or EPS measures.
They are not intended to be a substitute
for, or superior to IFRS measures.
Average leverage is calculated as
average monthly net debt divided by
EBITDA before exceptional items and
LTIP charges.
The adjustments made to profits, EPS
and average leverage are:
• exceptional items – please see
note 10.
Figures quoted at like-for-like exchange
rates are calculated by retranslating the
previous years figures at the current
years exchange rates.
•
IFRS 2 Share-based Payments –
a non-cash charge to the income
statement for share-based payments
and related social security charges.
IFRS 2 requires the fair value of
equity instruments measured at grant
date to be spread over the period
during which the employees become
unconditionally entitled to the options.
Other than the social security charges
element, this is a non-cash charge
and has been excluded as it does not
reflect the underlying core trading
performance of the Group; and
New standards and
interpretations not applied
Management continually reviews the
impact of newly published standards
and amendments and considers,
where applicable, disclosure of their
impact on the Group. At the date of
the authorisation of these financial
statements, the following standards
and interpretations that are relevant
to the Group, which have not been
applied in these financial statements,
were in issue but not yet effective.
New and amended accounting standards
Amendments to IFRS 2 Classification and Measurement
of Share-based Payment Transactions
Annual Improvements to IFRSs 2014-2016 Cycle(a)
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
Contracts (Amendments to IFRS 4)(a)
IFRIC 22 Foreign Currency Translations and Advice
Consideration(a)
IFRS 9 Financial Instruments(a)
IFRS 15 Revenue from Contracts with Customers(a)
IFRS 16 Leases(a)
(a) Endorsed by the EU.
Effective date
1 Jan 2018
To be adopted
by the Group
1 Apr 2018
1 Jan 2018
1 Apr 2018
1 Jan 2018
1 Apr 2018
1 Jan 2018
1 Jan 2018
1 Jan 2018
1 Jan 2019
1 Apr 2018
1 Apr 2018
1 Apr 2018
1 Apr 2019
Ahead of the finalisation of these financial statements, work has been undertaken to assess the impact of the three new
accounting standards on the Group. The key changes or requirements from the standards as well as the expected impact
and progress are shown below:
Applicable standard
Key changes or requirements of the standard
Status of implementation and expected impact
IFRS 9 Financial
Instruments
IFRS 15 Revenue
from Contracts with
Customers
IFRS 16 Leases
IFRS 9 Financial Instruments replaces IAS 39, covering the
classification, measurement and derecognition of financial
assets and financial liabilities, together with a new hedge
accounting model and the new expected credit loss model for
calculating impairment.
IFRS 15 introduces a five-step approach to the timing of
revenue recognition based on performance obligations in
customer contracts. The standard clarifies the accounting for
goods and services and identification of each ‘performance
obligation’ in contractual arrangements. It also provides more
guidance on the measurement of revenue from contracts
which have discounts, rebates, payments to suppliers and
consignment stock arrangements.
IFRS 16, replacing IAS 17, provides a single lessee accounting
model, requiring lessees to recognise right of use assets and
lease liabilities for all applicable leases.
During the financial year, the Group concluded preparations for
the new requirements in IFRS 9. An initial assessment indicates
that the adoption of IFRS 9 will not have a material impact on the
consolidated results and financial position.
The Group has completed a review of the requirements of IFRS
15 against its existing accounting policies, in particular for
trade expenditure, consignment stock, bad debts, and other
incentives. As a result of this assessment, recognition under
IFRS 15 is expected to be materially consistent with current
practice for the Group’s revenue. Had the principles of IFRS 15
been applied in the current reporting period, it would not have
had a significant impact on the financial statements.
IFRS 16 is expected to have a significant impact on the
amounts recognised in the Group’s consolidated financial
statements. On adoption of IFRS 16 the Group will recognise
within the balance sheet a right of use asset and lease liability
for all applicable leases. Within the income statement, rent
expense will be replaced by depreciation and interest expense.
This will result in a decrease in cost of sales and admin costs
and an increase in finance costs.
64
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
No other standards including those
listed above, interpretations or
amendments which have been issued
but are not yet effective are expected
to significantly impact the Group’s
results or assets and liabilities and
are not expected to require significant
disclosure.
2 Critical accounting
judgements and key sources
of estimation uncertainty
In the application of the Group’s
accounting policies, which are
described in note 1, the Directors
are required to make judgements,
estimates and assumptions about
the carrying amounts of assets and
liabilities that are not readily apparent
from other sources. The estimates and
associated assumptions are based on
historical experience and other factors,
including expectations of future events
that are believed to be reasonable
under the circumstances. Actual results
may differ from these estimates.
The estimates and underlying
assumptions are reviewed on an
ongoing basis. Revisions to accounting
estimates are recognised in the period
in which the estimate is revised if the
revision only affects that period or
in the period of revision and future
periods if the revision affects both
current and future periods.
The estimates and assumptions that
have had a significant bearing on the
financial statements in the current
year or could have a significant risk
of causing a material adjustment to
the carrying amounts of assets and
liabilities within the next financial year
are discussed below.
Critical judgements in applying
the Group’s accounting policies
The following are the critical
judgements that the Directors have
made in the process of applying the
Group’s accounting policies and that
have the most significant effect on the
amounts recognised in the financial
statements.
Consolidation of less than
100% owned subsidiaries
Where the Company owns less than
100% of the share capital and voting
rights of Group companies, the
decision of whether or not the investee
should be treated as a subsidiary
and consolidated in full in the Group
accounts requires judgement.
Management consider the individual
facts and circumstances relating to the
ability to control and benefit from the
risks and rewards of investee trading in
determining the appropriate treatment,
which is then adopted consistently and
reviewed annually for any changes in
these facts and circumstances.
Key sources of estimation
uncertainty
There are no key assumptions
concerning the future, and other key
sources of estimation uncertainty
at the balance sheet date, that have
significant risk of causing a material
adjustment to the carrying amount
of assets and liabilities within the
next financial year. Other sources of
estimation uncertainty are discussed
in the strategic report and below.
Impairment of goodwill and
property, plant and equipment
Determining whether goodwill and
property, plant and equipment are
impaired requires an estimation of the
value in use of the cash‑generating
units to which goodwill has been
allocated or to which property, plant
and equipment belong. The value
in use calculation requires the
entity to estimate the future cash
flows expected to arise from the
cash‑generating unit and a suitable
discount rate in order to calculate
present value.
Provision for slow
moving inventory
The Group has guidelines for providing
for inventory which may be sold
below cost due to its age or condition.
Directors assess the inventory at
each location and in some cases
decide that there are specific reasons
to provide more than the guideline
levels, or less if there are specific
action plans in place which mean the
guideline provision level is not required.
Determining the level of inventory
provision requires an estimation of
likely future realisable value of the
inventory in various time frames and
comparing with the cost of holding
stock for those time frames. Regular
monitoring of stock levels, the ageing
of stock and the level of the provision
is carried out by the Directors. Details
of inventory carrying values are
provided in note 14. At the year end,
stock acquired more than 15 months
previously and that is therefore at least
one selling season old had decreased
from £7,232,000 to £6,017,000 and the
Group has provisions of £7,485,000
(2017: £8,379,000) over the total
inventory value.
65
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
3 Financial risk management
Risk management is discussed in
the strategic report and a discussion
of risks and uncertainties can be
found on pages 30 to 33 along with
the Group’s key risks. See note 26
for additional information about the
Group’s exposure to each of these
risks and the ways in which they are
managed. Below are key financial risk
management areas:
• currency risk is mitigated by a
•
mixture of forward contracts, spot
currency purchases and natural
hedges;
liquidity risk is managed by
monitoring daily cash balances,
weekly cash flow forecasts, regular
reforecasting of monthly working
capital and regular dialogue with the
Group’s banks; and
• credit risk is managed by constant
review of key debtors and banking
with reputable banks.
2 Critical accounting judgements
and key sources of estimation
uncertainty continued
Share‑based payments
The Directors are required to estimate
the fair value of the awards granted
and the quantum of awards expected
to vest. This entails the use of pricing
models for the fair value calculation and
the Directors use specialist advisers
to support on this calculation where
the pricing model is complex. The
estimate of awards expected to vest
requires judgement and is reliant on the
accuracy of management forecasts.
Details of the key assumptions made
in the measurement of share-based
payments are provided in note 25.
Taxation
There are many transactions and
calculations for which the ultimate
tax determination is uncertain.
Significant judgement is required in
determining the Group’s tax assets
and liabilities. Deferred tax assets
have been recognised to the extent
they are recoverable based on profit
projections for future years. Income tax
liabilities for anticipated issues have
been recognised based on estimates
of whether additional tax will be due.
Notwithstanding the above, the Group
believes that it will recover tax assets
and has adequate provision to cover
all risks across all business operations.
See note 13 for more details.
4 Segmental information
The Group has one material business
activity being the design, manufacture
and distribution of gift packaging and
greetings, stationery and creative play
products, design-led giftware, and
bags ‘not-for-resale’.
For management purposes the Group
is organised into four geographic
business units.
The results in this note are allocated
based on the region in which the
businesses are located; this reflects
the Group’s management and internal
reporting structure. Both the China
factory and the majority of the Asian
procurement operations are overseen
by our UK operational management
team and we therefore continue
to include Asia within the internal
reporting of the UK operations, such
that UK and Asia comprise one
operating segment.
Intra-segment pricing is determined on
an arm’s length basis. Segment results
include items directly attributable to a
segment as well as those that can be
allocated on a reasonable basis.
Financial performance of each segment
is measured on operating profit before
exceptional items, LTIP charges and
management recharges. Interest and
tax are managed on a Group basis and
not split between reportable segments.
However the related financial liability
and cash has been allocated out into
the reportable segments as this is how
they are managed by the Group.
Segment assets are all non-current and
current assets, excluding deferred tax
and income tax, which are shown in
the eliminations column. Where cash
shown in one segment is offset within
the Group’s banking facilities against
overdrafts in other segments, the
elimination is shown in the eliminations
column. Inter-segment receivables and
payables are eliminated similarly.
66
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 Year ended 31 March 2018
Revenue – external
– inter segment
Total segment revenue
UK and Asia
£000
Europe
£000
USA
£000
Australia
£000
Central and
eliminations
£000
Group
£000
119,283
50,977
120,284
36,972
—
327,516
4,031
786
—
—
(4,817)
—
123,314
51,763
120,284
36,972
(4,817)
327,516
Segment result before exceptional items,
LTIP charges and management recharge
7,899
6,689
9,322
2,921
(4,003)
22,828
Exceptional items
LTIP charges
Operating profit
Net finance expenses
Income tax
Profit for the year ended 31 March 2018
Balances at 31 March 2018
Segment assets
Segment liabilities
Capital expenditure additions
539
(2,257)
21,110
(1,392)
(5,384)
14,334
123,310
15,146
14,064
15,350
2,663
170,533
(31,916)
(8,695)
(15,983)
(9,686)
(3,737)
(70,017)
– property, plant and equipment
4,078
2,786
333
1,593
– intangible assets
Depreciation
Amortisation
Year ended 31 March 2017
Revenue – external
– inter segment
Total segment revenue
109
2,229
219
50
722
27
1,218
2,624
871
474
523
98
UK and Asia
£000
Europe
£000
USA
£000
Australia
£000
—
—
—
—
Central and
eliminations
£000
8,790
4,001
4,345
818
Group
£000
114,113
45,497
117,831
33,551
—
310,992
2,904
227
—
—
(3,131)
—
117,017
45,724
117,831
33,551
(3,131)
310,992
Segment result before exceptional items,
LTIP charges and management recharge
7,479
5,122
7,256
1,739
(4,087)
17,509
Exceptional items
LTIP charges
Operating profit
Net finance expenses
Income tax
Profit for year ended 31 March 2017
Balances at 31 March 2017
Segment assets
Segment liabilities
Capital expenditure additions
– property, plant and equipment
– intangible assets
Depreciation
Amortisation
(1,037)
(2,216)
14,256
(1,229)
(2,719)
10,308
95,760
20,413
21,461
11,717
5,398
154,749
(10,934)
(16,382)
(27,952)
(5,753)
(3,678)
(64,699)
1,866
184
687
36
1,813
1,081
194
45
1,104
1,493
1,306
536
1,268
51
371
23
—
—
—
—
4,925
1,764
4,571
798
67
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
4 Segmental information continued
• Capital expenditure consists of additions of property, plant and equipment, intangible assets and goodwill.
• No single customer accounts for over 10% of total sales.
• The assets and liabilities that have not been allocated to segments consist of deferred tax assets £2,663,000
(2017: £5,398,000) and income tax payable of £3,364,000 (2017: £3,153,000), deferred tax liability £373,000
(2017: £525,000).
Geographical information
The Group’s information about its segmental assets (non-current assets excluding deferred tax assets and other financial
assets) and turnover by customer destination and product are detailed below:
UK and Asia
USA
Europe
Australia and New Zealand
Turnover by customer destination
UK
USA
Europe
Australia and New Zealand
Rest of the world
All turnover arose from the sale of goods.
5 Expenses and auditor’s remuneration
Included in profit are the following charges/(credits):
Depreciation
Profit on sales of property, plant and equipment and intangible assets
Release of deferred grant income
Amortisation of intangible assets
Operating lease payment – minimum lease payments
Sub-lease rental income
Write down of inventories to net realisable value
Reversal of previous write down of inventory
Loss on foreign exchange
Non-current assets
2018
£000
2017
£000
40,126
38,990
9,076
9,936
16,610
14,173
6,234
3,189
72,046
66,288
2018
£000
2017
£000
89,292
83,249
136,782
133,452
58,080
36,972
6,390
55,122
33,551
5,618
2018
%
27
42
18
11
2
2017
%
27
42
18
11
2
327,516
310,992
100
100
Notes
2018
£000
2017
£000
11
4,345
4,571
7
12
27
7
14
14
17
(99)
818
5,289
(710)
5,491
(197)
373
75
(108)
798
4,460
(558)
7,383
(57)
860
68
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
Auditor’s remuneration:
Amounts receivable by auditor and its associates in respect of:
Audit of these financial statements
Audit of financial statements of subsidiaries
– Overseas subsidiaries
– UK subsidiaries
Other services
2018
£000
2017
£000
37
35
184
51
85
195
50
158
6 Staff numbers and costs
The average number of persons employed by the Group (including Directors) during the year, analysed by category,
was as follows:
Selling and administration
Production and distribution
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Share-based payments – Long Term Incentive Plan
Social security costs
Other pension costs
Number of employees
2018
520
1,434
1,954
2017
480
1,626
2,106
2018
£000
2017
£000
51,283
49,846
2,257
3,797
3,787
2,216
3,792
3,473
61,124
59,327
Note
25
For information on Directors’ remuneration please refer to the sections titled ‘Executive share options’ and ‘Directors’
remuneration’ within the Directors’ remuneration report.
7 Other operating income
Grant income received
Sub-lease rentals credited to the income statement
Other
Exceptional items
Note
10
2018
£000
99
710
(424)
385
1,092
1,477
2017
£000
108
558
(456)
210
—
210
69
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
8 Finance expenses
Interest payable on bank loans and overdrafts
Other similar charges
Finance charges in respect of finance leases
Unwinding of fair value discounts
Interest payable under the effective interest method
Derivative financial instruments at fair value through the income statement
9 Taxation
Recognised in the income statement
Current tax expense
Current year – UK corporation tax
Current year – foreign corporation tax
Adjustments in respect of previous periods
Deferred tax expense
Origination and reversal of temporary differences
Adjustments in respect of previous periods
Total tax in income statement
Reconciliation of effective tax rate
Profit before tax
2018
£000
946
332
2
80
1,360
32
1,392
2017
£000
1,177
580
113
79
1,949
(720)
1,229
2018
£000
2017
£000
(280)
3,635
128
3,483
2,040
(139)
1,901
5,384
607
2,533
(8)
3,132
(219)
(194)
(413)
2,719
2018
£000
2017
£000
19,718
13,027
Profit before tax multiplied by the standard rate of corporation tax rate of 19% in the UK (2017: 20%)
3,746
2,605
Effects of:
Expenses not (taxable)/deductible for tax purposes
Movement in unrecognised tax assets
Effect of tax rate changes on deferred tax
Differences between UK and overseas tax rates
Other items
Adjustments in respect of previous periods
Total tax in income statement
(374)
270
593
1,637
(477)
(11)
5,384
279
(1,637)
(8)
1,097
585
(202)
2,719
70
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
10 Exceptional items
Year ended 31 March 2018
Transaction costs(a)
Sale of Hirwaun Property(b)
Total before tax
Income tax credit
Admin
expenses
£000
(553)
—
(553)
Other
operating
income
£000
—
1,092
1,092
Total
£000
(553)
1,092
539
238
777
(a) Transaction costs relate predominantly to the acquisition of the trade and certain assets of Biscay Greetings Pty Limited (Biscay) and of the remaining costs from the
acquisition of Lang.
(b) The exceptional gain on the sale of the Hirwaun property in Wales, comprises of the sale proceeds net of any related costs including restructuring for the rationalisation
of operations to suit the revised footprint.
Year ended 31 March 2017
Acquisition of Lang:
Transaction and restructuring costs(c)
Gain on bargain purchase(d)
Restructuring of American operations(e)
Total before tax
Income tax credit
Cost of
sales
£000
Admin
expenses
£000
—
—
(1,532)
(1,532)
(722)
1,271
(54)
495
Total
£000
(722)
1,271
(1,586)
(1,037)
761
(276)
(c) Transaction and restructuring costs relating to the acquisition of Lang.
(d) Gain on bargain purchase on the acquisition of Lang (see note 31 for further details).
(e) Restructuring of American printing platform.
Impact of exceptional items on cash flow
There was £1,637,000 net inflow on the current year’s cash flow (2017: £656,000 outflow) which included £350,000 (2017: £nil)
of outflow deferred from last year.
71
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
11 Property, plant and equipment
Land and buildings
Freehold
£000
Leasehold
£000
Plant and
equipment
£000
Fixtures and
fittings
£000
Motor
vehicles
£000
Cost
Balance at 1 April 2016
21,404
8,970
44,851
(1,229)
Additions
Disposals
Additions on acquisition of business
Transfer between categories(a)
Effect of movements in foreign exchange
452
—
—
(1,121)
658
220
(72)
169
(63)
1,277
3,166
(4,569)
—
2,197
2,527
Balance at 1 April 2017
21,393
10,501
48,172
Additions
Disposals
Additions on acquisition of business
Transfers from computer software
432
(1,903)
—
—
138
—
—
—
Effect of movements in foreign exchange
174
(1,006)
6,588
(4,148)
424
—
(963)
525
(538)
123
4,343
236
3,460
804
(216)
27
294
(128)
Total
£000
74,765
4,633
(5,359)
292
5,365
4,785
769
270
(180)
—
9
87
955
84,481
30
(18)
347
—
(60)
7,992
(6,285)
798
294
(1,983)
Balance at 31 March 2018
Depreciation and impairment
Balance as at 1 April 2016
Depreciation charge for the year
Disposals
Transfers between categories(a)
Effect of movements in foreign exchange
Balance at 1 April 2017
Depreciation charge for the year
Disposals
Transfers from computer software
Effect of movements in foreign exchange
20,096
9,633
50,073
4,241
1,254
85,297
(11,469)
(4,216)
(29,914)
1,476
(452)
(44,575)
(742)
—
936
(236)
(301)
25
17
(561)
(3,201)
4,571
(2,057)
(1,667)
(241)
531
(4,211)
(130)
(11,511)
(5,036)
(32,268)
(2,575)
(749)
1,349
—
(67)
(470)
—
—
447
(2,590)
4,079
—
544
(389)
205
(239)
76
(86)
150
(50)
(46)
(484)
(147)
9
—
18
(4,571)
5,277
(5,365)
(2,640)
(51,874)
(4,345)
5,642
(239)
1,018
Balance at 31 March 2018
(10,978)
(5,059)
(30,235)
(2,922)
(604)
(49,798)
Net book value
Balance at 31 March 2018
At 31 March 2017
9,118
9,882
4,574
5,465
19,838
15,904
1,319
885
650
471
35,499
32,607
(a) Transfer between categories includes reclassification of previously combined assets as well as a gross up of the brought forward balances of certain asset cost and
depreciation amounts that had previously been netted off. The effect on net book value of these adjustments is nil.
Depreciation is charged to either cost of sales, selling costs or administration costs within the income statement depending
on the department to which the assets relate.
Leased plant and machinery
The net book value of property, plant and equipment included an amount of £nil (2017: £144,000) in respect of assets held
under finance leases. Depreciation with respect of these assets was £nil (2017: £244,000).
Security
All freehold properties are subject to a fixed charge.
72
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
12 Intangible assets
Cost
Balance at 1 April 2016
Additions
Additions on acquisition of businesses
Disposals
Effect of movements in foreign exchange
Balance at 1 April 2017
Additions
Additions on acquisition of businesses
Transfer to fixed assets
Disposals
Effect of movements in foreign exchange
Balance at 31 March 2018
Amortisation and impairment
Balance at 1 April 2016
Amortisation for the year
Disposals
Effect of movements in foreign exchange
Balance at 1 April 2017
Amortisation for the year
Impairments
Transfers to fixed assets
Disposals
Effect of movements in foreign exchange
Balance at 31 March 2018
Net book value
Balance at 31 March 2018
At 31 March 2017
Goodwill
£000
Computer
software
£000
Other
intangibles
£000
40,931
3,566
35
—
—
1,508
42,474
—
1,703
—
—
(809)
487
261
(441)
278
4,151
1,377
—
(294)
(40)
(325)
43,368
4,869
(9,439)
(2,877)
—
—
(1,004)
(432)
390
(285)
(10,443)
(3,204)
—
(36)
—
—
785
(447)
—
239
39
228
Total
£000
44,607
534
1,230
(441)
1,828
110
12
969
—
42
1,133
47,758
—
921
—
—
1,377
2,624
(294)
(40)
(154)
1,900
(1,288)
50,137
(55)
(366)
—
(9)
(430)
(371)
—
—
—
50
(12,371)
(798)
390
(1,298)
(14,077)
(818)
(36)
239
39
1,063
(9,694)
(3,145)
(751)
(13,590)
33,674
32,031
1,724
947
1,149
703
36,547
33,681
The aggregate carrying amounts of goodwill allocated to each geographical segment are as follows:
UK and Asia
Europe
Australia
Total
2018
£000
2017
£000
25,600
25,600
5,329
2,745
5,146
1,285
33,674
32,031
73
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
12 Intangible assets continued
Impairment
The Group tests goodwill each year for impairment, or more frequently if there are indications that goodwill might
be impaired.
For the purposes of impairment testing, goodwill considered significant in comparison to the Group’s total carrying amount
of such assets has been allocated to the business unit, or group of business units, that are expected to benefit from the
synergies of the combination (see table on page 73), which represents the lowest level within the Group at which the goodwill
is monitored for internal management purposes, and is referred to below as a cash-generating unit. During the last few
years the businesses have begun to work more closely with each other, exploiting the synergies that arise. The recoverable
amounts of cash-generating units are determined from the higher of value in use and fair value less costs to sell.
The Group prepares cash flow forecasts for each cash-generating unit derived from the most recent financial budgets for the
following three years which are approved by the Board. The key assumptions in those budgets are sales, margins achievable
and overhead costs, which are based on past experience and future expectations. The Group then extrapolates cash flows
for the following seven years based on a conservative estimate of market growth of between 0.5% and 2.0% (2017: 2.0%).
The cash-generating units used the following pre-tax discount rates which are derived from an estimate of the Group’s future
weighted average cost of capital (“WACC”) adjusted to reflect the market assessment of the risks specific to the current
estimated cash flows over the same period. The Group’s WACC has been compared to other similar companies and is felt to
be appropriate.
Pre-tax discount rates used were:
UK and Asia
Europe
Australia
2018
12.8%
13.3%
15.3%
2017
10.5%
12.3%
14.1%
All of the cash-generating units’ values in use were determined to be higher than fair value less costs to sell, thus this was
used as the recoverable amount. In all businesses, other than a small £36,000 impairment of a stand-alone operation, the
carrying value of the goodwill was supported by the recoverable amount and there are currently no reasonably foreseeable
changes to assumptions that would give rise to an impairment of the carrying value.
The Directors do not believe a reasonably possible change to the assumptions would give rise to an impairment.
The Directors have considered a 5% movement in the discount rate and a flat budget growth rate assumption in their
assessment; with these changes in assumptions there is still considerable headroom and no indication of impairment.
13 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Tax loss carried forward
Other timing differences(a)
Net tax assets/(liabilities)
Assets
2018
£000
63
584
2,986
3,633
2017
£000
Liabilities
2018
£000
2017
£000
Net
2018
£000
46
(1,200)
(1,219)
(1,137)
1,794
4,439
6,279
—
(143)
—
(187)
(1,343)
(1,406)
584
2,843
2,290
2017
£000
(1,173)
1,794
4,252
4,873
Deferred tax is presented net on the balance sheet in so far as a right of offset exists. The net deferred tax asset is
£2,663,000 (2017: £5,398,000) and the net deferred tax liability is £373,000 (2017: £525,000).
74
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
The deferred tax asset in respect of tax losses carried forward at 31 March 2018 of £584,000 (2017: £1,794,000) comprises
UK tax losses of £440,000 (2017: £907,000) and US losses of £144,000 (2017: £887,000). US tax losses carried forward will
become irrecoverable in March 2027. UK tax losses may be carried forward indefinitely. The deferred tax assets have been
recognised where the Board considers there is sufficient evidence that taxable profits will be available against which the tax
losses can be utilised. The Board expects that the tax losses will be recoverable against future profits. Deferred tax assets
in respect of taxable losses that are expected to be recovered outside this forecast period have not been recognised. This
includes unrecognised deferred tax assets in respect of UK losses of £310,000 (2017: £305,000), £490,000 (2017: £84,000)
in respect of China, and £221,000 (2017: £284,000) in respect of Asia.
A deferred tax liability of £153,000 (2017: £233,000) has been recognised based on the tax cost of remitting earnings from
China. No other deferred tax liability has been recognised on unremitted earnings of the overseas subsidiaries as if all
unremitted earnings were repatriated with immediate effect, no other tax charge would be payable. A 17% UK corporate tax
rate was substantively enacted on 6 September 2016 and will replace the current effective rate of 19% from 1 April 2020.
A reduction in the US federal corporation tax rate from 35% to 21% was announced in 2017 and enacted effective
1 January 2018. These rate reductions have been reflected in the calculation of deferred tax at the balance sheet date.
There are no deferred tax balances with respect to cash flow hedges.
Movement in deferred tax during the year
Property, plant and equipment
Tax loss carried forward
Other timing differences(a)
Net tax asset/(liability)
Movement in deferred tax during the prior year
Property, plant and equipment
Capital gains deferred
Tax loss carried forward
Other timing differences(a)
Net tax asset/(liability)
1 April
2017
£000
Acquired with
subsidiary
£000
Recognised
in income
£000
Recognised
in equity
£000
(1,173)
1,794
4,252
4,873
—
—
(213)
(213)
75
(1,152)
(824)
(1,901)
(39)
(58)
(372)
(469)
1 April
2016
£000
Acquired with
subsidiary
£000
Recognised
in income
£000
Recognised
in equity
£000
(1,074)
(184)
2,621
2,581
3,944
(40)
—
—
(772)
(812)
100
108
(1,080)
1,285
413
(83)
—
253
1,158
1,328
(a) Other timing differences include a closing balance of £1,942,000 (2017: £1,949,000) in respect of share-based payments.
14 Inventory
Raw materials and consumables
Work in progress
Finished goods
2018
£000
6,325
8,927
34,059
49,311
31 March
2018
£000
(1,137)
584
2,843
2,290
31 March
2017
£000
(1,097)
(76)
1,794
4,252
4,873
2017
£000
5,933
8,668
34,874
49,475
Of the £49,311,000 (2017: £49,475,000) stock value £46,984,000 (2017: £46,346,000) is held at cost and £2,327,000
(2017: £3,129,000) is held at net realisable value. The write down in the year of inventories to net realisable value amounted
to £5,491,000 (2017: £7,383,000). The reversal of previous write downs amounted to £197,000 (2017: £57,000). The reversal
is due to the inventory being either used or sold.
Materials, consumables, changes in finished goods and work in progress recognised as a cost of sale amounted to
£228,776,000 (2017: £213,306,000).
75
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
15 Trade and other receivables
Trade receivables
Prepayments and accrued income
Other receivables
VAT receivable
2018
£000
2017
£000
32,490
25,991
1,553
3,015
311
1,539
1,871
221
37,369
29,622
The Group has receivable financing arrangements in UK, Europe, USA and Hong Kong. None of this facility was drawn at
31 March 2018 (2017: £nil).
Please see note 17 for more details of the banking facilities.
There are no trade receivables in the current year (2017: £nil) expected to be recovered in more than twelve months.
The Group’s exposure to credit and currency risks and provisions for doubtful debts related to trade and other receivables is
disclosed in note 26.
16 Cash and cash equivalents/bank overdrafts
Cash and cash equivalents
Bank overdrafts
Cash and cash equivalents per cash flow statement
Net cash
Cash and cash equivalents
Bank loans and overdrafts
Loan arrangement fees
Finance leases
2018
£000
9,031
—
9,031
2018
£000
9,031
(4,780)
105
—
2017
£000
3,659
(916)
2,743
2017
£000
3,659
(916)
271
(45)
Note
17
Net cash as used in the executive review
4,356
2,969
The Group’s exposure to interest rate risk and sensitivity analysis for financial assets and liabilities are disclosed in note 26.
The bank loans and overdrafts are secured by a fixed charge on certain of the Group’s land and buildings, a fixed charge on
certain of the Group’s book debts and a floating charge on certain of the Group’s other assets. See note 17 for further details
of the Group’s loans and overdrafts.
76
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
17 Loans and borrowings
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more
information about the Group’s exposure to interest rate and foreign currency risk, see note 26.
Non-current liabilities
Secured bank loans (see page 78)
Loan arrangement fees
Current liabilities
Current portion of secured bank loans (see page 78)
Bank loans and borrowings (see page 78)
Loan arrangement fees
Terms and debt repayment schedule
Due within one year:
Bank loans and borrowings (see page 78)
Bank overdrafts
Due between one and two years:
Secured bank loans (see page 78)
Due between two and five years:
Secured bank loans (see page 78)
2018
£000
3,791
(10)
3,781
989
989
(95)
894
2018
£000
989
—
2017
£000
—
(39)
(39)
—
—
(232)
(232)
2017
£000
—
916
989
—
2,802
4,780
—
916
Note
16
Secured bank loans
The Group (excluding the Australia business) negotiated a global refinancing on 6 June 2016. The wholly owned Group is
now funded by HSBC. The facilities comprise:
• a three-year revolving credit facility (“RCF”) for £18 million which is sufficient to fund the Group’s core financing
requirements;
• receivables financing arrangements for an initial term of three years in the UK, Europe, USA and Hong Kong; and
• a further flexible ‘working capital’ RCF with availability varying from month to month to meet requirements during the
seasonal inventory build. This is reviewed annually but capable of extension to match the maturity of the core RCF.
While the facilities have no overall limit in total the Group estimates the effectively available facilities at over £127.9 million,
more than sufficient to cover the peak requirements. The facilities have flexible elements within them that mean they can
grow with the Group’s requirements.
The facility was capable of extension for two further years at the same terms should the parties agree. The second one year
extension was agreed in May 2018. This takes the date for maturity of the facility to May 2021.
Invoice financing arrangements are secured over the trade receivables that they are drawn on. The RCF facilities are secured
with a fixed and floating charge over all other assets of the Group. The facilities do not amortise with time.
77
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
17 Loans and borrowings continued
Secured bank loans continued
There are financial covenants, tested quarterly, attached to the new facilities as follows:
•
•
interest cover, being the ratio of earnings before interest, depreciation and amortisation to interest on a rolling
twelve-month basis; and
leverage, being the ratio of debt to pre-exceptional EBITDA on a rolling twelve-month basis.
There is a further covenant tested monthly in respect of the working capital RCF by which available asset cover must not fall
below agreed levels relative to amounts drawn.
In January 2018, the Group’s Australia business obtained a secured loan from Westpac of £5,108,000 (AUD 9,000,000).
This is repayable monthly over a five year period. It is subject to a variable interest rate linked to the Australian base rate.
£165,000 was repaid during the year which, along with £163,000 exchange movement results in a balance at 31 March 2018
of £4,780,000 (AUD 8,700,000).
See page 23 of the executive review for further details.
18 Deferred income
Included within non-current liabilities
Deferred grant income
Included within current liabilities
Deferred grant income
Other deferred income
Deferred grant income
2018
£000
2017
£000
998
1,083
99
—
99
98
13
111
The deferred grant income is in respect of government grants relating to the development of the site in Wales. This is being
amortised in line with depreciation on the new investment.
19 Provisions
Balance at 1 April 2017
Provisions made in the year
Provisions released during the year
Unwinding of fair value discounts
Provisions utilised during the year
Effect of movements in foreign exchange
Balance at 31 March 2018
Non-current
Current
Property
£000
978
—
—
80
(72)
—
986
Other
£000
344
254
(118)
—
(152)
9
337
2018
£000
894
429
Total
£000
1,322
254
(118)
80
(224)
9
1,323
2017
£000
881
441
1,323
1,322
The property provision represents the estimated reinstatement cost of two of the Group’s leasehold properties under fully
repairing leases and provision for an onerous lease for one of those properties. A professional valuation was performed
during 2016 for one of the leasehold properties and the provision was reassessed and is stated after discounting. £882,000
(2017: £829,000) of the non-current balance relates to a lease expiring in 2036; the balance relates to items between two
and five years.
Other provisions represents management’s best estimate in respect of minor claims arising in the normal course of business.
78
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
20 Other financial liabilities
Included within non-current liabilities
Finance lease
Other creditors and accruals
Included within current liabilities
Finance lease
Other creditors and accruals
Interest rate swaps and forward foreign currency contracts
carried at fair value through the income statement
Interest rate swaps and forward foreign exchange contracts
carried at fair value through the hedging reserve
Finance lease liabilities
Finance lease liabilities are payable as follows:
2018
£000
2017
£000
—
1,440
1,440
13
1,898
1,911
—
32
18,832
18,405
40
116
2
60
18,988
18,499
2018
2017
Less than one year
Between one and five years
21 Trade and other payables
Minimum
lease
payments
£000
—
—
—
Interest
£000
Principal
£000
—
—
—
—
—
—
Minimum
lease
payments
£000
35
15
50
Trade payables
Other payables including income taxes and social security
VAT payable
Interest
£000
Principal
£000
(3)
(2)
(5)
32
13
45
2018
£000
2017
£000
37,056
36,341
817
884
749
360
38,757
37,450
79
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
22 Share capital
Authorised share capital at 31 March 2018 and 2017 was £6,047,443 divided into 120,948,860 ordinary shares of 5p each.
In thousands of shares
In issue at 1 April
Options exercised during the year
Share placing
In issue at 31 March – fully paid
Allotted, called up and fully paid
Ordinary shares of £0.05 each
Ordinary shares
2018
2017
62,642
59,257
1,248
—
385
3,000
63,890
62,642
2018
£000
2017
£000
3,194
3,132
Share options exercised during the year resulted in 510,000 ordinary shares being issued (2017: 385,000) which generated
cash proceeds of £71,000 (2017: £53,000).
LTIP options exercised during the year resulted in 738,111 ordinary shares being issued at nil cost (2017: 607,652 ordinary
shares being issued at nil cost).
In the prior year, on 25 July 2016, the Group raised £5,250,000 (before expenses) by way of a share placing of 3,000,000 new
ordinary shares at a price of £1.75 per share.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per
share at meetings of the Company.
23 Earnings per share
Underlying earnings per share excluding
exceptional items and LTIP charges
Cost per share on LTIP charge
Underlying earnings per share excluding exceptional items
Cost per share on exceptional items
Earnings per share
2018
Diluted
pence
21.8
(2.7)
19.1
1.4
20.5
Basic
pence
22.9
(2.9)
20.0
1.4
21.4
2017
Diluted
pence
18.2
(2.8)
15.4
(0.4)
15.0
Basic
pence
19.0
(2.9)
16.1
(0.4)
15.7
The basic earnings per share is based on the profit attributable to equity holders of the Company of £13,545,000
(2017: £9,650,000) and the weighted average number of ordinary shares in issue of 63,198,000 (2017: 61,539,000)
calculated as follows:
In thousands of shares
Issued ordinary shares at 1 April
Shares issued in respect of exercising of share options
Shares issued in respect of share placing
Weighted average number of shares at 31 March
2018
2017
62,642
59,257
556
—
63,198
260
2,022
61,539
Underlying basic earnings per share excludes exceptional items credited of £700,000 (2017: £1,037,000 charged) and the tax
relief attributable to those items of £211,000 (2017: £761,000), to give underlying profit including the effect of non-controlling
interest of £12,634,000 (2017: £9,926,000).
Underlying diluted earnings per share excludes exceptional items and LTIP charges of £1,718,000 (2017: £3,253,000) and tax
relief attributable to those items of £683,000 (2017: £1,203,000), to give underlying profit of £14,446,000 (2017: £11,700,000).
80
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
Diluted earnings per share
The average number of share options under the Executive share options 2008 scheme outstanding in the year is 612,795
(2017: 835,680) at an average exercise price of 14p (2017: 14p). The average number of share options under the LTIP scheme
outstanding in the year is 1,371,743 (2017: 500,000) at nil cost. The diluted earnings per share is calculated assuming all
these options were exercised, and taking into account LTIP awards whose specified performance conditions were satisfied
at the end of the reporting period of 1,213,794 share options. There is also a small adjustment for shares issued that could
be funded by option exercise costs in respect of the 2008 Scheme. At 31 March 2018 the diluted number of shares was
66,389,000 (2017: 64,161,000).
24 Dividends paid and proposed
A final dividend for year ending 31 March 2017 of 2.75p (for year ending 31 March 2016: 1.75p) was paid on 7 September 2017.
An interim dividend of 2.00p was paid on 18 January 2018 (2017: 1.75p). The Directors are recommending a final dividend of
4.00p per share in respect of the year ended 31 March 2018 (2017: 2.75p). If approved it will be paid in September 2018 to
shareholders on the register at the close of business on 5 July 2018.
Final equity dividend for prior year
Interim equity dividend for current year
Dividends paid in the year
Proposed for approval at Annual General Meeting
Final equity dividend for the current year
2018
2017
Pence
per share
2.75
2.00
Pence
per share
1.75
1.75
£000
1,734
1,266
3,000
2018
2017
Pence
per share
4.00
£000
2,556
Pence
per share
2.75
£000
1,037
1,097
2,134
£000
1,723
25 Share‑based payments
Executive share options 2008
Options to subscribe for ordinary shares of a nominal value of 5p each were granted, pursuant to the Company’s approved and
unapproved Employee share option schemes, which are exercisable at dates ranging from December 2011 to December 2018
and at an exercise price of 14.00p.
There were no performance conditions attached to the approved options (other than continued employment). For the
unapproved options awarded to Executive Directors there were conditions related to profitability for the two years to March 2011.
These conditions were fully met.
As at 31 March 2018 there were 200,000 approved options outstanding with a weighted average contractual life of 0.7 years
(2017: 1.7 years). No share options were granted under this scheme during the year (2017: nil).
The numbers and weighted average exercise prices of share options are as follows:
Outstanding at the beginning of the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
2018
2017
Weighted
average
exercise price
pence
Weighted
average
exercise price
pence
Number of
options
Number of
options
14.00
710,000
14.00 1,096,000
14.00
(510,000)
14.00
(386,000)
14.00
14.00
200,000
200,000
14.00
14.00
710,000
710,000
The weighted average share price at the date of exercise of share options exercised during the period was 376.0p
(2017: 212.7p).
81
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
25 Share‑based payments continued
Long Term Incentive Plan
On 31 March 2014, the Group announced the introduction of a new Long Term Incentive Plan (“LTIP”). Under the LTIP,
options to subscribe for ordinary shares of a nominal value of 5p each (“ordinary shares”) may be awarded annually to
Executive Board Directors of the Company, Managing Directors and other selected senior management team members
within the Group. Ordinary shares only vest to the degree that stretching performance conditions are met. The maximum
dilution under the LTIP is 15% over a ten year period, excluding an award made under the 2012-2015 LTIP, of which 1,107,652
share options have vested. The scheme rules, which have been agreed by the Remuneration Committee, include reasonable
provisions in the event of change of control, suitable flexibility to modify performance targets in specified situations and also
a mechanism for claw-back under certain circumstances. The Board retains the flexibility to buy ordinary shares through an
Employee Benefit Trust to mitigate future dilution should it need to do so.
The performance period for each award under the LTIP is three years. The cost to employees of ordinary shares issued
under the LTIP if the performance criteria are met is nil. In principle the number of ordinary shares to be granted to each
employee under the LTIP will be not more than 100% in value of the relevant employee’s salary base or 150% for the CEO,
although the rules allow an upper maximum of 150% for all employees.
Vested LTIP schemes – outstanding options
2012-2015 LTIP scheme
2014-2017 LTIP scheme
2015-2018 LTIP scheme(a)
Number of
ordinary shares
425,000
667,240
1,213,794
2,306,034
Exercise
price
pence
nil
nil
nil
Exercise dates
June 2016 – March 2024
June 2017 – August 2024
June 2018 – August 2025
All performance criteria have been met for the above schemes.
Outstanding at the beginning of the period
Options vesting during the period(a)
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
2018
2017
Weighted
average
exercise price
pence
Weighted
average
exercise price
pence
Number of
options
Number of
options
nil 1,830,351
nil 1,213,794
nil
(738,111)
nil 2,306,034
nil 2,306,034
nil
500,000
nil 1,330,351
nil
—
nil 1,830,351
nil 1,830,351
(a) The shares relating to the 2015-2018 scheme formally vest on 6 June 2018 following the Remuneration Committee and Audit Committee approval of the results
of the year ended 31 March 2018.
82
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
Scheme details for LTIPs in vesting periods during the year
During the financial year to 31 March 2018 there were three LTIP schemes still within their vesting periods (2017: three).
The award and performance targets for these are in the tables below.
Awards:
Fair value per share (£)
Number of participants awarded
Initial award
Dividend shares awarded
Lapses and forfeitures
2015-2018
2016-2019
2017-2020
Grant A
Grant B
Grant A
Grant B
Grant A
Grant B
1.29
26
4.04
1
1.82
23
4.04
1
3.71
24
4.04
2
1,176,860
100,474
827,220
72,885
347,101
297,844
40,806
3,833
28,547
2,697
(108,179)
—
(135,372)
—
8,095
(7,918)
6,985
—
Expected to vest as at 31 March 2018
1,109,487
104,307
720,395
75,582
347,278
304,829
Expected to vest as at 31 March 2017
1,216,833
—
916,509
—
—
—
The LTIP awards ‘Grant A’ were made in 2015/16, 2016/17 and 2017/18, respectively. The LTIP awards ‘Grant B’ were made in
January 2018 to Paul Fineman in respect of the 2015-2018 and 2016-2019 schemes and to Paul Fineman and Giles Willits in
respect of the 2017-2020 scheme.
The grant date fair value of the options granted in the year assuming they are to vest in full is £3,191,000 (2017 £1,503,000).
The exercise price is nil.
Performance targets:
Awards are granted with threshold and stretch targets. 25% of the weighted awards vests if the relevant threshold target is
achieved with straight-line vesting of the balance up to 100% of the weighted award if the stretch target is achieved.
The EPS target for the 2016-2019 scheme is the sole exception to this: the threshold of 7.5% CAGR(a) pays out at 0%, with
the award vesting straight-line from here to 100% at stretch.
2015‑2018 LTIP
EPS
Profit before tax, exceptional items and LTIP charges
Average leverage
2016‑2019 LTIP
EPS
Profit before tax, exceptional items and LTIP charges
2017‑2020 LTIP
EPS
(a) CAGR = Compound annual growth rate.
Weighting
Threshold
Stretch
50%
30%
20%
60%
40%
CAGR(a) 10%
CAGR(a) 10%
2.5x
CAGR(a) 17.5%
CAGR(a) 17.5%
1.8x
CAGR(a) 7.5%
CAGR(a) 10%
CAGR(a) 17.5%
CAGR(a) 17.5%
100%
CAGR(a) 10%
CAGR(a) 17.5%
83
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
25 Share‑based payments continued
Long Term Incentive Plan continued
Share-based payments charges
The total expense recognised for the period arising from equity settled share based payments are as follows:
Charge in relation to the 2014-2017 LTIP scheme
Charge in relation to the 2015-2018 LTIP scheme
Charge in relation to the 2016-2019 LTIP scheme
Charge in relation to the 2017-2020 LTIP scheme
Equity-settled share-based payments
Social security charge on 2008 executive share option awards
Social security charge on LTIP awards
Equity-settled share-based payments
2018
£000
—
913
473
291
2017
£000
517
662
376
—
1,677
1,555
29
551
—
661
2,257
2,216
Social security charges on share-based payments
Social security is accrued, where applicable, at a rate which management expects to be the prevailing rate when share-based
incentives are exercised and is based on the latest market value of options expected to vest or having already vested.
The total social security accrual outstanding at the year end in respect of share-based payment transactions was
£1,197,000 (2017: £973,000).
26 Financial instruments
Derivative financial assets
Financial assets designated at fair value through the income statement
2018
£000
113
2017
£000
307
a) Fair values of financial instruments
The carrying values for each class of financial assets and financial liabilities in the balance sheet, which are given below,
are not considered to be materially different to their fair values.
As at 31 March 2018, the Group had derivative contracts, which were measured at Level 2 fair value subsequent to initial
recognition, to the value of an asset of £113,000 (2017: £307,000) and a liability of £156,000 (2017: £62,000).
Derivative financial instruments
The fair value of forward exchange contracts is assessed using valuation models taking into account market inputs such
as foreign exchange spot and forward rates, yield curves and forward interest rates.
Fair value hierarchy
Financial instruments which are recognised at fair value subsequent to initial recognition are grouped into Levels 1 to 3
based on the degree to which the fair value is observable. The three levels are defined as follows:
• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
• Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable,
either directly or indirectly; and
• Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data.
84
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
b) Credit risk
Financial risk management
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations and arises principally from the Group’s receivables from customers and investment securities.
The Group’s exposure to credit risk is managed by dealing only with banks and financial institutions with strong credit
ratings. The Group’s financial credit risk is primarily attributable to its trade receivables.
The Group has no significant concentration of credit risk exposure as revenues are split across a large number of customers
in different geographical areas. The main customers of the Group are large and mid-sized retailers, other manufacturers and
wholesalers of greetings products, service merchandisers and trading companies. The Group has established procedures
to minimise the risk of default of trade receivables including detailed credit checks undertaken before new customers are
accepted and rigorous credit control procedures after sale. These processes have proved effective in minimising the level of
provisions for doubtful debts required.
The amounts presented in the balance sheet are net of allowances for doubtful receivables estimated by the Group’s
management, based on prior experience and their assessment of the current economic environment.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. Therefore, the maximum exposure to
credit risk at the balance sheet date was £44,649,000 (2017: £31,828,000) being the total of the carrying amount of financial
assets excluding equity investments above.
The maximum exposure to credit risk for trade receivables at the balance sheet date by geographic region was:
UK and Asia
USA
Europe
Australia
Credit quality of financial assets and provisions for doubtful debts
The ageing of trade receivables at the balance sheet date was:
Not past due
Past due 0-60 days
61-90 days
More than 90 days
2018
£000
10,685
12,863
4,549
4,393
2017
£000
5,486
13,021
3,954
3,530
32,490
25,991
2018
2017
Provisions for
Gross doubtful debts
£000
£000
Provisions for
Gross doubtful debts
£000
£000
19,786
10,404
628
2,476
33,294
—
21,875
(100)
(93)
(611)
(804)
3,465
705
768
26,813
(31)
(146)
(68)
(577)
(822)
There were no unimpaired balances outstanding at 31 March 2018 (2017: £nil) where the Group had renegotiated the terms of
the trade receivable.
85
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
26 Financial instruments continued
Derivative financial assets continued
b) Credit risk continued
Credit quality of financial assets and provisions for doubtful debts continued
The movement in the provisions for doubtful debts in respect of trade receivables during the year was as follows:
Balance at 1 April
Charge for the year
Unused amounts reversed
Amounts written off
Effects of movement in foreign exchange
Balance at 31 March
2018
£000
822
434
(237)
(149)
(66)
804
2017
£000
350
673
—
(235)
34
822
The allowance account for trade receivables is used to record provisions for doubtful debts unless the Group is satisfied that
no recovery of the amount owing is possible; at that point the amounts considered irrecoverable are written off against the
trade receivables directly.
c) Liquidity risk
Financial risk management
The Group’s policy with regard to liquidity ensures adequate access to funds by maintaining an appropriate mix of
short-term and longer-term facilities, which are reviewed on a regular basis. The maturity profile and details of debt
outstanding at 31 March 2018 is set out in note 17.
The following are the contractual maturities of financial liabilities, including estimated interest payments:
Carrying
amount
£000
Contractual
cash flows
£000
One year
or less
£000
One to two
years
£000
Two to five
years
£000
More than
five years
£000
Notes
4,780
(5,242)
(1,162)
(1,121)
(2,959)
—
20,272
(20,272)
(18,832)
(176)
(10)
(1,254)
37,056
(37,056)
(37,056)
1,701
(1,701)
(1,701)
—
—
—
—
—
—
20
21
21
20
40
—
—
—
—
—
20
116
(5,835)
(5,835)
—
—
—
63,965
(70,106)
(64,586)
(1,297)
(2,969)
(1,254)
31 March 2018
Non‑derivative
financial liabilities
Secured bank loans –
Australian dollar(a)
Other financial liabilities(b)
Trade payables(b)
Other payables(b)
Derivative financial
liabilities
Forward foreign
exchange contracts
carried at fair value
through the income
statement(b)
Forward foreign
exchange contracts
carried at fair value
through the
hedging reserve(b)
(a) Nominal interest rate 3.57%.
(b) Measured at Level 2.
86
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
31 March 2017
Non‑derivative
financial liabilities
Finance leases
– euro leases(a)
Other financial liabilities(a)
Trade payables(a)
Other payables(a)
Bank overdraft(a)
Derivative financial liabilities
Forward foreign exchange
contracts carried at fair value
through the income statement(a)
Forward foreign exchange
contracts carried at fair value
through the hedging reserve(a)
(a) Measured at Level 2.
Nominal
interest rate
%
Carrying
amount
£000
Contractual
cash flows
£000
One year
or less
£000
One to two
years
£000
Notes
20
20
21
21
5.0
45
(50)
(35)
(15)
20,303
(20,303)
(18,405)
(1,898)
36,341
(36,341)
(36,341)
1,109
916
(1,109)
(916)
(1,109)
(916)
4.0 – 5.3
2
—
—
60
(1,574)
(1,574)
—
—
—
—
—
58,776
(60,293)
(58,380)
(1,913)
The following shows the facilities for bank loans, overdrafts, asset-backed loans and revolving credit facilities:
31 March 2018
31 March 2017
Carrying
amount
£000
Facility in use
contractual
cash flows
£000
Facility
unused
£000
Total
facility
£000
Carrying
amount
£000
Facility in use
contractual
cash flows
£000
Secured bank loans
4,780
(5,242)
—
(5,242)
Corporate revolving
credit facilities
Receivables financing
Bank overdraft
—
—
—
—
—
—
(19,622)
(19,622)
(17,981)
(17,981)
(3,654)
(3,654)
4,780
(5,242)
(41,257)
(46,499)
—
—
—
916
916
Facility
unused
£000
—
Total
facility
£000
—
(18,000)
(18,000)
(12,123)
(12,123)
—
—
—
(916)
(916)
(1,613)
(2,529)
(31,736)
(32,652)
The receivables financing facilities are dependent upon the levels of the relevant receivables.
The major bank facilities vary in the year depending on forecast debt requirements. The maximum limit across all
facilities, at the peak borrowing point in the annual cycle, with the major bank was £127.9 million (2017: £125.5 million).
At 31 March 2018, the facility amounted to £37.7 million (2017: £30.1 million).
Additional overdraft facilities were available at other banks of £3.7 million (2017: £2.5 million), along with a loan of
AUD 9,000,000 repayable monthly over a five year period.
87
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
26 Financial instruments continued
Derivative financial assets continued
d) Cash flow hedges
The following table indicates the periods in which the cash flows associated with cash flow hedging instruments are
expected to occur:
31 March 2018
Forward exchange contracts:
Liabilities
31 March 2017
Forward exchange contracts:
Liabilities
Carrying
amount
£000
Contractual
cash flows
£000
One year
or less
£000
116
(5,835)
(5,835)
Carrying
amount
£000
Contractual
cash flows
£000
One year
or less
£000
60
(1,574)
(1,574)
The Group has forward currency hedging contracts outstanding at 31 March 2018 designated as hedges of expected future
purchases in US dollars and Chinese renminbi and sales in euros for which the Group has firm commitments. The forward
currency contracts are being used to hedge the foreign currency risk of the firm commitments.
The terms of the forward currency hedging contracts have been negotiated to match the terms of the commitments.
The cash flow hedges of the expected future purchases in 2018/19 were assessed to be highly effective and as at
31 March 2018 a net unrealised loss of £27,000 (2017: £271,000 gain) with related deferred tax credit of £nil (2017: £nil) was
included in other comprehensive income in respect of these hedging contracts.
e) Market risk
Financial risk management
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices,
will affect the Group’s income or the value of its holdings of financial instruments.
The Group hedges a proportion, as deemed appropriate by management, of its sales and purchases of inventory
denominated in foreign currency by entering into foreign exchange contracts. Such foreign exchange contracts typically
have maturities of less than one year.
The Group rarely hedges profit translation exposure, since such hedges provide only a temporary deferral of the effects of
movement in foreign exchange rates. Similarly, the Group does not hedge its long-term investments in overseas assets.
However, the Group holds loans that are denominated in the functional currency of certain overseas entities.
The Group’s exposure to foreign currency risk is as follows. This is based on the carrying amount for monetary financial
instruments except derivatives when it is based on notional amounts.
31 March 2018
Cash and cash equivalents
Trade receivables
Other receivables
Financial assets at fair value
through the income statement
Secured bank loans
Loan arrangement fees
Trade payables
Other payables
Balance sheet exposure
88
Notes
16
15
17
17
21
21
Sterling
£000
1,040
9,337
1,169
85
—
105
Euro
£000
22
US dollar
£000
3,237
4,525
14,053
25
—
—
—
574
—
—
—
Other
£000
4,732
4,575
—
Total
£000
9,031
32,490
1,768
28
113
(4,780)
(4,780)
—
105
(10,009)
(5,368)
(16,260)
(5,419)
(37,056)
(978)
749
(497)
—
(226)
(1,701)
(1,293)
1,604
(1,090)
(30)
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
31 March 2017
Cash and cash equivalents
Trade receivables
Other receivables
Financial assets at fair value
through the income statement
Loan arrangement fees
Finance leases
Bank overdrafts
Trade payables
Other payables
Balance sheet exposure
Note
16
15
17
20
16
21
21
Sterling
£000
1,021
5,265
800
307
271
—
—
Euro
£000
(455)
US dollar
£000
2,659
Other
£000
434
Total
£000
3,659
3,764
13,378
3,584
25,991
30
102
—
—
(45)
—
—
—
—
—
—
—
—
—
(916)
932
307
271
(45)
(916)
(10,268)
(4,624)
(17,533)
(3,916)
(36,341)
(553)
(362)
—
(194)
(3,157)
(1,692)
(1,394)
(1,008)
(1,109)
(7,251)
The following significant exchange rates applied during the year:
Euro
US dollar
Average rate
Reporting date spot rate
2018
1.14
1.34
2017
1.19
1.30
2018
1.14
1.40
2017
1.17
1.25
Sensitivity analysis
A 10% weakening of the following currencies against sterling at 31 March 2018 would have affected equity and profit or loss
by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been
applied to risk exposures existing at that date.
This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant.
The analysis was performed on the same basis for 31 March 2017.
Euro
US dollar
Equity
Profit/(loss)
2018
£000
118
(146)
2017
£000
154
127
2018
£000
(879)
(521)
2017
£000
(732)
(635)
On the basis of the same assumptions, a 10% strengthening of the above currencies against sterling at 31 March 2018 would
have affected equity and profit or loss by the following amounts:
Euro
US dollar
Equity
Profit/(loss)
2018
£000
(144)
178
2017
£000
(188)
(155)
2018
£000
1,075
637
2017
£000
895
777
89
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
26 Financial instruments continued
Derivative financial assets continued
e) Market risk continued
Profile
At the balance sheet date the interest rate profile of the Group’s interest-bearing financial instruments was:
Variable rate instruments
Financial assets
Financial liabilities
Loan arrangement fees
Finance leases
Net debt
Note
2018
£000
2017
£000
9,031
(4,780)
105
—
3,659
(916)
271
(45)
16
4,356
2,969
A change of 50 basis points (0.5%) in interest rates in respect of financial assets and liabilities at the balance sheet date
would have affected equity and profit or loss by the amounts shown below. This calculation assumes that the change
occurred at the balance sheet date and had been applied to risk exposures existing at that date.
This analysis assumes that all other variables, in particular foreign currency rates, remain constant and considers the effect
on financial instruments with variable interest rates, financial instruments at fair value through profit or loss. The analysis is
performed on the same basis for 31 March 2017.
Equity
Increase
Profit or loss
Increase
2018
£000
2017
£000
21
21
14
14
f) Capital management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to
sustain future development of the business. The Group is dependent on the continuing support of its bankers for working
capital facilities and so the Board’s major objective is to keep borrowings within these facilities.
The Board manages as capital its trading capital, which it defines as its net assets plus net debt. Net debt is calculated
as total debt (bank overdrafts, loans and borrowing as shown in the balance sheet), less cash and cash equivalents. The
banking facilities with our principal bank have covenants relating to interest cover, cash flow cover and leverage, and our
articles currently permit borrowings (including letter of credit facilities) to a maximum of four times equity.
Net assets attributable to owners of the Parent Company
Net cash
Trading capital
Equity
2018
£000
2017
£000
Note
96,855
86,217
16
(4,356)
(2,969)
92,499
83,248
90
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
The main areas of capital management relate to the management of the components of working capital including monitoring
inventory turn, age of inventory, age of trade receivables, balance sheet reforecasting, monthly profit and loss, weekly
cash flow forecasts and daily cash balances. Major investment decisions are based on reviewing the expected future cash
flows and all major capital expenditure requires sign off by the Chief Executive Officer and Chief Financial Officer or above
certain limits, by the Board. There were no major changes in the Group’s approach to capital management during the year.
A particular focus of the Group is leverage measured as the ratio of average monthly net debt to EBITDA before exceptional
items and LTIP charges.
27 Operating leases
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
Non-cancellable operating lease rentals are receivable as follows:
Between one and five years
2018
£000
5,108
9,925
17,807
2017
£000
4,515
11,064
19,419
32,840
34,998
2018
£000
1,728
2017
£000
790
The Group leases a number of warehouse and factory facilities as well as vehicles and office equipment under operating
leases. The leases of warehouse and factory facilities typically have an option to renew at the end of the lease term with
lease payments subject to five-yearly rent reviews.
One of the leased properties has been sublet by the Group and part of a second. The main sub-leases have periods to run
of between one and five years. Sub-lease payments of £710,000 (2017: £558,000) were received during the financial year.
During the year, £5,289,000 was recognised as an expense in the income statement in respect of operating leases
(2017: £4,460,000).
28 Capital commitments
At 31 March 2018, the Group had outstanding authorised capital commitments to purchase plant and equipment for
£551,000 (2017: £575,000).
91
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
29 Related parties
Sale of goods:
AB Alrick – Hedlund
Hedlunds Pappers Industri AB
Festive Productions Ltd
Hedlund Import AB
S A Greetings (South African Greetings)
Purchase of goods:
Hedlund Import AB
Mattr Media Ltd
Receivables
Hedlund Import AB
Hedlunds Pappers Industri AB
Balance at 31 March
Payables
Hedlund Import AB
Balance at 31 March
2018
£000
—
172
24
2017
£000
1
149
37
2,718
4,596
91
26
3,005
4,809
—
62
62
17
—
17
—
—
60
69
129
112
7
119
—
—
Identity of related parties and trading
Hedlund Import AB and AB Alrick – Hedlund are under the ultimate control of the Hedlund family. Anders Hedlund is a
director of Hedlunds Pappers Industri AB, which is under the ultimate control of the Hedlund family. Festive Productions Ltd
is a subsidiary undertaking of Malios Holding AG, a company under the ultimate control of the Hedlund family.
John Charlton is Chairman of SA Greetings (Pty) Ltd.
During the year the Company paid £62,000 (2017: £69,000) for marketing services to Mattr Media Ltd, a company controlled
by Joshua Fineman, who is the son of the Group CEO.
The above trading takes place in the ordinary course of business and on normal commercial terms.
Other related party transactions
Directors of the Company and their immediate relatives have an interest in 45% (2017: 46%) of the voting shares of the
Company. The shareholdings of Directors and changes during the year are shown in the Directors’ report on page 48.
See the Directors’ remuneration report on pages 41 to 46 for more detail.
92
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
30 Subsidiary with significant non‑controlling interest
The Company has one subsidiary company which has a material non-controlling interest, IG Design Group Australia Pty Ltd
(Australia). Summary financial information in relation to Australia is shown below.
Australia balance sheet as at 31 March
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Australia comprehensive income for the year ended 31 March
Turnover
Profit after tax
Total comprehensive income
Australia cash flow for the year ended 31 March
Net increase/(decrease) in cash and cash equivalents
Australia non-controlling interest
1 April
Share of profits for the year
Other comprehensive income
Capital contribution from non-controlling investor
Dividend paid to the non-controlling interest
Currency translation
31 March
2018
£000
5,538
7,637
(5,604)
(45)
2018
£000
2017
£000
2,611
10,800
(5,699)
(146)
2017
£000
36,972
33,551
1,265
1,345
2018
£000
550
2018
£000
3,833
789
40
—
(575)
(426)
1,325
1,563
2017
£000
(807)
2017
£000
3,370
658
119
110
(867)
443
3,661
3,833
93
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
31 Acquisition of business
On 9 January 2018, the Group acquired the trade and certain assets of Biscay Greetings Pty Limited (“Biscay”), a leading
greetings card and paper products business based in Australia.
The acquisition, made through IG Design Group Australia Pty Limited, was satisfied by a cash consideration of £5,145,000
(AUD 8,900,000) using local debt facilities. The consideration represents 2.7x EBITDA for the year ended 30 June 2017
although an injection of working capital of up to £1,700,000 (AUD 3,000,000) may also be required.
Biscay provides greetings cards and related products to an extensive base of almost 2,000 customers through regional,
wholesale, and independent retail channels across Australia and New Zealand.
From the date of acquisition to 31 March 2018 the Biscay business contributed £1,253,000 to the revenue of the Group.
If the acquisition had occurred on 1 April 2017, Group revenue would have been £334,854,000. The trade of Biscay has been
incorporated into that of IG Design Group Australia Pty Limited. It is not possible to disclose separately the profit of the
Biscay business.
Effect of acquisition
The acquisition had the following effect on the Group’s assets and liabilities:
Property, plant and equipment
Intangible assets
Inventories
Trade and other payables
Deferred tax liabilities
Net identifiable assets and liabilities
Total cash consideration paid
Goodwill
Recognised
fair values
on acquisition
£000
798
921
2,149
(213)
(213)
3,442
5,145
1,703
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
• property, plant and equipment has been valued using market comparison and cost techniques. The valuation model
considers market prices for similar items when they are available, and depreciated replacement costs when appropriate.
Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic
obsolescence;
intangible assets are made up of Customer relationships which have been valued using a Multi-period Excess Earnings
Method (“MEEM”) approach and Brands valued using the relief-from royalty method; and
inventories have been valued at book value being cost to buy/manufacture, less provisions where this is above net
realisable value. This is felt to be materially aligned with market value.
•
•
If new information is obtained within one year of the date of acquisition about the facts and circumstances that existed at
the date of acquisition which identifies adjustments to the fair values above or any additional provisions that existed at the
date of the acquisition, then the accounting for the acquisition will be revised.
94
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
Acquisitions in the prior year
On 11 July 2016, the Group acquired all of the shares capital of The Lang Companies Inc (“Lang”) for a cash consideration
of £2,669,000 ($3,443,000). Acquisition costs of £260,000 were incurred during the period and expensed in the income
statement as an exceptional item. Lang is a design-led supplier of high-quality branded consumer home décor and lifestyle
products, based in the USA. Lang is a natural fit with the Group, being a design-led company with complementary products
and markets. There are natural synergy opportunities with the Group in sourcing and cross selling. In the period from
acquisition to 31 March 2017 Lang contributed net profit of £528,000 to the consolidated Group net profit for the year ended
31 March 2017. If the acquisition had occurred on 1 April 2016, Group revenue would have been £316,160,000 and net profit
would have been £9,224,000. In determining these amounts, management has assumed that the fair value adjustments that
arose on the date of acquisition would have been the same if the acquisition occurred on 1 April 2016.
Effect of acquisition
The acquisition had the following effect on the Group’s assets and liabilities:
Property, plant and equipment
Intangible assets
Inventories
Trade and other receivables
Trade and other payables
Deferred tax liabilities
Net identifiable assets and liabilities
Total cash consideration paid
Gain on bargain purchase recognised immediately in the income statement
Recognised
fair values
on acquisition
£000
292
1,230
2,967
6,005
(5,742)
(812)
3,940
2,669
(1,271)
The gain on bargain purchase arose as a result of the sum of the net assets acquired being greater than the amount paid.
This was possible due to the low number of potential acquirers for the business.
95
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
COMPANY BALANCE SHEET
AS AT 31 MARCH 2018
Fixed assets
Intangible assets – software
Tangible assets
Investments
Total non-current assets
Current assets
Debtors – due within one year
Debtors – due after more than one year
Derivative financial assets
Cash at bank and in hand
Notes
3
4
5
6
7
8
10
2018
£000
26
25
2017
£000
51
42
27,972
28,023
27,886
27,979
2,105
28,618
34
10,807
41,564
3,535
36,156
152
239
40,082
Creditors: amounts falling due within one year
11
(4,655)
(4,839)
Net current assets
Creditors: amounts falling due after more than one year
Provisions for liabilities – other provisions
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Merger reserve
Hedging reserve
Profit and loss account
Equity shareholders’ funds
12
14
15
36,909
35,243
10
(104)
39
(149)
64,838
63,112
3,194
8,475
1,340
3,132
8,429
1,340
17,164
17,164
(91)
34,756
64,838
146
32,901
63,112
IG Design Group plc is registered in England and Wales, number 1401155.
These financial statements were approved by the Board of Directors on 8 June 2018 and were signed on its behalf by:
Paul Fineman
Director
Giles Willits
Director
The notes on pages 99 to 108 form part of the financial statements.
96
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
COMPANY STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 MARCH 2018
At 1 April 2016
Profit for the year
Other comprehensive income
for the period
Options exercised
Equity-settled share-based payments
Tax on equity-settled
share-based payments
Share options charge relating to
subsidiary employees
Share placing
Equity dividend paid
At 31 March 2017
Profit for the year
Other comprehensive income
for the period
Options exercised
Equity-settled share-based payments
Tax on equity-settled
share-based payments
Share options charge relating
to subsidiary employees
Equity dividend paid
At 31 March 2018
Share
capital
£000
2,963
—
—
19
—
—
—
150
—
Share
premium
account
£000
3,512
Capital
redemption
reserve
£000
1,340
Merger
reserves
£000
17,164
—
—
34
—
—
—
4,883
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,132
8,429
1,340
17,164
—
—
62
—
—
—
—
—
—
46
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Cash flow
hedging
reserve
£000
Profit and
loss account
£000
(6)
—
23,486
9,402
—
—
773
591
783
—
(2,134)
32,901
3,017
—
(37)
1,019
198
658
152
—
—
—
—
—
—
146
—
(237)
—
—
—
—
—
Total
equity
£000
48,459
9,402
152
53
773
591
783
5,033
(2,134)
63,112
3,017
(237)
71
1,019
198
658
3,194
8,475
1,340
17,164
(91)
34,756
64,838
(3,000)
(3,000)
Within the profit and loss account is a cumulative amount of £1,909,000 (2017: £1,277,000) which is unrealised in respect of
share options granted to subsidiary employees. See consolidated statement of changes in equity for descriptions of reserve.
97
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
Notes
2018
£000
2017
£000
3,017
9,402
3, 4
42
572
79
(829)
(1,064)
(1,863)
367
—
(5,884)
1,502
(144)
608
51
(9,775)
1,238
(18)
(1,592)
(1,107)
(12)
387
6,229
(72)
4,940
2,673
7,613
5,884
—
5,884
71
—
(3,000)
(2,929)
10,568
239
4
2
10
10,807
2
460
(46)
(72)
(763)
1,002
239
9,775
(26)
9,749
5,086
(16,493)
(2,134)
(13,541)
(3,553)
3,792
239
COMPANY CASH FLOW STATEMENT
YEAR ENDED 31 MARCH 2018
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation and amortisation
Foreign exchange losses/(gains)
Interest receivable and similar income
Interest payable and similar charges
Loss on disposal of tangible fixed assets
Dividends received from Group undertakings
Equity-settled share-based payment expenses
Taxation
Operating profit after adjustments for non-cash items
(Increase)/decrease in trade and other debtors
Increase in trade and other creditors
Decrease/(increase) in amounts owed by Group undertakings
Increase in provisions
Cash generated from operations
Interest received
Net cash from operating activities
Cash flows from investing activities
Dividends received
Acquisition of tangible fixed assets
Net cash from investing activities
Cash flows from financing activities
Net proceeds from the issue of share capital(a)
Repayment of secured borrowings
Equity dividends paid
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at 31 March 2018
(a) See note 22 in Group’s financial statements.
98
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE COMPANY FINANCIAL STATEMENTS
YEAR ENDED 31 MARCH 2018
1 Accounting policies – Company
Basis of preparation
IG Design Group plc (the “Company”)
is a company limited by shares and
incorporated and domiciled in the UK.
The Company financial statements
present the information about the
Company as a separate entity and
not about the Group.
These financial statements were
prepared in accordance with Financial
Reporting Standard 102, the Financial
Reporting Standard applicable
in the UK and Republic of Ireland
(“FRS 102”) as issued in August 2014.
The amendments to FRS 102, issued
in July 2015 have been applied. The
presentation currency of these financial
statements is sterling. All amounts in
the financial statements have been
rounded to the nearest £1,000.
The accounting policies set out
below have, unless otherwise
stated, been applied consistently
to all periods presented in these
financial statements.
Judgements made by the Directors
in the application of these accounting
policies that have significant effect
on the financial statements and
estimates with a significant risk of
material adjustment in the next year
are discussed in note 2.
Under Section 408 of the Companies
Act 2006 the Company is exempt from
the requirement to present its own
profit and loss account on the grounds
that a parent undertaking includes
the Company in its own published
consolidated financial statements.
Measurement convention
The financial statements are prepared
on the historical cost basis except
that the following assets and liabilities
are stated at their fair value: derivative
financial instruments, financial
instruments classified at fair value
through the profit and loss account
and financial instruments at fair value
through the hedging reserve.
Going concern
See note 1 to the Group accounting
policies on page 59. Based on the
financial performance of the Group,
the Directors have a reasonable
expectation that the Company has
adequate resources to continue
its operational existence for the
foreseeable future. For this reason they
continue to adopt the going concern
basis of accounting in preparing the
annual financial statements.
Foreign currencies
Transactions in foreign currencies are
recorded using the rate of exchange
prevailing at the date of the transaction.
Monetary assets and liabilities
denominated in foreign currencies are
translated using the rate of exchange
prevailing at the balance sheet date
and the gains or losses on translation
are included in the profit and loss
account except for differences arising
on the retranslation of qualifying
cash flow hedges and items which
are accounted for at fair value with
changes taken to other comprehensive
income, which are recognised in other
comprehensive income.
Basic financial instruments
Trade and other debtors
Trade and other debtors are
recognised initially at transaction
price less attributable transaction
costs. Trade and other debtors
are subsequently reviewed for
recoverability and impairment with
any losses taken to profit and loss
immediately. If the arrangement
constitutes a financing transaction,
for example if payment is deferred
beyond normal business terms, then
it is measured at the present value
of future payments discounted at a
market rate of instrument for a similar
debt instrument.
Trade and other payables
Trade and other payables are stated at
their nominal value which is considered
to be their fair value. Subsequent to
initial recognition they are measured
at amortised cost using the effective
interest method.
Interest-bearing borrowings
classified as basic financial
instruments
Interest-bearing borrowings are
recognised initially at the present
value of future payments discounted
at a market rate of interest, less direct
arrangement costs. Subsequent to
initial recognition, interest-bearing
borrowings are stated at amortised
cost using the effective interest
method, less any impairment losses.
Investments in subsidiaries
Investments in subsidiaries are
carried at cost less any provision
for impairment.
Cash and cash equivalents
Cash and cash equivalents comprise
cash balances. Bank overdrafts that
are repayable on demand and form
an integral part of the Company’s
cash management are included
as a component of cash and cash
equivalents for the purpose of the
cash flow statement only.
99
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
Intangible fixed assets –
software
Software is stated at cost less
amortisation. Cost is amortised over
three years to write off the asset over
its useful economic life.
Tangible fixed assets
– property, plant and
equipment and depreciation
Tangible fixed assets are stated at
cost less accumulated depreciation.
Depreciation is provided by the
Company to write off the cost less the
estimated residual value of tangible
property, plant and equipment by equal
instalments over their estimated useful
economic lives as follows:
• fixtures and fittings – three to
five years.
Provisions
A provision is recognised in the
balance sheet when the Company
has a present legal or constructive
obligation as a result of a past event,
that can be reliably measured and it is
probable that an outflow of economic
benefits will be required to settle the
obligation. Provisions are recognised
at the best estimate of the amount
required to settle the obligation at the
reporting date.
Where the Company enters into
financial guarantee contracts to
guarantee the indebtedness of other
companies within the Group, the
Company treats the guarantee contract
as a contingent liability until such
time as it becomes probable that the
Company will be required to make a
payment under the guarantee.
Leases
Where the Company enters into a
lease which does not entail taking
substantially all the risks and rewards
of ownership of an asset, the lease is
accounted for as an ‘operating lease’
and the rentals payable are charged
to the profit and loss account on
a straight-line basis over the life of
the lease.
Share‑based payments
The cost of equity-settled transactions
with employees is measured by
reference to the fair value of the option
at the date on which they are granted
and is recognised as an expense
over the vesting period, which ends
on the date on which the relevant
employees become fully entitled to
the award. Fair value is determined by
using an appropriate pricing model.
In valuing equity-settled transactions,
no account is taken of any service and
performance (vesting conditions).
No expense is recognised for awards
that do not ultimately vest.
At each balance sheet date before
vesting, the cumulative expense is
calculated, representing the extent to
which the vesting period has expired
and management’s best estimate of
the number of equity instruments that
will ultimately vest. The movement in
cumulative expense since the previous
balance sheet date is recognised
in the income statement, with a
corresponding entry in equity.
1 Accounting policies
– Company continued
Other financial instruments
Financial instruments not
considered to be basic financial
instruments (other financial
instruments)
Other financial instruments not
meeting the definition of basic financial
instruments are recognised initially
at fair value. Subsequent to initial
recognition other financial instruments
are measured at fair value with
changes recognised in profit or loss
except that hedging instruments in a
designated hedging relationship shall
be recognised as set out below:
Derivative financial
instruments and hedging
Derivative financial instruments are
recognised at fair value. The gain or
loss on remeasurement of fair value
is recognised immediately in profit
or loss, except where it qualifies for
hedge accounting.
Cash flow hedges
Where a derivative financial instrument
is designated as a hedge of the
variability in cash flows of a recognised
asset or liability, or a highly probable
forecast transaction, the effective part
of any gain or loss on the derivative
financial instrument is recognised
directly in other comprehensive
income. Any ineffective portion of the
hedge is recognised immediately in
profit or loss.
When a hedging instrument expires or
is sold, terminated or exercised, or the
Company discontinues designation of
the hedge relationship but the hedged
forecast transaction is still expected
to occur, the cumulative gain or loss
at that point remains in equity and is
recognised in accordance with the
above policy when the transaction
occurs. If the hedged transaction is
no longer expected to take place, the
cumulative unrealised gain or loss
recognised in equity is recognised in
the income statement immediately.
100
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 Where the Company grants options
over its own shares to the employees
of its subsidiaries, it recognises an
increase in the cost of investment
in its subsidiaries equivalent to the
equity-settled share-based payment
charge recognised in its subsidiaries’
financial statements with the
corresponding credit being recognised
directly in equity. Amounts recharged
to the subsidiary are recognised as a
reduction in the cost of investment in
subsidiary. If the amount recharged
exceeds the increase in the cost of
investment, the excess is recognised
as a dividend to the extent that it
reflects post-acquisition profits of
the subsidiary.
Dividends on shares presented
within shareholders’ funds
Dividends unpaid at the balance
sheet date are only recognised as a
liability at that date to the extent that
they are appropriately authorised and
are no longer at the discretion of the
Company. Unpaid dividends that do
not meet these criteria are disclosed in
the notes to the financial statements.
Taxation
Tax on the profit or loss for the year
comprises current and deferred tax.
Tax is recognised in the profit and loss
account except to the extent that it
relates to items recognised directly in
equity or other comprehensive income,
in which case it is recognised directly
in equity or other comprehensive
income accordingly.
Current tax is the expected tax payable
or receivable on the taxable income or
loss for the year, using tax rates enacted
or substantively enacted at the balance
sheet date, and any adjustment to tax
payable in respect of previous years.
Deferred tax is provided on timing
differences which arise from the
inclusion of income and expenses in
tax assessments in periods different
from those in which they are recognised
in the financial statements. Deferred
tax is not recognised on permanent
differences arising because certain
types of income or expense are
non-taxable or are disallowable for
tax or because certain tax charges or
allowances are greater or smaller than
the corresponding income or expense.
Deferred tax is provided in respect
of the additional tax that will be paid
or avoided on differences between
the amount at which an asset (other
than goodwill) or liability is recognised
in a business combination and the
corresponding amount that can
be deducted or assessed for tax.
Goodwill is adjusted by the amount
of such deferred tax.
Deferred tax is measured at the tax rate
that is expected to apply to the reversal
of the related difference, using tax rates
enacted or substantively enacted at
the balance sheet date. Deferred tax
balances are not discounted.
Unrelieved tax losses and other deferred
tax assets are recognised only to the
extent that is it probable that they will
be recovered against the reversal of
deferred tax liabilities or other future
taxable profits.
Employee benefits
Pensions
The Company operates a defined
contribution personal pension scheme.
The assets of this scheme are held
separately from those of the Company
in an independently administered
fund. The pension charge represents
contributions payable by the Company
to the fund.
101
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018 NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
2 Dividends paid and proposed
A final dividend for year ending 31 March 2017 of 2.75p (for year ending 31 March 2016: 1.75p) was paid on 7 September 2017.
An interim dividend of 2.00p was paid on 18 January 2018 (2017: 1.75p). The Directors are recommending a final dividend in
respect of the year ended 31 March 2018 of 4.00p per share (2017: 2.75p). If approved, it will be paid in September 2018 to
shareholders on the register at the close of business on 5 July 2018.
Dividends paid in the year
Final equity dividend for prior year
Interim equity dividend for current year
Dividends paid in the year
Proposed for approval at Annual General Meeting
Final equity dividend for current year
3 Intangible assets – software
Cost
Balance at 1 April 2017 and 31 March 2018
Depreciation and impairment
Balance as at 1 April 2017
Amortisation charge for the year
Balance at 31 March 2018
Net book value
At 31 March 2018
At 31 March 2017
2018
2017
Pence
per share
2.75
2.00
Pence
per share
1.75
1.75
£000
1,734
1,266
3,000
2018
2017
Pence
per share
4.00
£000
2,556
Pence
per share
2.75
£000
1,037
1,097
2,134
£000
1,723
Software
£000
86
(35)
(25)
(60)
26
51
102
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
4 Tangible assets
Cost
Balance at 1 April 2017 and 31 March 2018
Depreciation and impairment
Balance as at 1 April 2017
Depreciation charge for the year
Balance at 31 March 2018
Net book value
At 31 March 2018
At 31 March 2017
5 Investments
Cost
At 1 April 2016
Additions – share option charge relating to subsidiary employees
Effects of movement in foreign exchange
At 31 March 2017
Additions – share option charge relating to subsidiary employees
Effects of movement in foreign exchange
At 31 March 2018
Provisions
At 31 March 2017 and 2018
Net book value
At 31 March 2018
At 31 March 2017
Fixtures and
fittings
£000
165
(123)
(17)
(140)
25
42
Total
£000
Shares in Group Loans to Group
undertakings
£000
undertakings
£000
23,763
5,208
28,971
783
—
—
792
783
792
24,546
6,000
30,546
658
—
—
(572)
658
(572)
25,204
5,428
30,632
(2,660)
—
(2,660)
22,544
21,886
5,428
6,000
27,972
27,886
103
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
5 Investments continued
The Company has the following investments in subsidiaries:
Trading companies
IG Design Group UK Ltd(c)
IG Design Group Americas Inc(d)
The Lang Companies Inc(d)
Anker Play Products, LLC(d)
International Greetings Asia Ltd(e)
The Huizhou Gift International Greetings Company Limited(e)
IG Design (Ningbo) Ltd(f)
Hoomark BV(g)
Anchor International BV(h)
Hoomark S.p.z.o.o(i)
IG Design Group Australia Pty Ltd(j)
Urban Dollar Pty Ltd(k)
Dormant companies
Anker International plc(c)
Belgrave Graphics Ltd(c)
Britesparks Ltd(c)
Concorde Industries Ltd(c)
Copywrite Designs Ltd(c)
Credit Collection Consultants Ltd(c)
Hoopack Hoogeveen BV(g)
Howard Industries Ltd(c)
IG Design Group (Lang), Inc(d)
IG Design Group Europe BV (formerly IG Europe BV)(g)
IG Employee Share Trustee Ltd(c)
Polaris Plastics Ltd(c)
School Supplyline Ltd(c)
Scoop Designs Ltd(c)
Tom Smith Christmas Crackers Ltd(c)
Tom Smith Crackers Ltd(c)
Tom Smith Group Ltd(c)
Tom Smith Ltd(c)
Tom Smith Online Ltd(c)
Weltec BV(h)
(a) Indirect holding.
(b) 50% direct/50% indirect holding.
(c) Registered office: No 7 Water End Barns, Water End, Eversholt MK17 9EA.
(d) Registered office: 5555 Glenridge Connector, Suite 300, Atlanta, GA 30342, USA.
(e) Registered office: 21F, 69 Jervois Street, Sheung Wan, Hong Kong.
(f) Registered office: 13-8, Building 003, No 3, 5 and 6 of Century Oriental Business Plaza, Yinzhou, Ningbo, China
(g) Registered office: Industrieweg 62, 7903 AK Hoogeveen, The Netherlands.
(h) Registered office: Voltastraat 12, 3281 NG Numansdorp, The Netherlands.
(i) Registered office: Jędrzychowice 116A, 59-900 Zgorzelec, Poland.
(j) Registered office: 121 Rayhur Street, Clayton, South Victoria 3169, Australia.
(k) Registered office: Suite 9, 1 Eastridge Drive, Chirnside Park, Victoria 3116, Australia.
104
Country of
incorporation
Percentage
of ordinary
shares held
2018
Percentage
of ordinary
shares held
2017
Great Britain
US
US
US
Hong Kong
China
China
Netherlands
Netherlands
Poland
Australia
Australia
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Netherlands
Great Britain
US
Netherlands
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Netherlands
100(b)
100
100(a)
50(a)
100
100(a)
100(a)
100(a)
100(a)
100(a)
50
25(a)
100(b)
100
100(a)
50(a)
100
100(a)
—
100(a)
100(a)
100(a)
50
25(a)
100(a)
100(a)
100
100
50
100
50(a)
100(a)
100(a)
100(a)
100
100
100(a)
100(a)
100(a)
100(a)
100
100
100
100(a)
100(a)
100
100
50
100
50(a)
100(a)
100(a)
100(a)
100
100
100(a)
100(a)
100(a)
100(a)
100
100
100
100(a)
100(a)
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
Class of shares held are ordinary shares for companies incorporated in Great Britain or the equivalent for the
overseas subsidiaries.
Concorde Industries Ltd and Credit Collection Consultants Ltd are dormant companies that have never traded and both
have net assets of £2.
6 Debtors – due within one year
Trade debtors
Amounts owed by Group undertakings
Other debtors
Prepayments
7 Debtors – due after more than one year
Amounts owed by Group undertakings(a)
Deferred tax assets
(a) Attracts interest at market rate and is repayable on 31 July 2019.
8 Derivative financial assets
Financial assets designated at fair value through profit and loss
Financial assets designated at fair value through hedging reserve
9 Deferred tax asset
Difference between accumulated depreciation and capital allowance
Tax loss carried forward
Other timing differences
10 Cash and cash equivalents/bank overdrafts
Cash at bank and in hand
2018
£000
—
2017
£000
4
1,892
3,262
58
155
124
145
2,105
3,535
Note
2018
£000
2017
£000
26,849
34,849
9
1,769
698
28,618
35,547
2018
£000
10
24
34
2018
£000
88
264
1,417
1,769
2017
£000
5
147
152
2017
£000
101
264
942
1,307
2018
£000
10,807
2017
£000
239
105
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
11 Creditors: amounts falling due within one year
Loan arrangement fees
Trade creditors
Amounts owed to undertakings
Other taxes and social security
Other creditors and accruals
Other financial liabilities
Note
13
2018
£000
(95)
462
398
187
3,550
153
4,655
2017
£000
(232)
250
1,941
72
2,807
1
4,839
Refer to note 17 to the Group’s financial statements for more details of the terms of the bank borrowings.
12 Creditors: amounts falling due after more than one year
Loan arrangement fees
13 Other financial liabilities falling due within one year
Financial liabilities designated as fair value through profit and loss
Financial liabilities designated as fair value through hedging reserve
14 Provisions
Balance at 1 April
Provision used during the year
Unwinding of discounted amount
2018
£000
(10)
2018
£000
38
115
153
2018
£000
149
(72)
27
104
2017
£000
(39)
2017
£000
—
1
1
2017
£000
197
(72)
24
149
The provision represents a provision for an onerous lease. The lease expires in November 2019 and the provision will be fully
utilised at that point.
15 Share capital
Allotted, called up and fully paid
63,889,942 (2017: 62,641,833) ordinary shares of 5p each
2018
£000
2017
£000
3,194
3,132
Refer to note 22 to the Group’s financial statements for details of movements and note 25 for details of share options and
LTIP schemes.
106
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
16 Share‑based payments
Please see note 25 to the Group’s financial statements for details of share-based payments.
17 Financial instruments
(a) Carrying amount of financial instruments
The carrying amounts of the financial assets and liabilities include:
Assets measured at fair value through profit or loss
Assets measured at fair value through the hedging reserve
Assets measured at amortised cost
Liabilities measured at fair value through profit or loss
Liabilities measured at fair value through the hedging reserve
Liabilities measured at amortised cost
2018
£000
10
24
2017
£000
6
146
39,606
38,478
(38)
(115)
(860)
—
(1)
(2,191)
38,627
36,438
(b) Financial instruments measured at fair value
Derivative financial instruments
The fair value of forward exchange contracts is assessed using valuations models taking into account market inputs such
as foreign exchange spot and forward rates, yield curves and forward interest rates.
The fair value of interest rate swaps is based on bank quotes.
(c) Hedge accounting
The following table indicates the periods in which the cash flows associated with cash flow hedging instruments are
expected to occur as required by FRS 102.29(a) for the cash flow hedge accounting models, which is in line with when they
are expected to affect profit and loss.
Forward exchange contracts:
Assets
Liabilities
Carrying
amount
£000
2018
Expected
cash flows
£000
One year
or less
£000
Carrying
amount
£000
2017
Expected
cash flows
£000
24
(115)
(91)
2,405
6,317
8,722
2,405
6,317
8,722
147
(1)
146
7,524
173
7,697
One year
or less
£000
7,524
173
7,697
The Company uses cash flow hedge accounting in line with FRS 102.12, by entering into forward exchange contracts to
hedge foreign exchange exposure. Fair value at 31 March 2018 was £91,000 liability (2017: £146,000 asset) recognised in
other comprehensive income.
The amount recognised in the profit and loss account for the year was £28,000 charge (2017: £6,000 income).
(d) Fair values
The amounts for all financial assets and financial liabilities carried at fair value are as follows:
Forward exchange contracts:
Assets – forward exchange contracts
Liabilities – forward exchange contracts
Total liability
Fair value
2018
£000
Fair value
2017
£000
34
(153)
(119)
152
(1)
(1)
107
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2018
18 Contingencies
The Company has given, together with certain of its subsidiary undertakings, an unlimited composite joint and several
guarantee in respect of the HSBC facilities of itself and its subsidiaries. The total of this guarantee at the year end, in relation
to the Company only, was £nil (2017: £668,000) in excess of the amount dealt with in the Company’s financial statements.
The Company has given HSBC Bank (China) Company Ltd a guarantee of RMB15.4 million (£1.8 million) on behalf of its
subsidiary Huizhou Gift International Greetings Company Ltd.
As part of the Group refinancing completed in June 2016 the Company provided guarantees to HSBC banks in the
Netherlands of €1.2 million (£1.1 million), the USA $84.5 million (£60.4 million) and in Hong Kong $18.5 million (£13.2 million)
on behalf of the Group’s trading subsidiaries in those countries.
19 Related parties
Identity of related parties with which the Company has transacted:
Group undertakings:
• IG Design Group UK Ltd;
• IG Design Group Americas, Inc;
• Lang Companies Inc;
• International Greetings Asia Ltd;
• The Huizhou Gift International Greetings Company Ltd;
• Hoomark BV;
• Anchor International BV;
• Hoomark S.p.z.o.o; and
• IG Design Group Australia Pty Ltd.
Transactions with key management personnel – total compensation of key management personnel (the Directors) in the year
amounted to £2,885,000 (2017: £2,887,000).
Related party transactions – transactions with Group undertakings
Management recharges
Receivables outstanding
Creditors outstanding
2018
£000
2,546
28,741
(398)
2017
£000
2,636
38,111
(1,941)
During the year the Company paid £62,000 (2017: £69,000) for rebranding and marketing services to Mattr Media Ltd,
a Company controlled by Joshua Fineman, who is the son of the Group CEO.
20 Accounting estimates and judgements
Management does not consider that there are any significant account estimates or judgements other than those showing
in note 2 to the Group financial statements.
108
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2018
IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2018
ADVISERS
Financial and nominated
adviser and broker
Cenkos Securities Plc
6, 7, 8, Tokenhouse Yard
London EC2R 7AS
Auditor
KPMG LLP
Altius House
One North Fourth Street
Milton Keynes MK9 1NE
Public Relations
Alma PR
Aldwych House
71-91 Aldwych
London WC2B 4HN
Legal Adviser
Bird & Bird LLP
12 New Fetter Lane
London EC4A 1JP
Registered offi ce
No 7, Water End Barns
Water End
Eversholt MK17 9EA
IG Design Group plc is registered in
England and Wales, number 1401155
Share registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham BR3 4TU
By phone – UK – 0871 664 0300,
from overseas call +44 (0) 371 664
0300 calls cost 12p per minute plus
your phone company’s access charge.
Calls outside the United Kingdom
will be charged at the applicable
international rate. We are open
between 09:00 – 17:30, Monday to
Friday excluding public holidays in
England and Wales.
By email – enquiries@linkgroup.co.uk
Visit us online at
thedesigngroup.com
Designed and produced by
www.lyonsbennett.com
The paper used in this report is produced using virgin wood fi bre from
well-managed forests with FSC© certifi cation. All pulps used are elemental
chlorine free and manufactured at a mill that has been awarded the ISO 14001
and EMAS certifi cates for environmental management. The use of the FSC© logo
identifi es products which contain wood from well-managed forests certifi ed in
accordance with the rules of the Forest Stewardship Council.
Printed by CPI Colour, an FSC© and ISO 14001 accredited company, who is
committed to all round excellence and improving environmental performance as
an important part of this strategy.
IG Design Group plc
No 7 Water End Barns
Water End
Eversholt MK17 9EA
T +44 (0)1525 887 310
thedesigngroup.com
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