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IG Design Group plc
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019
WHAT’S INSIDE
STRATEGIC REPORT
GOVERNANCE
A review of the Group’s strategy with a more
detailed look at activity during the financial
year together with its risk management.
01 About us
02 Our commitment to shareholders
04 At a glance
06 Business model
08 Our strategy
16 Social responsibility
18 Executive review
36 Principal risks and uncertainties
Information on how the Group is governed
and activities of the Board.
40 Board of Directors
42
Chairman’s corporate governance review
51 Audit Committee report
54 Directors’ remuneration report
59 Directors’ report
61 Statement of Directors’ responsibilities
FINANCIALS – GROUP
FINANCIALS – COMPANY
The Group’s consolidated financial statements
and comprehensive notes covering the year
ended 31 March 2019.
The Company’s financial statements and
comprehensive notes covering the year ended
31 March 2019.
62 Independent auditor’s report
66 Consolidated income statement
112 Company balance sheet
113 Company statement of changes in equity
67 Consolidated statement of comprehensive income
114 Company cash flow statement
68 Consolidated statement of changes in equity
115 Notes to the Company financial statements
69 Consolidated balance sheet
70 Consolidated cash flow statement
71 Notes to the consolidated financial statements
Alternative performance measures
This review includes alternative performance measures (‘APMs’)
that are presented in addition to the standard IFRS metrics. The
Directors believe that these APMs provide important additional
information regarding the adjusted performance of the business
including trends, performance and position of the Group. APMs
are used to enhance the comparability of information between
reporting periods and segmental business units by adjusting
for exceptional or uncontrollable factors which affect IFRS
measures, to aid the understanding of the Group’s performance.
Consequently, APMs are used by the Directors and management
for strategic and performance analysis, planning, reporting and
reward setting.
In order to show when such measures have been used, the APMs
are highlighted in blue throughout the executive review.
The APMs are adjusted profit, adjusted EBITDA, adjusted
operating profit and adjusted EPS. The definitions of the APMs
used are listed below:
• Adjusted EPS – Fully diluted earnings per share before tax,
exceptional items, acquisition amortisation and LTIP charges
• Adjusted profit – Profit before tax, exceptional items,
acquisition amortisation and LTIP charges
• Adjusted operating profit – Profit before interest, tax,
exceptional items, acquisition amortisation and LTIP charges
• Adjusted EBITDA – EBITDA before exceptional items and
LTIP charges
Further detail can be seen on pages 28 and 29.
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 ABOUT US
We are Design Group
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.
OUR GOALS ARE
Customers
Team
Suppliers
Investors
to be the ‘partner
of choice’ across
an increasing range
of products and
categories where our
customers value our
fast pace, innovation,
market focus and
flexibility
to have a creative
and winning culture
focused on developing
a team that looks to
accomplish great
things
to build relationships
with suppliers who
provide capacity and
enable us to compete
profitably and share
our passion for design
and innovation
continue to grow our
Group and deliver
returns well above
market performance
01
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 OUR COMMITMENT
TO SHAREHOLDERS
Delivering growth
Adjusted EPS
Continue to deliver double digit three year
compound annual growth
Adjusted EPS
(pence)
13.2
11.5
29.3
+33%
on 2018
22.1
18.6
Through organic growth and acquisitions
2015
2016
2017
2018
2019
2019 reported diluted earnings per share 16.0p (2018: 20.5p)
Generating cash
Average leverage
Average leverage
4.1x
Sustain long term average leverage between
1.0x and 2.0x
3.2x
2.3x
+13%
improvement
on 2018
Provides capacity for future investment
1.5x
1.3x
2015
2016
2017
2018
2019
Improving returns
Dividends
(pence)
Dividend
Trend upwards until 2.5x covered (40% pay out)
8.5 +42%
on 2018
6.0
4.5
Growth supported increased shareholder distributions
2.5
1.0
2015
2016
2017
2018
2019
Alternative performance measures: we use both statutory reported and adjusted measures in our strategic report. Adjusted measures in management’s view reflect the
underlying performance of the business and provides a more meaningful comparison of how the business is managed and measured day-to-day. A full reconciliation between
our reported and adjusted results is provided in our alternative performance measures section on pages 28 and 29.
02
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
Key financial performance indicators
Revenue
Adjusted profit before tax
£448.4m
£30.3m
2018:
£21.8m
2018: £327.5m
+37%
Reported profit before tax
£17.3m
2018:
£19.7m
Adjusted EBITDA
Average debt
£38.7m
£48.8m
2018: £28.0m
+38%
2018: £41.9m
+16%
Cash conversion
Return on capital employed
130.5%
2018: 80.5%
24.3%
2018: 22.5%
03
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 AT A GLANCE
We’re truly international, with 11,000 customers selling our products
through over 210,000 stores across more than 80 countries, we enjoy
considerable market presence around the world.
Revenue by customer destination
ROW
£10.0m
2%
Australia
£37.7m
8%
Europe
£68.3m
15%
USA
£235.1m
53%
UK
£97.3m
22%
Focused on our four major product categories
of Celebrations, Stationery and creative play,
Gifting and ‘Not-for-resale’ consumables,
we leverage our Group size and expertise
whilst retaining local market knowledge and
relationships through our local businesses.
04
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 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 season
56%
Christmas
Revenue by product
77%
Celebrations
Revenue by source
30%
70%
Manufactured in-house
Sourced
39%
Everyday
5%
Minor
seasons
11%
8%
4%
Gifting
Stationery(a) NFR(b)
(a) Stationery and creative play.
(b) ‘Not-for-resale’ consumables.
05
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 BUSINESS MODEL
Design Group is a global manufacturer and distributor of
design-led Celebration, Stationery and creative play, Gifting,
‘Not-for-resale’ consumables and related products.
P r o duct Design
& D evelopment
Customers
Being their Partner
of choice
g
g
M anufacturin
& Sourcin
D
&
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F
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06
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
Customers
We are proud to serve
the best retailers around
the world. We provide
a complete end-to-end
service from design concept
to store shelf
11,000 customers with product in over 210,000 retail outlets in over
80 countries
•
It is our aim to be a partner of choice
to our customers
• Our customers benefit from our
• Our global scale gives us the ability
to access the best products at the
best prices for our customers
ability to deliver everything from small
individual orders to large international
programmes
• Our local teams have the expertise to
ensure we know what works well for
our customers in each market
Product Design
& Development
Design is at the heart of
everything we do
230 designers across four continents in eight studios, producing
thousands of designs a year
• We pride ourselves on always being
at the very cutting edge of design
trends and product development
• Our businesses can all access these
great designs through our global
design hub
• Each business unit has a dedicated
design team
• We are continuously innovating fresh
designs, including generic, customer
bespoke and licensed branded
offerings
Manufacturing
& Sourcing
Our manufacturing facilities
and global network of
suppliers ensures we can
turn our designs into high
quality products for our
customers
Over 50,000 SKUs manufactured and sourced annually
• We manufacture a number of our
core products in-house, including gift
wrap, crackers, bags and cards
• For products that we source, we work
with carefully selected partners to
manufacture our designs
• Sites in the UK, China, USA,
Netherlands and Poland
• We continuously invest in our
manufacturing process resulting in
some of the most efficient production
facilities in the industry
• Our manufacturing and sourcing
network, which is subject to regular
ethical, quality and technical
audits, supported by our team of
manufacturing and sourcing experts,
ensures we deliver compliant and
ethically sourced products
Distribution
& Fulfilment
We understand that
customers value excellent
service and we have a track
record of delivering on time
and to high quality standards
Over 750 million units sold annually
• We offer everything from ‘free on
•
board’, where the customer handles
shipping, to merchandising solutions,
where we deliver items into stores
depending on customer needs
In each business unit across the
world our experienced logistics
teams process each retailer’s order
through our global infrastructure of
warehouses and fulfilment centres
• Our ability to deliver on time/in full is
a critical part of our service offering
• We work with our customers to
improve the process of getting stock
to the shelf, helping reduce store
costs and improve stock availability
07
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 OUR STRATEGY
Our strategy is built on leveraging our core strengths
and focusing on the market opportunities.
istribution
ulfilm ent
D
F
&
W o rking with
t h e winners
Customers
Being their Partner
of choice
i n
Manufac t u r
& Sour c i n g
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P
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&
D
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D esign &
Innovatio
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08
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
Key strategic performance indicators
Working with the winners
• Increasing revenue through
organic growth with both existing
and new customers, suppliers and
product areas
Level of business with
our top 10 customers
Sales by channel
Definition: Percentage of Group revenue
from our top 10 global customers
Definition: Growing our revenues across
different sales channels
Why chosen: We pride ourselves on
having long lasting relationships with the
world’s leading retailers, and nurturing and
maintaining these relationships allows us to
grow as they do
Why chosen: Our ‘winners’ are a broad
range of customers across various sales
channels including mass and discount
retailers, wholesalers, independents
and other small channels. As the retail
environment changes, we will measure our
success in growth across these channels
Design & innovation
• Developing in new channels and
New product category growth
Diversifying seasonality
adjacent product categories
• Expanding in the growing number
of events celebrated throughout
the year
Efficiency & scale
• Driving margins through
investment in processes
and people
• Accretive M&A opportunities
to unlock synergies and
strengthening our ‘one-stop-shop’
position with customers
Definition: New product category growth
year-on-year
Definition: Year-on-year growth in
categories other than Christmas products
Why chosen: It is important to stay ahead
of the curve and introduce new segments
and products that complement our existing
ranges. This helps the Group grow in other
areas and diversify our offering
Why chosen: We have in the past been
a heavily Christmas-based business,
and whilst this is still very important,
we also want to focus on growing the
non-Christmas (being minor seasons
and everyday) part of our business
Adjusted operating margin
M&A and investment
Definition: Adjusted operating margin as a
percentage of revenue
Definition: Capital expenditure and
corporate acquisitions
Why chosen: Delivering value to our
customers is essential and we must
ensure we can continue to compete in
our marketplace and win against other
suppliers. To do this we aim to improve
our margin through improved sourcing and
ongoing manufacturing efficiency gains
Why chosen: Our ability to invest in
efficiency improving projects helps support
our competitive position, while our ability
to execute earnings accretive M&A ensures
the Group continues to grow its scale and
reach, helping unlock new markets and
synergies
09
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Growing revenue through organic growth
with both existing and new customers,
suppliers and product areas.
Why is this important?
Revenue growth is critical to the ongoing success and development
of the Group. Our focus on working with the winners allows the Group
to drive revenues with our key customers by being their partner of
choice. As revenue grows this further underpins our relationship with
our customers.
Level of business with our top 10 customers
(% of total revenue)
2019
2018
48%
39%
Sales by channel
(%)
2019
2018
62%
38%
50%
50%
Mass and discount retailers
Other
Progress in 2019
2019 has been another successful year for the Group in this
focused area of our strategy. We have retained the majority
of our key customers and have driven up our revenue
through these winning partnerships. We have grown our
own top 10 customer revenue to 48% of Group revenues
(2018: 39%). We choose to partner with those customers
that we see have growth potential, and focus on excellent
customer service and quality products at good value to
ensure we grow as our customers do.
Our sales by channel remains a key focus, in particular given
the growth in mass and discount retailers in the market,
such as Action, Aldi, Lidl and Dollar Tree. We continue to
build our offering in this channel increasing sales by 71% to
£277 million, which now represents 62% of Group revenues.
Priorities for 2020 and beyond
We will drive top line growth in the Group through focusing
on our two main ‘working with the winners’ KPIs. Therefore
our key priorities for 2020 will be:
• Grow our level of business with our top 10 retailers
• Grow our business within our channels
This includes maintaining and developing our key customer
relationships around the Group, in particular with Walmart,
given its prominence within the portfolio following the
acquisition of Impact Innovation, Inc. (‘Impact’).
10
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019DELIVERING OUR STRATEGYWorking with the winners Strategy in action:
Walmart
Walmart is the biggest retailer in
the world, with global revenues
in excess of $500 billion a
year. In the US they operate
from nearly 5,000 stores so it
is therefore no surprise that
Walmart are Design Group’s
largest customer, accounting for
about 20% of Group revenue.
Our relationship with Walmart
was strengthened in the year
following the acquisition of
Impact Innovations, Inc. and
following the transaction we are
now a key partner supplying
celebrations products such as
seasonal décor and gift wrap.
It was a very proud moment
and a great reflection of the
fantastic support and dedication
the team at Impact has given to
Walmart when in March 2019
we were awarded ‘Seasonal
and Celebrations Supplier of
the Year 2019’.
Strategy in action:
Value/
Discounter
customers
Value discounters are one
of the fastest growing retail
channels around the world
and offer the Group significant
growth opportunities. One of
our key customers, with over
1,300 stores across Europe,
is a discounter focused on
non-food offering. Last year
alone they grew their store base
in the Netherlands, Belgium,
France, Germany, Luxembourg,
Austria and Poland by 21%.
Design Group has become one
of their key business partners,
growing our revenues with this
discounter 53% year-on-year.
This is driven by product
innovation, all round service and
a proactive approach.
11
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Develop opportunities in new channels and
adjacent product categories while expanding
our presence in the growing market for
celebration events throughout the year.
Why is this important?
Design and innovation are our life blood and key to the success of the
Group going forward. Consumers are constantly looking for exciting
ways to celebrate and our design teams are focused on providing fresh
and new ways to enjoy our products. We focus on developing new
ways to sell and also new product areas.
19.9
16.3
197.2
Progress in 2019
This financial year saw a first full year’s trading pattern of
our ‘not-for-resale’ consumables. This exciting growth area
contributed £19.9 million of our overall revenue in 2019, a 97%
improvement year-on-year. On average this segment is growing
at a fast pace of 53% over two years. This was supported by
our investment in a second retail collateral bag machine in our
manufacturing facility in Wales and should help drive this new
segment even further in the coming financial year.
The second of our ‘new’ segments, Creative play, introduced
in 2017, has seen a huge drive forward over the past three
years, with revenues increasing by 67% in 2019 and at an
average of 81% over two years. As outlined in our strategy
in action section we are excited to grow this segment
further by cross-selling to other areas of the Group. In 2019
our Australian business sold AU$0.4 million of Anker Play
Products that they hadn’t the year before.
Christmas sales accounted for nearly 56% of our business
in 2019 and whilst this is still a huge focus for the Group,
diversifying our offering outside of Christmas is a growth
area for us. In 2019 we increased our non-Christmas sales
by 24% to £197.2 million, with the category growing at an
average of 18% over two years.
Priorities for 2020 and beyond
The Group will always remain focused on being on top of the
latest trends in our product categories. In addition, in order to
drive the business forward, we will look to expand our product
offering outside of our core segments and seasons to ensure
we also remain diverse and appeal to all consumers.
Therefore our key priorities for the coming fiscal year are:
• Growth in new segments
• Expanding our non-Christmas sales
As well as these, we continue to ensure we have a high quality
design and sales team attracting key talent in the industry.
We will also continue to explore acquisitions that both
complement, enhance and diversify our product portfolio.
‘Not-for-resale’ consumables
(Revenue £m)
2019
2018
2017
10.1
8.5
Creative play products
(Revenue £m)
2019
2018
2017
9.8
5.0
Seasonal diversity
(Non-Christmas revenue £m)
2019
2018
2017
12
158.6
140.8
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019DELIVERING OUR STRATEGYDesign & innovation Strategy in action:
Sustainable
products
Strategy in action:
Anker Play
Products
Environmental challenges that
we all face have led to a joint
effort between our customers,
our suppliers and Design
Group to seek new ways to
design, develop, manufacture
and distribute our products
to ensure we are limiting our
impact on the environment.
This initiative is not only good
for the environment but is
also good business sense as
consumers raise concerns
about the sustainability
of products sold in stores
around the world. Amongst
many examples of how we
have changed, the Group
has reduced our ‘one use’
packaging across a wide range
of goods, reducing the amount
of plastic and acetate used. In
addition, the UK has launched
our first fully recyclable cracker,
the ‘Tom Smith Kraft Cracker’
with wooden content, no
finishes and no plastic. We still
have more to do however and
remain focused on improving
each year.
In 2017 we established a joint
venture to build a business
in the creative play category,
an area we felt offered great
opportunity as an adjacent
category to our existing
stationery and gifting product
ranges.
Over the past two years the
business has seen significant
revenue growth from $0.9 million
in 2017 to $14.5 million in
2019 and continues to offer
the opportunity for further
successful growth. Currently
the business is mainly US based
but now it is more established
it offers the cross selling
opportunity for expansion
into our other key territories –
Australia, the UK and Europe.
13
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Increasing margins through investments
in process and people while pursuing
accretive M&A opportunities focused on
unlocking synergies and strengthening our
‘one-stop-shop’ position with customers.
Why is this important?
Driving efficiencies through capital and people investment will
help strengthen our margins, while carefully selected acquisitions
that complement our business help deliver synergies and drive the
overall scale of the Group.
Adjusted operating margin as % of revenue
7.1%
7.3%
5.7%
2017
2018
2019
Adjusted overheads as % of revenue
14.9%
14.4%
11.7%
2017
2018
2019
Progress in 2019
Our adjusted operating margin continues to improve
year-on-year partially driven by a focus on driving
efficiencies in our manufacturing processes.
Our continuing focus on cost management has driven
adjusted overheads as a percentage of revenue down to
11.7% in 2019 compared to 14.4% in 2018.
2019 saw the first full year of our high speed printing
press in Europe operating. This hugely increased our
manufacturing efficiencies and overall manufacturing
capacity.
Further investment in processes this year included:
• New ERP platform in our Americas business
• A second retail collateral bag machine in Wales
• New converting lines in the Netherlands
We have also built the strengths of our team through
investing in new roles including:
• MD of Global Procurement
• Group Company Secretary/Legal Counsel
• Chief Information Officer
• Senior VP of Sales in the USA
Priorities for 2020 and beyond
•
• Delivering improved efficiency through further capital
Increase operating margin
investment
66.8
• Unlock c$5 million of synergies following the acquisition
of Impact
Identifying further M&A opportunities
•
M&A and investment
(£m)
2019
2018
2017
7.9
5.1
9.4
2.7
5.2
Corporate acquisitions
Capital expenditure
14
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019DELIVERING OUR STRATEGYEfficiency & scale Strategy in action:
Impact
Innovations,
Inc.
Strategy in action:
Manufacturing
A new printing
press
On 31 August 2018 we
completed the acquisition of
Impact Innovations, Inc., a
leading supplier of gift wrap
and seasonal décor products
in the US for $73.5 million, plus
a working capital adjustment,
representing an EBITDA
multiple of 4.9x.
This was a transformational
deal for the Group creating
the largest consumer gift
packaging business in the
world. It doubled our scale
in the US and expanded our
product range into the seasonal
décor market. Furthermore the
combined volumes unlocked the
ability to create a world class
manufacturing facility in the
US, mirroring our operations in
the UK and Europe, including
planned operational synergies of
$5 million per annum from 2021.
The deal was significantly
accretive from day one and was
supported by shareholders with
a £50 million equity raise to help
finance the acquisition.
In April 2018 our European
manufacturing facility started
production of gift wrap with
its brand new state-of-the-art
printing press. By June we had
it printing at a record breaking
800 metres per minute, at a
speed of 72 miles per hour.
This investment not only
increased capacity in Europe,
it also delivered a significant
improvement in efficiency and
will pay back in just under four
years. The success of this
investment helped support our
business case to order another
press for our US operation,
following the acquisition of
Impact. This press will be
delivered in the last quarter of
the 2019 calendar year and will
be a key driver in the delivery
of the $5 million synergies
relating to the consolidation of
our US manufacturing facilities
following the acquisition.
15
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 SOCIAL RESPONSIBILITY
At Design Group we aim to lead the way in social responsibility
through respecting our people and our environment and ensuring
our supply chains are sourcing responsibly.
E n v ironmental
Customers
Being their Partner
of choice
P
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&
D
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istribution
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Manufac t u r
& Sour c i n g
g
People
16
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
Environmental
People
Business
Our supply chain
It’s our responsibility to make sure every
worker in our supply chain is protected and
respected. In our facilities, we ensure that
all employees receive the relevant living
wage, and we promote equality amongst
our workforce across all diversities.
Employee safety is paramount throughout
the Group and we ensure that we operate
within all safety laws and regulations
within the territories where we are based.
Our code of business conduct sets out our
position on all of these key principles and
is being rolled out across the globe to all
Design Group employees.
Working closely with
our suppliers
Design Group is committed to engage with
our suppliers fairly and lawfully and source
responsibly. We are SEDEX members and
work closely with ‘Stronger Together’,
a multi-stakeholder initiative aiming to
reduce modern slavery, and our suppliers to
ensure they respect human rights, promote
decent working conditions and improve
sustainability across our supply base.
Responsible sourcing
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’).
Environmental Taskforce
Environmental issues are taken very
seriously given the nature of our business.
As a Group we ensure that we are fully
compliant with all legal environmental
requirements. We encourage all parts of
the business to look to reduce our impact
on the environment and look to continually
improve each year through the development
of new environmentally friendly products
and better processes that reduce our
carbon footprint.
This year saw the launch of our
Environmental Taskforce across the
Group who will be working with third
party specialist organisations, with the
aim to be regarded by our customers as
leaders in bringing improved sustainable
product solutions to all product categories
in the Group’s portfolio. The taskforce
is comprised of a select group of senior
management who are charged with
enabling the people in our offices,
warehouses and supply chains to bring the
Group’s environmental agenda to life and
into the core of their business practice.
Key environmental initiatives
As a key part of the agenda we have
identified initiatives that focus on ensuring
that the Group is doing all it can to
transform the effect of our business on the
environment. These include using more
sustainable materials in our production to
move towards fully recyclable packaging,
a focus on reducing our carbon footprint,
reducing waste in the manufacturing
process, and a continued focus on
responsible sourcing.
Starting with crackers
A recent developments is a completely
recyclable cracker range for customers in
the UK. Other initiatives include removing
plastic from a selection of product
packaging, removing non-recyclable glitter
from a number of wrap ranges and reducing
the size of wrap cores to reduce the
volumes and cost of our transport. We still
have a long way to go, but we will continue
to improve year-on-year as increasing our
attention on the environmental impact of
the Group is moving us forward in the right
direction.
A truly global workforce
The average number of employees during
the year was 2,364 within Design Group.
Our people are based across the globe,
with offices in Australia, Hong Kong, China,
the Netherlands, Poland, the USA and the
UK. Not to mention our global sales team
across many locations around the world.
Our people make us
who we are
Design Group wouldn’t be who we
are without the passion, drive and
determination of our talented teams across
the globe in all disciplines. They are the
key to our success and we continue to
work towards ensuring that our people are
committed, loyal and engaged by investing
in their capabilities and desire to learn and
develop.
Pages 44 and 45 of our corporate
governance review highlights our focus on
training, talent identification and personal
development mechanisms as well as
employee engagement.
A charitable bunch
One key desire of all our teams across
the Group is to ensure that Design Group
is making a positive difference in its
surrounding communities. Teams across
the globe have been involved in many
charitable initiatives this year, including;
raising money for Breast Cancer, donations
to support Ronald McDonald House,
provider of free ‘home away from home’
accommodation; donations of toys to
Family Promise as well as reading to
students within the Liberty County School
System; and donating blankets for the
winter months to Senior Citizens Inc.
in Savannah.
Design Group UK has teamed up with
the Trussell Trust (UK national food bank
coordinator) and for every case of catering
crackers sold we donate £2 to the Trussell
Trust. The Group team also spent an
afternoon sorting donations for Willen
Hospice who are providers of specialist
palliative care in Milton Keynes.
17
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 EXECUTIVE REVIEW
Investing in growth,
delivering record
profits.
Paul Fineman
Chief Executive Officer
Giles Willits
Chief Financial Officer
18
Overview
We are pleased to report that the
Group has achieved another excellent
year of adjusted profit and adjusted
earnings per share growth as a
result of strong performances from
all regions. It is particularly pleasing
to have delivered significant organic
growth whilst also benefiting from
the transformational acquisition of
Impact Innovations Inc. (‘Impact’)
and other capital investments across
the Group. The diversified nature of our
business, alongside excellent customer
relationships, the strength of our
design and innovation capabilities and
our focus on service have combined
to make this another record year for
IG Design Group plc.
Furthermore, our focus on cash
generation has resulted in a significant
increase in our year-end cash, and
delivered a further reduction in
average leverage, despite increased
capital and acquisition investment.
During the year, Group revenue
increased by 37% to £448.4 million
(2018: £327.5 million) with adjusted
profit before tax increasing by 39%
to £30.3 million (2018: £21.8 million).
Adjusted earnings per share
increased 33% to 29.3p (2018: 22.1p).
Average leverage improved from
1.5 times to 1.3 times, whilst the
year-end positive net cash balance
increased from £4.4 million in 2018
to £17.1 million in 2019, reflecting
the effectiveness of our focus on
converting profit into cash and the
highly cash generative dynamics within
our business.
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Adjusted profit before tax
Adjusted earnings per share
Adjusted cash generated
from operations
£30.3m
29.3p
£50.5m
Reported profit before tax
Reported earnings per share
£17.3m
16.0p
Reported profit before tax
reduced from £19.7 million in 2018
to £17.3 million in the current year,
primarily as a result of the exceptional
cost associated with the acquisition
of Impact and the subsequent
restructuring in the US. Reported
diluted earnings per share is 16.0p
(2018: 20.5p).
The results are testament to our
successful focus on the Group’s key
strategic drivers; working with the
winners in both existing and new
channels and markets; design and
innovation, growing existing, new
and adjacent product categories;
and efficiency and scale, investing
in state-of-the-art machinery across
the globe, growing our scale through
acquisitions and leveraging synergies
from these.
The combination of reduced average
leverage and strong cash generation
has underpinned a 42% increase in the
dividend from a level of 6.0p for 2018
to a total of 8.5p for 2019. This increase
not only reflects the growth in the
business but also the commitment
to reduce dividend cover, which
decreased to 3.4 times compared to
3.7 times in the prior year.
Our strategy
Our business is successful as a result
of our focus on growing by maximising
the impact of our key strategic drivers,
which underpin the Group’s ethos and
are broken down into three key areas:
Working with the winners
We are focused on increasing our
revenue and profitability through
growth in both existing and new
channels and markets by ensuring
we maintain excellent relationships
with our key customers, as well as
developing relationships with new
customers. We want to be part of our
customers’ success stories. As the
retail market evolves and progresses,
we work closely with our key customers
with the aim of being their partner
of choice going forward. Our top 10
customers now account for 48% of our
global revenues (2018: 39%).
In order to do this, we need to have
the capability to manufacture and/
or source a broad range of products,
leveraging from improved sourcing
processes as our business grows.
Many of our customers work
across multiple territories and have
global ambitions. As such, our
geographic and channel diversity
in key markets is essential to help
support our customers as they grow.
Our businesses are experts in their
territories and we ensure that we know
what works well for our customers in
each of those markets.
Reported cash generated
from operations
£44.8m
To continue our growth trajectory
with our customers, we follow key
market trends including the increase
in consumer demand for mainstream
mass and discount retailers, as well as
specialist ‘experiential’ retailers and
e-commerce opportunities.
Our focus on working with the winners
helps ensure we are benefiting as our
customers continue to grow. But it also
requires us to decide who we will not
work with and this has been especially
important during a year that has
witnessed challenging retail markets,
with a number of high profile retailers
facing financial troubles. This is
highlighted by our low bad debt write
offs at 0.1% of revenues.
The Impact acquisition has resulted
in a strengthening of our relationship
with Walmart, the largest retailer in
the world. With over 11,000 stores
worldwide, Walmart is our largest
customer, and now accounts for
approximately 20% of the Group’s
revenue. Our focus on great customer
service is a must for maintaining
and developing all relationships, and
we were delighted that Impact was
awarded Walmart Supplier of the Year
in March 2019. Next year will see us
continue to grow our business with
Walmart.
19
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 In 2019 over
750 million
units of consumer products sold
20
EXECUTIVE REVIEW
CONTINUED
Revenue driven by our transformational
acquisition and significant organic growth.
Our strategy continued
Design & innovation
Our customers, as do their customers,
look to us to be at the forefront of
product design and innovation.
This means we look to develop the
best designs for innovative and quality
products, while maintaining a focus on
value and consumer appeal.
The Group has succeeded in growing
revenues through developing new
and adjacent category products as
well as increasing revenues in existing
product areas. The addition of Impact
product categories has strengthened
the Group’s ability to offer a complete
‘one-stop-shop’ to customers including
products not previously forming part of
the Group’s portfolio such as Seasonal
décor. We also continue to diversify our
product range by focusing on occasions
other than Christmas that are celebrated
across the globe throughout the year
with ‘minor seasons’ now generating
over £20 million in global sales.
During the year we again saw a
significant increase in revenues in the
US from our focus on our Creative play
and related products business. We are
now looking to leverage across all of
the territories in which we operate
around the world, while also further
expanding our ‘not-for-resale’ products
revenue which has now broadened
in terms of product offering and
geographical reach.
Technological development is a key
part of this strategy and this extends
to adapting to changes in consumer
habits and being dynamic in providing
customers with new channels to
purchase their celebration products.
We have been busy developing new
celebration product offers that work
online and will be trialling these with
customers during the remainder of the
2019 calendar year.
Coupled with innovation in product
design, we have also increased our
focus on developing more sustainable
products and improved sourcing,
manufacturing and distribution to
reduce our global carbon footprint.
We believe this focus is not only the
right strategy to help the environment
but can also be a source of competitive
advantage. Recent highlights include
developing a completely recyclable
cracker range for customers in the
UK, removing plastic from a selection
of product packaging, removing
non-recyclable glitter from a number
of wrap, bag and card ranges and
reducing the size of wrap cores to
further rationalise shipping volumes
and cost. We are committed to
continuously increasing our attention
to the environmental impact of the
Group and have recently established
an Environmental Taskforce that will
be working with third party specialist
organisations. We wish to ensure
that we can be regarded by our
customers as leaders in bringing
improved sustainable product solutions
to all product categories in the
Group’s portfolio.
Efficiency & scale
As we grow we remain intent on
driving up operating margins through
investment in processes and people
as well as by unlocking synergies
following acquisitions, using our global
reach and capabilities to leverage
Group economies of scale.
The year has seen significant capital
investment across the Group totalling
£7.9 million (2018: £9.4 million).
Key areas included investment in
further bag making equipment in
the UK to support the growth of our
‘not-for-resale’ business, in new paper
converting lines in the Netherlands
and the continued investment in our
US IT capabilities. As ever, we look for
quick return projects that help increase
our capacity, improve our efficiency
and deliver a better service.
In addition we are building the
capabilities of the team around the
Group. In the US this included the
excellent team at Impact, and a new
Chief Information Officer. In Asia we
have introduced a newly created
position of Global Procurement
Managing Director and at Group we
have added a Group Legal Counsel
to the team. These new positions
help extend the strength of the teams
around the world, bringing new skills
that will ensure we are properly
resourced to deliver our strategy.
Furthermore, the acquisition of Impact
was a pivotal moment for the Group
further extending the geographical
diversity of the business. Impact is one
of the leading suppliers of gift wrap
and seasonal décor products in the
US, with long standing relationships
with major US retailers. Following
the acquisition in August 2018, the
Group has proceeded quickly with the
integration of Impact with our existing
US business, combining manufacturing
operations into one facility in Memphis
and we are already seeing the benefits
from the synergies and the increased
scale of the overall business, including
successes in cross selling Impact
products across the Group.
21
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 EXECUTIVE REVIEW
CONTINUED
Strong cash conversion supported increased investment
while delivering reduced average leverage.
Targets for growth
Our strategy focuses on delivering
the following key commitments to
shareholders:
• double-digit growth in adjusted
earnings per share – over the past
five years we have averaged 28%
annual growth;
• maintaining average leverage
between 1.0 times and 2.0 times –
since 2015 the Group’s leverage has
reduced from 4.1 times to 1.3 times
for the year ended 31 March 2019;
and
• a progressive dividend policy
targeting dividend cover of 2.5
times earnings per share in the near
future – in 2019, dividend cover
reduced to 3.4 times.
Outlook
The Group is focused on continuing
to deliver year-on-year growth and we
are greatly encouraged with prospects
for this trend to continue in 2020
and beyond. Despite the ongoing
challenging retail marketplace, and
geo-political uncertainties, our order
book across the business shows
pleasing growth year-on-year. In the US
we continue our focus on delivering the
synergies from the acquisition of Impact
and the subsequent restructuring of
the business. This includes further
investment in our IT systems, taking
delivery of our new printing press in
the US and further restructuring and
rationalisation of processes.
We continue to invest in building the
capability and strength of our teams
around the world to ensure we remain
agile to the opportunities that will
deliver further successes. In particular,
in the US we have recently recruited
new senior management to lead our
sales and manufacturing teams.
We continue to set ourselves ambitious
targets and remain focused on creating
value for all stakeholders through the
delivery of our strategy. We are excited
by the positive start to the new financial
year and the potential to drive the
business forward through compelling
M&A opportunities.
Acquisition of
Impact drives
revenue increase
of 27%
Adjusted operating
margin increased
to 7.3%
Over 750 million
units sold, across
more than 50,000
SKUs
22
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Operational regional highlights
Our Group looks to leverage 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 the year ended 31 March 2019.
Segmental revenue
Adjusted operating profit
Adjusted margin
% Group
revenue
2019
2018
% growth
50% Americas
28% UK
14% Europe
$m
£m
€m
9%
Australia
AU$m
(1%) Elims/Central
costs
£m
100% Total
£m
289.9
127.1
73.0
70.3
(5.5)
448.4
158.8
123.3
58.5
63.1
(4.8)
327.5
83%
3%
25%
11%
—
37%
2019
20.0
8.1
10.0
7.7
(4.1)
32.6
2018
% growth
12.7
7.9
7.5
5.0
(4.0)
23.2
57%
3%
33%
54%
—
41%
2019
%
6.9%
6.4%
13.7%
10.9%
2018
%
8.0%
6.4%
12.9%
7.9%
—
7.3%
—
7.1%
Americas
Our Americas business has undergone
significant change in 2019. With the
Impact acquisition we have doubled
the size of the US business, leading
to a significant restructure to merge
our manufacturing facilities into one
location, as well as affecting the
planned ERP systems implementation.
Despite all of this change, the US has
delivered strong results with revenue
increasing 83% to $289.9 million
(2018: $158.8 million), of which
$114.9 million related to the Impact
acquisition. Adjusted operating
profit followed a similar trend, up 57%
at $20.0 million (2018: $12.7 million).
The Americas now accounts for 50%
(2018: 37%) of the Group’s revenues.
Adjusted operating margins at
6.9% were down on the previous year
primarily reflecting the acquisition
of Impact and the mix of product
revenues. Going into 2020 margins
are set to improve reflecting the
full year of Impact, the delivery of
synergies following the acquisition and
subsequent US restructuring, as well
as further improvements in product mix
toward higher margin categories.
The Group has shown good organic
growth across all channels, but in
particular in our Creative play offering
in the Americas. Anker Play Products,
launched as a start up in July 2016,
delivered its first year of profit within
just three years from launch.
This is a particularly pleasing start and
is set to continue with the 2020 order
book already looking very promising
as we continue to develop our offering
both in the Americas as well as
globally.
The most prominent story for the US
business is the acquisition of Impact.
Formerly a competitor of Design
Group in the US gift wrap sector, the
combined synergies and expertise we
now have as a result of the acquisition
puts us on a great footing going
forward.
The integration of facilities is going
to plan, with gift wrap manufacturing
operations now under one roof in our
Memphis facilities. This underpins
our drive to improve efficiencies in
our manufacturing processes in the
region, and further capital investment
is underway in this respect with the
delivery of the new state-of-the-art
printing press scheduled for the final
quarter of the 2019 calendar year.
Since the acquisition in August 2018
we have already seen the delivery
of identified operational synergies
in line with expectations, as well as
strong revenue growth in their two
main product categories and excellent
growth of Impact’s ‘not-for-resale’
category which achieved record
revenue levels. We remain firmly
on track to deliver by 2021 annual
operational savings of $5 million.
The addition of Impact and their
extended product offering allows
the Group to offer adjacent product
categories to our customer base
and provides good cross-selling
opportunities which we will continue
to develop over the coming years
having already seen early success in
Seasonal décor in the UK.
The new ERP system has gone
live in the business, with additional
roll-out and development by the end
of 2020. The new system will not
only drive further efficiencies from
one standardised operating platform
but also increase the US business’
capacity and is a key enabler for the
growth plans in this territory.
We continue to monitor the
developments of the ongoing trade
discussions between the US and
Chinese governments. The business
has been highly pro-active in
implementing mitigation strategies and
has to date, successfully managed the
effect of the 10% tariffs introduced
in September 2018, and is currently
reviewing the full extent of the recent
increase of tariffs to 25%. We expect
the financial effect to be limited to
the usual financial contingencies
maintained by the Group and that the
successful strategies we have adopted
to date continue to be effective.
23
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
EXECUTIVE REVIEW
CONTINUED
Revenues of
‘not-for-resale’
products doubling
to almost
£20 million globally
24% increase
in value of
non-Christmas
season products
£7.9 million in fast
payback capital
expenditure
Additional product innovation this
financial year includes the development
and launch of our sustainable product
portfolio which includes stationery
made from recycled materials.
Europe
Our business in Europe delivered
another excellent performance in 2019
accounting for 14% (2018: 16%) of the
Group’s revenue. Sales increased 25%
to €73.0 million (2018: €58.5 million)
with adjusted operating margins up
to 13.7% (2018: 12.9%). As a result,
adjusted operating profit was up
33% to €10.0 million (2018: €7.5 million).
This is driven by organic growth and
an excellent example of the Group’s
‘working with the winners’ strategy
in action.
The European business has some
excellent trading relationships with
key leading retailers across the region.
For example, Anchor, our business
in the Netherlands selling on-trend
photo frames and photo-based
gift accessories, has built on its
relationship with its main customer,
a fast-growing international non-food
discounter with stores across Europe.
Anchor has been a key business
partner throughout their historic and
continued growth. Sales in this area
have achieved another record level this
financial year.
In addition, our Celebrations
business in the Netherlands, which
is benefiting from its investment in a
new state-of-the-art printing press
in March 2018, has also focused
on extending category offerings,
increasing SKUs and developing new
business with key customers, including
a fast-growing major discount grocer.
Australia
Sales in Australia achieved record
levels, up 11% year-on-year at
AU$70.3 million (2018: AU$63.1 million),
with adjusted operating margins
improving at 10.9% (2018: 7.9%),
delivering adjusted operating profit
up 54% at AU$7.7 million (2018:
AU$5.0 million). Our business in
Australia accounted for 9% of overall
Group revenue (2018: 11%).
The acquisition of Biscay Pty Limited
(‘Biscay’) in January 2018 has
delivered the expected synergies
and growth in our Australian business
despite market headwinds. Margins
have improved as a result of focus in
improved product mix.
The Australian business faces
challenging market conditions with
some rationalisation of our national
accounts. As such we expect revenues
to step back in 2020 with resulting
effect on operating profits, albeit the
effect on EPS will be tempered by the
ownership structure in this region.
Operational regional highlights
continued
UK
Sales volumes and values continue to
grow in our UK business, which now
accounts for 28% (2018: 38%) of our
overall Group revenue. Sales in the UK
increased 3% to £127.1 million (2018:
£123.3 million) delivering adjusted
operating profit up 3% at £8.1 million
(2018: £7.9 million) in a very challenging
retail market.
The unification of the UK business
continues to evolve, and this year saw
a further rationalisation of the UK team
and further development of processes
and activities to leverage our scale in
the UK. Whilst we are seeing benefits
from the move towards increased
cohesiveness, as can be seen in the
revenue and profit growth, the market
is still very competitive reflected by our
flat adjusted operating margins.
Our ‘not-for-resale’ bags initiative,
launched in 2018, continues to be
a growth area for the UK business.
We have invested in an additional
bag machine this financial year,
underpinning our view that this is an
excellent opportunity to grow the
business with a new product offering
and develop relationships with new
customers. Sales in this product
category alone have grown 53%
compared to 2018. We expect 2020 to
see further growth in bag production
volumes with new customers.
24
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 In 2019 over
500 million
metres of ribbon sold
25
In 2019 over
20 million
photo frames sold
26
EXECUTIVE REVIEW
CONTINUED
Our products and brands
Revenue by product category
Celebrations
Stationery and creative play
Gifting
‘Not-for-resale’ consumables
Total
31 March 2019
31 March 2018
%
77
8
11
4
£m
345.3
36.9
46.3
19.9
448.4
%
74
10
13
3
£m
243.5
31.2
42.6
10.2
327.5
Part of the Group’s ongoing strategy
is to be partner of choice to our
customers which means providing
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
all our categories. This was further
enhanced this year with the acquisition
of Impact, adding Seasonal décor to
our product categories.
A key focus, more so than ever before,
both this year and going forward is
the development of innovative and
design-led products that are highly
attractive to our customers, and in turn
to their customers. This, combined with
our proven ability to deliver first class
customer service continues to drive our
business forward.
Our culture is one of ongoing
improvement, with a determination to
perpetually ‘raise the bar’ in all aspects
of our business and this continues
to be a mantra we firmly adhere to.
With our development of sustainable
and recycled products and offering
acetate free, fully recyclable packaging
where possible, we aim to set an
industry standard when it comes to
environmental approach.
Since last year, we have evolved even
further as 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, seasonal
décor and partyware products;
‘Stationery and creative play’,
including home, school and office
products;
‘Gifting’, our design-led giftware
products category; and
‘Not-for-resale’ consumables
focused on branded store bags,
and now point of purchase products.
All our core product categories
grew in the year with strong growth
specifically in Stationery and creative
play and Gifting driven by our focus on
new higher margin sales initiatives in
these areas.
This year, excluding ‘not-for-resale’
consumables, we estimate that over
750 million items, from over 50,000
SKUs have been manufactured,
sourced and delivered to our
customers during the year, of which
31%, £137.4 million sales, carry our
Group’s generic and licensed brands.
Particular growth year-on-year has
been in Celebrations, Creative play
products and our new Seasonal
décor offering.
The business successfully continued
to broaden the sales generated
throughout the year outside of specific
Christmas based products increasing
sales generated in our ‘Everyday’ and
‘Minor seasons’ by 24% year-on-year,
which together account for 44% of the
total revenues of the Group.
The increasing retail focus on
celebrating Valentines, Easter and
other than Christmas events led
to revenues for these occasions
exceeding £20 million. This is an
exciting growth opportunity for all the
business units across the Group.
The Group has a strong team of
experts within our sourcing and
manufacturing operations based
in Hong Kong and China, together
with a broadening base throughout
Asia, which was further enhanced by
Impact’s sourcing team which joined
us in September 2018. The sourcing
teams have maintained their continued
performance record and delivered
excellent standards of service that
further boosts ongoing loyalty of our
large customer base.
Our team
Design Group wouldn’t be what it
is without the passion, drive and
determination of our talented teams
across the globe in all disciplines.
They are the key to our success
and we continue to further invest in
our teams by building on their core
capabilities. We are, once again,
hugely thankful to all of our colleagues
for their contribution during what
has been another year of exceptional
performance in ever more challenging
and competitive markets.
27
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
EXECUTIVE REVIEW
CONTINUED
Alternative performance measures
This review includes alternative
performance measures (‘APMs’)
that are presented in addition to the
standard IFRS metrics. The Directors
believe that these APMs provide
important additional information
regarding the adjusted performance
of the business including trends,
performance and position of the
Group. APMs are used to enhance the
comparability of information between
reporting periods and segmental
business units by adjusting for
exceptional or uncontrollable factors
which affect IFRS measures, to aid
the understanding of the Group’s
performance. Consequently, APMs are
used by the Directors and management
for strategic and performance analysis,
planning, reporting and reward setting.
In order to show when such measures
have been used, the APMs are
highlighted in blue throughout the
Executive Review. The APMs are
adjusted profit, adjusted EBITDA,
adjusted operating profit and
adjusted EPS. The definitions of APMs
used are listed below:
• Adjusted EPS – Fully diluted
earnings per share before tax,
exceptional items, acquisition
amortisation and LTIP charges
• Adjusted profit – Profit before
tax, exceptional items, acquisition
amortisation and LTIP charges
• Adjusted operating profit – Profit
before interest, tax, exceptional
items, acquisition amortisation and
LTIP charges
• Adjusted EBITDA – EBITDA before
exceptional items and LTIP charges
Exceptional items
These include acquisition related costs
and reorganisation and restructuring
costs. These items are excluded
to present the performance of the
business in a consistent manner and in
line with how the business is managed
and measured on a day-to-day basis.
28
They are typically gains or costs
associated with events that are not
considered to form part of the core
operations, or are considered to be a
‘non-recurring’ event (although they
may span several accounting periods).
Further detail can be seen in note 10 to
the financial statements.
Acquisition related costs
Costs directly associated with
acquisitions, including legal and
advisory fees on deals, form part of
our reported results on an IFRS basis.
These costs, however, in our view form
part of the capital transaction and as
they are not attributed to investment
value under IFRS 3, they are excluded
from our adjusted measures for the
purposes of reporting underlying
results. Similarly, where acquisitions
have employee related payments
(exclusive of LTIPs) which lock in and
incentivise legacy talent, we have
also excluded these costs. As these
costs are employment linked, they are
treated as an expense and form part
of the IFRS results, however, as with
transaction costs, we do not consider
these to form part of the underlying
results of the business. In accordance
with IFRS 3, on acquisition, businesses
need to be fair valued, which can result
in an uplift to stock on hand relating to
sales orders already attached to the
acquired stock. This uplift will distort
the margins associated with the stock,
and typically unwinds quickly as stock
is sold soon after acquisition. The
unwind of the stock uplift is excluded
from our adjusted results as we deem
this to be a cost of the acquisition.
Reorganisation and
restructuring costs
In order to maximise efficiencies,
as well as recognise synergies from
acquisitions, certain projects are
undertaken to achieve these.
These are projects outside of the
normal operations of the business
and typically are very sizeable in terms
of costs. This is particularly relevant
during a large scale restructuring
that can result in some disruption
to the normal business (for example
manufacturing patterns) leading to
operational inefficiencies occurring in
this time frame. If we deem this to be
the case, we will present the details
and associated costs of the projects
separately in our financial statements
and exclude them from our adjusted
measures.
LTIP costs
As part of our senior management
remuneration, the Group operate a
Long Term Incentive Plan (‘LTIP’) in
the form of options for ordinary shares
of the Group. In accordance with
accounting principles, despite this plan
not being a cash cost to the business,
a share-based payments charge is
taken to the income statement. We
consider that these charges do not
form part of the underlying operational
costs and therefore exclude them from
our adjusted measures.
Acquisition amortisation costs
Under IFRS, as part of the acquisition
of a company, it is necessary to
identify intangible assets such as
customer lists and brands which form
part of the intangible value of the
acquired business but are not part of
the acquired balance sheet. These
intangible assets are then amortised
to the income statement over an
appropriately judged period. These are
not operational costs relating to the
running of the acquired business and
are directly related to the accounting
for the acquisition. As such we exclude
them from the underlying results of the
business.
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Alternative performance measures
A full reconciliation between our adjusted and reported results is provided below:
Adjusted EBITDA
Exceptional items
LTIP charges
EBITDA
Adjusted profit before tax
Exceptional items
Acquisition amortisation
LTIP charges
Reported profit before tax
Adjusted profit after tax
Exceptional items
Acquisition amortisation
LTIP charges
Reported profit after tax
Adjusted EPS
Exceptional items (including tax effect)
Acquisition amortisation (including tax effect)
LTIP charges (including tax effect)
Reported diluted EPS
31 March 2019 31 March 2018
£m
£m
Notes
10
25
Notes
10
12
25
Notes
23
23
23
38.7
(8.3)
(3.0)
27.4
£m
30.3
(8.4)
(1.6)
(3.0)
17.3
£m
23.2
(6.4)
(0.7)
(2.8)
13.3
Pence
29.3
(8.6)
(0.9)
(3.8)
16.0
28.0
0.5
(2.2)
26.3
£m
21.8
0.5
(0.4)
(2.2)
19.7
£m
15.6
0.8
(0.3)
(1.8)
14.3
Pence
22.1
1.4
(0.3)
(2.7)
20.5
The APMs are also used in a number of the Group’s performance metrics detailed below:
• Adjusted overheads – Selling expense, administration expense and other operating income excluding exceptional items,
acquisition amortisation and LTIP charges
• Adjusted operating margin – Adjusted operating profit divided by revenue
• Cash conversion – Adjusted cash generated from operations divided by adjusted EBITDA
• Return on capital employed – Adjusted operating profit divided by monthly average net capital employed
(excluding cash and intangibles)
• Average leverage – Average debt divided by adjusted EBITDA
• Dividend cover – Adjusted EPS divided by total dividends for the year
• Interest cover – Adjusted finance charge divided by adjusted profit
29
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
EXECUTIVE REVIEW
CONTINUED
Detailed financial review
The Group has delivered another excellent performance in the financial year to 31 March 2019.
31 March
2019
£m
448.4
84.6
(52.0)
32.6
7.3%
(2.3)
30.3
(8.4)
(1.6)
(3.0)
17.3
(4.0)
13.3
31 March
2018
£m
%
change
327.5
70.0
(46.8)
23.2
7.1%
(1.4)
21.8
0.5
(0.4)
(2.2)
19.7
(5.4)
14.3
37
21
11
41
67
39
(12)
(8)
£0.4 million) and an LTIP charge
of £3.0 million (2018: £2.2 million).
Adjusted profit after tax increased
49% to £23.2 million (2018: £15.6
million) with reported profit after
tax for the year at £13.3 million (2018:
£14.3 million).
Finance charge
Finance costs at £2.3 million (excluding
arrangement fees of £0.2 million
relating to the additional facility to
fund the Impact acquisition, which
are included in exceptional costs
below) compared to £1.4 million in the
prior year. This reflects the increase
in central banks’ base rates and the
higher average debt of the Group
following the acquisition of Impact.
Adjusted interest cover was 14.1
times in 2019, compared to 16.7 times
in 2018 reflecting the additional cost of
the debt for the Impact acquisition.
Exceptional items
The Group incurred exceptional costs
in the year totalling £8.4 million (2018:
exceptional gain of £0.5 million).
The costs related to three items:
• Acquisition of Impact (£2.4 million)
– legal and due diligence fees and
deferred employee related amounts
associated with locking in and
incentivising the legacy Impact team.
• Restructure of our US operations
(£5.6 million) – these include
the costs for closure of our
manufacturing facility in Midway
and relocation of equipment and
personnel to Impact’s manufacturing
site in Memphis, Tennessee. Along
with manufacturing inefficiencies
associated with the start up of
converting operations (including
machine calibration and operator
training). In addition the costs
include redundancies and the sale
of the Midway freehold property less
associated costs.
• UK unification – £0.4 million of costs
associated with relocating a part of
our UK business to another site and
associated redundancies with the
move.
The net cash outflow in the year
associated with exceptional costs was
£0.3 million, which includes the £4.8
million cash inflow from the sale of our
Midway site in Georgia.
LTIP charges
LTIP charges have increased in the
year to £3.0 million (2018: £2.2 million).
The increase reflects the higher share
price alongside an increase in the
number of shares granted compared
to the prior year.
Revenue
Gross profit
Overheads
Adjusted operating profit
Adjusted operating margin %
Finance charge
Adjusted profit before tax
Exceptional items
Acquisition amortisation
LTIP charges
Profit before tax
Tax
Profit after tax
Revenues for the year of £448.4 million
have grown 37% over the previous
year (2018: £327.5 million) of which
9.8% relates to organic growth and the
remainder as a result of the acquisition
of Impact. At like-for-like foreign
exchange rates the overall revenue
increase is the same. Adjusted
operating profit increased by 41%
to £32.6 million (2018: £23.2 million)
and 40% at like-for-like exchange
rates. Adjusted operating profit
margins increased to 7.3% (2018:
7.1%) as we continue to focus on higher
margin product categories along with
increased efficiencies and a drive on
cost management. Gross margins fell
in the year, largely as a result of the
effect of the acquisition of Impact and
product mix to 18.9% (2018: 21.4%).
Overheads as a percentage of revenue
reduced to 11.7% compared to 14.4%
in the prior year.
Overall our adjusted profit before
tax increased 39% in the year to
£30.3 million (2018: £21.8 million)
reflecting the strong performance of
the business. Our reported profit
before tax at £17.3 million (2018:
£19.7 million) declined year-on-year
reflecting the exceptional cost
of £8.4 million (2018: exceptional
gain £0.5 million), amortisation of
assets acquired through business
combinations of £1.6 million (2018:
30
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
In 2019 over
60 million
units of Stationery and creative play
products sold
31
EXECUTIVE REVIEW
CONTINUED
Taxation
The Group aims to manage its tax
affairs in an open and transparent
manner, including being fully compliant
with all applicable rules and regulations
in tax jurisdictions in which it operates.
We have not entered into any tax
avoidance or otherwise aggressive
tax planning schemes and the Group
continues to operate its tax affairs in
this manner.
The tax charge is £4.0 million
compared to £5.4 million in the prior
year. The year-on-year reduction is
driven by the increased exceptional
costs in the year, part of which are
allowable for tax purposes. The
effective tax rate on adjusted profits
is 23.4% (2018: 28.4%). The reduction
primarily reflects the impact of the
lower US federal tax rate following the
US tax reform in January 2018. Overall
tax paid in comparison to the prior year
increased slightly to £3.7 million (2018:
£3.1 million) largely as a result of higher
profitability in tax paying territories
including Europe and Australia.
Earnings per share
Adjusted, fully diluted earnings
per share grew 33% to 29.3p (2018:
22.1p) reflecting the improved adjusted
profitability of the business. Reported
basic earnings per share are 16.0p
(2018: 21.4p).
Dividends
The Board is pleased to announce a
final dividend of 6.00p (2018: 4.00p)
bringing our total dividend in respect
of the year to 8.50p per share, up 42%
(2018: 6.00p). This represents 3.4 times
dividend cover compared to 3.7 times
in 2018. 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 adjusted
earnings per share.
Return on capital employed
Improving the return on capital
employed is one of our promises to the
shareholders and in line with this each
region has its own target to improve
its return on capital employed. Overall,
the Group saw the return on capital
employed increase to 24.3% in 2019
from 22.5% in 2018.
Cash flow and net cash
At 31 March 2019, the net cash position has improved by £12.7 million to £17.1 million compared to the prior year at
£4.4 million. This reflects the improved adjusted profit performance in the year, with adjusted EBITDA up 38% to
£38.7 million (2018: £28.0 million) and strong net working capital inflows which together delivered an outstanding EBITDA
to operating cash conversion of 130.5%.
Adjusted EBITDA
Change in trade and other receivables
Change in inventory
Change in creditors, provisions and accruals
Adjusted cash generated from operations
Exceptional items from operations
LTIP
Cash generated from operations
Proceeds from sale of property, plant and equipment
Net capital expenditure
Business acquired
Cash acquired with acquisition
Tax paid
Interest paid (including exceptional items)
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
32
31 March
2019
£000
38.7
25.6
4.3
(18.1)
50.5
(5.0)
(0.7)
44.8
5.3
(7.9)
(66.8)
1.2
(3.7)
(2.1)
(1.1)
(4.6)
48.3
(0.7)
12.7
4.4
17.1
31 March
2018
£000
28.0
(9.1)
0.4
3.3
22.6
(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
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
Working capital
The main driver for the working
capital movements in the year was
the Impact acquisition. We acquired
Impact on 31 August 2018 at the
peak of their working capital cycle
when trade receivables, inventory and
creditors were close to their highest
annual level. As a result following
acquisition the Group benefited from
a net Impact related working capital
inflow of £24.8 million as inventory
was despatched and receivables were
collected from customers, over and
above funding the creditor payments.
Excluding the cash inflow from the
Impact acquisition there was a net
working capital outflow of £13.0 million,
reflecting the need for additional
working capital to support the growth
of the business year-on-year.
In the ever-challenging retail
environment it is even more important
to ensure we actively track debtor days
and credit rating profiles to ensure
we mitigate our exposure to credit
risk with regard to our debtors. As a
result we kept bad debt write off to
less that 0.1% of revenue (2018: 0.1%),
a testament to our active credit risk
management process.
Stock levels increased year-on-year,
largely due to Impact, however
excluding this, our UK and Europe
businesses have built up stock levels
earlier in the production cycle than
normal to gain further efficiencies
from our high-speed printing
operations, and to mitigate against
the potential risks to our supply chain
relating to Brexit.
Capital expenditure
During the year we invested £7.9 million
(2018: £9.4 million). The key projects
include:
• the acquisition of new converting
lines in the Netherlands;
• the introduction of a second bag
machine in our UK factory to provide
‘not-for-resale’ branded bags for
retailers; and
• a new ERP system in the US.
There are also smaller capital projects
that we have invested in throughout
the year and 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 we achieve
the expected returns.
Impact acquisition and
associated share capital issue
In August 2018 the Group acquired
100% of the equity of Impact
Innovations Inc. The deal completed for
total consideration of $73.5 million on a
cash and debt free basis representing
a 4.9x adjusted EBITDA multiple
with an additional working capital
and other adjustment. In total, cash
totalling £66.8 million was paid in the
year for the business. The acquisition
was funded using a combination of
debt and an equity share placing.
The net proceeds from the share
issue were £48.3 million. Full details of
the assets acquired, which included
stock, customer lists and the Impact
brand, can be found in note 31 to the
consolidated financial statements.
Average leverage and treasury
As our business is very seasonal in
nature we spend a period of our year
in a net debt position and therefore
average leverage is the key measure
the Group adopts in relation to debt.
We seek to maintain our average
leverage position in the range between
1.0 times and 2.0 times over the long
term. Average leverage for the year
to 31 March 2019 was 1.3 times,
down from 1.5 times in the prior year,
demonstrating the continued focus on
our balance sheet and working capital
management throughout the year.
On 5 June 2019 we entered into a
new three year Group facility with a
club of five banks chosen to reflect
and support the geographical spread
of the Group. HSBC continue to be
a significant partner and have been
joined in the new facility by NatWest,
BNP Paribas, Sun Trust and PNC.
The new Group facilities, which run to
May 2022 comprise:
• a revolving credit facility (‘RCF A’)
of $80.0 million;
• a further flexible RCF (‘RCF B’) with
availability varying from month to
month of up to £85.0 million. This
RCF is flexed to meet our working
capital requirements during those
months when inventory is being built
within our annual business cycle and
is nil when not required minimising
carry costs; and
• the existing invoice financing
arrangements in Hong Kong which
will remain in place for a minimum
of the first year.
In total, the available facilities at
approximately £160 million are
more than sufficient to cover our
peak requirements. Being partially
framed in US dollars they provide a
hedge against currency movements.
The facilities, which do not amortise
with time, include an additional
uncommitted amount to finance
potential acquisitions.
33
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
New accounting standards
IFRS 16 ‘Leases’ is effective for
accounting periods beginning on or
after 1 January 2019. The Group plans
on adopting the modified retrospective
approach. The estimated impact to
profit before tax for the 2020 financial
year is a reduction of between £nil and
£1.0 million. Non-current assets are
expected to increase by £31.0 million
and gross liabilities are expected to
increase by £35.0 million. The Group
has elected not to recognise right
of use assets and lease liabilities for
short-term leases or low-value assets
and will continue to expense the lease
payments associated with these leases
on a straight-line basis over the term of
the lease.
Financial position and
going concern basis
The Group’s net assets increased
by £75.1 million to £175.6 million
at 31 March 2019 (31 March 2018:
£100.5 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)
10 June 2019
EXECUTIVE REVIEW
CONTINUED
Average leverage and treasury
continued
There are financial covenants, tested
quarterly, attached to the 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 adjusted EBITDA on a rolling
twelve-month basis.
There is a further covenant tested
monthly in respect of the working
capital ‘RCF B’ by which available
asset cover must not fall below agreed
levels relative to amounts drawn.
The Group currently 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
is planned to 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 overall impact on revenue 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.
34
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 In 2019 over
10 million
‘Not-for-resale’ bags sold
35
PRINCIPAL RISKS AND UNCERTAINTIES
The Group actively monitors the risk related to its
business and the environment in which it operates.
Risk management approach
The Group’s continuing success is influenced by how
well we understand and manage our risks, making risk
management ever more important as part of the Group’s
strategy. We have a risk management framework which
helps us identify, assess and mitigate significant risks.
Every year we review our approach to the Group’s risk
management framework, especially given the significant
growth we have experienced over the previous few years.
Our approach to risk management is bottom up, with each
of our Business Units maintaining risk registers for their
territories, identifying, monitoring and determining mitigation
plans for the key risks in their businesses. These risks feed
into the Group risk summary.
Risk appetite
Risk appetite is an expression of the types and amount of
risk that the Group is willing to take or accept to achieve its
objectives. In determining our risk appetite, we ensure that it
allows us to make consistent and informed decisions across
the Group, whilst capturing all key and significant risks
assessing them and managing them to within our tolerated
levels of risk.
Framework
The Group’s risk management framework determines an
overall risk rating for each Business Unit which in turn
governs the Business Unit’s place on the Group’s risk
continuum. The continuum is a sliding scale from lower risk,
to higher risk and the placing on this scale then focuses the
Group on where the higher risks sit and prioritises additional
mitigation strategies that may be required.
Link to Group strategy
The risks we have identified as our key focus in 2019 and
beyond can be seen in the next few pages. Where applicable
we have also identified how these risks interact with our
Group strategy.
Our risk management framework
The Board
• Ownership and monitoring of risk management
• Set objectives and risk appetite
Audit Committee
• Responsible for advising the Board on risk exposures
• Review of internal controls that help manage risks
Executive Committee
• Management of key risks
• Assessment of materiality of key risks
Business Units
•
Identification, assessment and mitigation
associated with key risks
• Consider risk as part of decision making and
management of external relationships
Group Risk Function
• Monitoring and collation of risks and actions by
management from across the Group
• Review and oversight of the Group’s risk
management process
Key
Working with the winners
Design & innovation
Efficiency & scale
36
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Risk
Mitigation
Change
Acquisitions
Failure to identify potential
acquisition opportunities
or failing to successfully
integrate an acquisition
could affect our growth
strategy
Maintain an active M&A pipeline and ongoing review of market
opportunities
Operate strict evaluation criteria including using third party
due-diligence professionals for technical areas
Appropriate and effective modelling and sensitivity analysis and risk
evaluation along with synergy target analysis
Overseen by one or more senior management team members with
regular reports to the Board
Engage third party integration specialist, as required, to support
critical integration processes post acquisition
Increased
Increased risk following the
significant acquisition of
Impact
Pre-mitigation impact:
High
Post-mitigation impact:
Medium
Link to strategy:
People
Failure to recruit, develop
and retain the right people
could affect the Group’s
ability to meet its strategic
objectives
A focus on succession planning and building strong teams around
key individuals in each Business Unit
Ensuring we review all aspects of executive and senior management
remuneration and appropriate remuneration packages, alongside a
standardised grading and benefits structure for all positions
Appropriate policies around hiring key team members focusing on
qualifications and appropriate experience for the relevant role
A focus on management development to improve competencies
across the business
Implementation of cross-learning programmes to ensure all senior
management team understand other roles
Unchanged
Remains low risk with
continued focus and further
investment in our management
teams
Pre-mitigation impact:
Medium
Post-mitigation impact:
Low
Link to strategy:
Competition
Loss of significant
customers
Price erosion due to pricing
from competitors
Customers going directly to
our suppliers
Focus on design, product quality and service delivery
Maintain a blended and diversified portfolio of products and
customers, both by market segment and geography
Close management of costs and margin on a product-by-product
basis
Continued investment in capital expenditure to drive improved
efficiency to maintain a competitive advantage
Maintain close relationships with all of our key customers
Increased
Increased risk as retail
environment becomes more
challenging
Pre-mitigation impact:
High
Post-mitigation impact:
Medium
Link to strategy:
37
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 PRINCIPAL RISKS AND UNCERTAINTIES
CONTINUED
Risk
Mitigation
Change
Margin erosion
Cost inflation and price
competition eroding
margins on already low
margin products
Seasonality and fashion
driving inventory
obsolescence
Investment in production facilities and continued monitoring and
improving production processes to ensure they are as efficient as
possible
Regular and careful review and management of product costings with
senior management approval for lower margin products
Regular monitoring of inventory obsolescence ensuring the business
has sufficient provisions
Monitor competitor activity and working closely with suppliers
ensuring efficiently costed sourced product
Concept selling to boost margins
Unchanged
Ongoing investment in
efficiency improvements
offsetting commercial
pricing pressures
Pre-mitigation impact:
High
Post-mitigation impact:
Medium
Link to strategy:
Policies and procedures to efficiently manage and safely maintain
continuity of supply
Carefully selected suppliers whose performance is monitored closely
with alternative routes of supply as back up
Regular supply chain audits along with internal audits of
manufacturing facilities
Group insurance policy for a range of operational risks
Leveraging our sourcing offices in Asia to manage and maintain
supply relationships
Unchanged
Group wide insurance
programme continues to
provide effective cover
alongside increased focus on
managing robust supply chain
Business
continuity and
supply chain
integrity
Disruption of manufacturing
operations during peak
season
Failure of suppliers to
deliver
Problems with product
quality or integrity of supply
chain
Pre-mitigation impact:
Medium
Post-mitigation impact:
Low
Link to strategy:
Regular monitoring of the economic conditions in which we operate
Impact analysis and response plans for significant changes to trade
agreements utilising external specialists where necessary
Brexit mitigation plans
Increased
Brexit and US tariffs on China
sourced products increase risk
for the Group
Economic
uncertainty
Changes to international
trade terms between core
territories of operation
having a significant effect
in our main cost areas of
raw materials, freight and
people
Pre-mitigation impact:
High
Post-mitigation impact:
Medium
Link to strategy:
38
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Risk
Customer
default
Significant customer default
Mitigation
Change
Tight credit control procedures, with regular review of credit limits
Insuring credit risk where possible
Close monitoring of debts and inventory levels taking provisions
where required
Increased
Increasingly challenging
retail environment
Link to strategy:
Unchanged
Ongoing management focus
maintains effective hedge to
currency risk where possible
Pre-mitigation impact:
High
Post-mitigation impact:
Medium
Natural hedges where possible across businesses as well as spot
purchases, forward contracts and other similar instruments
Ensuring financing facilities have appropriate headroom to
accommodate fluctuations in currencies
Currency
exposure
Purchases, sales and
funding in a mixture of
currencies
Translation of overseas
businesses
Pre-mitigation impact:
High
Post-mitigation impact:
Medium
Link to strategy:
Governance and
compliance
Non-compliance with legal
and tax regulations in the
jurisdictions in which we
operate
Group Legal Counsel joined the Group this year to aid with managing
the Group’s compliance
Specialist advisers in relevant jurisdictions used where appropriate
and necessary
Outsourced internal audit function
Open dialogue with relevant parties (e.g. tax authorities)
Pre-mitigation impact:
Medium
Post-mitigation impact:
Low
Regular cash budgeting, forecasting and monitoring
Maintain borrowing lines with lending partners to a range of
maturities sufficient to cover funding requirements
Working closely and transparently with our lending partners ensuring
the cash flow cycle is understood and monitored by all parties
Liquidity
and treasury
management
Failure to raise funds
through debt or share
issues
Loss of support from
principal banking partners
Unchanged
Increased regulatory
environment offset by new
and improved governance
Link to strategy:
Unchanged
Ongoing focus on cash
management supported by
refinancing with banks on
5 June 2019
Pre-mitigation impact:
High
Post-mitigation impact:
Medium
Link to strategy:
39
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 BOARD OF DIRECTORS
The Board is responsible for overseeing the management of
the business and for ensuring high standards of corporate
governance are maintained throughout the Group.
John Charlton
Non‑Executive Chairman
Date of appointment
John joined the Board in April 2010 and was
appointed Chairman of the Board on
7 September 2011.
Experience
In his executive career, John was previously
Senior Vice President International of
American Greetings Corporation and Chief
Executive of UK Greetings Ltd. He was also
Chairman of Amscan International Ltd.
External
appointments
John is Chairman of SA Greeting (Pty) Ltd,
a South African company.
Skills
In‑depth knowledge of the
international greetings, card, gift packaging,
stationery and social expression gift market.
Committees
Paul Fineman
Chief Executive Officer
Date of appointment
Paul joined the Board in May 2005 as Chief
Executive Officer of Anker International plc.
He was appointed Group Managing Director
in January 2008 and then appointed Group
CEO in January 2009.
Experience
Paul has over 40 years’ experience in the
card, gift wrap and stationery industry
having developed knowledge within his
family’s business, Anker International, prior
to its acquisition in 2005. He has led the
transformation and growth of Design Group
as CEO since 2009. Paul was awarded Chief
Executive Officer of the Year by the Quoted
Company Awards 2017.
Skills
Business and team development.
Innovation and entrepreneurship.
Giles Willits
Chief Financial Officer
Date of appointment
Giles joined the Board in January 2018.
Experience
Giles has more than 20 years’ experience
in senior leadership and financial roles
in multiple household name businesses.
He was most recently the CFO 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 qualified as a chartered accountant
at PricewaterhouseCoopers.
External appointments
Giles sits on the Board of Shearwater Group
plc as a Non‑Executive Director.
Skills
Particular skills and experience in M&A,
as well as being a Chartered Accountant.
40
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Anders Hedlund
Founder and Non‑Executive
Deputy Chairman
Date of appointment
Anders was appointed as Nominee
Non‑Executive Director in 2007.
Experience
Anders founded the Group in 1979 and was
joint Chief Executive Officer of the Group
until December 2007.
Lance Burn
Executive Director
Date of appointment
Lance joined the Board in October 2012.
Skills
Significant industry knowledge.
Experience
Lance 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
McDougall plc, Saint Gobain Solaglas UK
and also international overseas‑based roles
for PepsiCo International in Africa and India.
Skills
Managing businesses both in the UK and
abroad across a number of industry sectors.
Business integration and overseas
operations.
Elaine Bond
Non‑Executive Director
Date of appointment
Elaine joined the Board as a Non‑Executive
Director on 1 February 2012.
Experience
Elaine was previously Group Operations
Director of UK Greetings Ltd, the UK
subsidiary of American Greetings.
External appointments
Non‑Executive Director at Sandgate
Systems Limited.
Audit Committee
Skills
Remuneration Committee
Operational skills and experience gained
over many years in the card, gift wrap and
stationery industry.
Nomination Committee
Committees
Chair
Mark Tentori
Non‑Executive Director
Date of appointment
Mark joined the Board as a Non‑Executive
Director on 1 January 2016.
Experience
Mark has 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 PricewaterhouseCoopers where
he qualified as a Chartered Accountant.
External appointments
Currently Portfolio Partner at Charterhouse
Capital Partners LLP.
Skills
Wide experience in finance and a Chartered
Accountant.
Committees
41
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 CHAIRMAN’S CORPORATE GOVERNANCE REVIEW
We are proud to celebrate a year
of outstanding 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 2019. I am delighted that
once again we have exceeded the
goals that we set ourselves in terms
of adjusted profit and adjusted
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 Impact Innovations in
the US and an increased dividend.
We 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 is focused on developing
the Group for the long‑term benefit of
all shareholders, with well‑informed
and effective decision making. As part
of this, the Board takes corporate
governance seriously and, following
updates to AIM Rule 26, adopted the
QCA Corporate Governance Code in
September 2018 (‘Code’).
Governance framework
I am pleased to share with you
our governance structure and the
improvements that have taken
place over the past year. For ease,
we have structured this to align with
the principles of the Code.
Finally, let me take this opportunity
to thank our shareholders, customers,
suppliers, bankers and advisers
for their support and contributions
to all our businesses. As always, we are
very appreciative of the strong working
relationship and partnership that
we continue to enjoy with you.
John Charlton
Chairman, 10 June 2019
Gender
6 Male
1 Female
Board
Nomination
Committee
Remuneration
Committee
Audit
Committee
Responsible for
reviewing and
recommending changes
to the composition
of the Board and its
committees
Responsible for
overseeing the
remuneration strategy
for the Group and
remuneration policy
for the Directors
Responsible
for overseeing
financial reporting,
risk management,
internal controls and
external audit
Read the Committee
report on page 54
to 58
Read the Committee
report on page 51
to 53
Accountable to
shareholders for
sustainable financial
performance
and long‑term
shareholder value
Executive
Board
Consists of Business
Unit Managing
Directors responsible
for the execution
of the strategy,
governance and
business performance
1 Chair
Role
3 Executive Directors
3 Non-Executive
Directors
Length of
tenure
1 1-2 years
1 2-5 years
2 5-10 years
3 10+ years
42
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Principle 1:
Establish a strategy and business
model which promote long-term
value for shareholders
Principle 2:
Seek to understand and
meet shareholder needs
and expectations
The Group continues to operate under
a governance structure, which is
designed to be flexible and efficient in
creating sustainable long‑term growth
in shareholder value.
This year has been particularly noteworthy with the Group, as part of the
acquisition of Impact Innovations, Inc., raising c£50 million from investors to
support the financing of the deal. This was significantly oversubscribed and
a good indication of the strong relationship between the Company and its
shareholders, both existing and new.
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 –
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.
• Efficiency and scale – driving
margins through investments in
processes 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.
Further detail on the Group’s strategy
and business model, as well as the key
challenges faced by the Company in
achieving its goals, can be found on
pages 36 to 39.
At the start of 2019 the Company appointed Canaccord as its Nomad and Broker.
Canaccord has a wide international reach and is well placed to support the
Group’s ambitions for growth in the future.
Our CEO and CFO have maintained regular contact with our institutional investors
as can be seen in the timeline below:
Shareholder engagement calendar 2018/2019
18 April 2018
Trading update
24 April 2018
Investor day
4 May 2018
Regional investor roadshow
11 May 2018
Capital market day at our business in Wales
11‑20 June 2018
Preliminary results announcement
followed by an investor roadshow
26 June 2018
Investor day
3 September 2018
Equity raise
5 September 2018
Annual General Meeting
14 September 2018
Investor day
17 September 2018
Extraordinary General Meeting
27‑30 November 2018
Interim results announcement
followed by an investor roadshow
8 January 2019
Appointment of new Nomad/Broker
22 January 2019
Trading update
24 January 2019
Investor day
30 January 2019
Capital market day at our business in Wales
1 February 2019
Investor day
26 March 2019
Capital market day at our business in Wales
27 March 2019
Investor day
Following investor meetings, the full Board receives feedback on the views and
concerns of investors and regularly receives copies of investment reports from
analysts.
43
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 CHAIRMAN’S CORPORATE GOVERNANCE REVIEW
CONTINUED
Principle 2: continued
Seek to understand and
meet shareholder needs and
expectations
Principle 3:
Take into account wider stakeholder
and social responsibilities and their
implications for long-term success
Individual investors
In addition to our focus on institutional
investors, we aim to engage with
individual and retail investors on a
regular basis.
Our AGM gives us the ideal opportunity
to meet with individual investors
face‑to‑face. It is important that all
investors have a platform to raise
questions or make comments whilst
also enabling us to give visibility of,
and interaction with, the Board.
All our investors are regularly kept
up‑to‑date with announcements,
circulars, videos and reports, all of
which are available on the Company’s
website. In September 2018 we were
proud recipients of a silver award at
the Corporate & Financial Awards
2018 in the category of ‘Best printed
report: AIM/small cap’. The award was
in recognition of our printed annual
report and financial statements and is
a testament to the Group’s efforts to
communicate clearly and transparently
with investors.
Nikky Geairns, is primarily
responsible for shareholder liaison,
and can be contacted at
ngeairns@thedesigngroup.com.
Contact details for the Company’s PR
Advisers, Brokers and Registrars are
also set out in the ‘Contact’ section of
the Company’s website.
All of our stakeholders – our
employees, customers, suppliers and
communities – are vital to the success
of the Group.
Employees
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 the Group to
attract and retain the brightest talent.
Training
All our Business Units provide relevant
and up‑to‑date training for employees.
This year Australia invested in a new
Workplace Compliance System which
will see a move away from ad hoc
training to a more structured training
of awareness programme being
utilised. Initially set up to provide key
training of awareness in Bullying,
Sexual Harassment, Equal Opportunity,
Privacy and Social Media and the
Internet, the system has the capability
to include additional modules in the
future.
The Design Group Academy operating
in our Celebrations business in Europe
is a powerful tool to train employees in
the skills needed for their roles, as well
as rolling out key compliance initiatives.
The purpose built classroom provides
a relaxed and comfortable environment
in which employees can focus on their
learning away from their usual work
stations. In addition, they operate
a separate programme for sales
managers the ‘Sales Improvement
Group’. In its second year of a three
year programme the key emphasis is
coaching and is specifically targeted
to the day‑to‑day issues which sales
managers face.
Talent
Our Business Unit Managing Directors
were recently asked as part of our
succession planning to highlight who
the ‘Stars of the Future’ are within their
businesses and share the development
plans in place that underpin their
progress. The information will be
reviewed bi‑annually by the Group’s
Executive Committee. Consideration
will be made as to what inter‑company/
Group‑wide experience could be given
and will also highlight ‘gaps’ that may
need filling within the organisation for
the future.
In the UK we run a twelve month
development programme in
conjunction with an external provider
for individuals who demonstrate
the desire and capability for future
promotion. This is a tailored training
programme which also includes a
dedicated mentor from the senior
leadership team and one‑to‑one
coaching.
44
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Relations with shareholders
45
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019Information and feedbackOur Business Units use a variety of methods to enable effective two-way communication with employees. These range from semi-annual all-employee meetings (with web-ex facilities for remote team members) to smaller scale weekly catch ups. Comment boxes and staff surveys are also used and various alternatives in between. Local management in Australia catch up with the office and warehouse teams quarterly for pizza, service awards and a business review.We recently reviewed the methods by which we encourage our employees, worldwide, to raise feedback and concerns. We had a number of local country-based initiatives so knew our employees were able to speak up, however, we recognised the need for an independent telephone hotline enabling employees across the world to raise concerns confidently (and anonymously should they wish). This was rolled out at the end of March and we look forward to seeing how it is utilised over the coming year.EngagementThis year our Celebrations business in Europe redesigned its staff canteen providing comfortable seating, TV screens and table football to encourage employees to take breaks away from their desks and to mix across functions.Each location recognises birthdays and service anniversaries. The US holds employee picnics and monthly employee events often linked to key celebrations in that month e.g. Super Bowl in January, Valentine’s day in February. Similar events are held in Australia, teams within the business are tasked with running the special events which ensure that everyone is involved.CustomersThrough 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.Highlights to note from the Americas: • Impact Innovations, Inc. was awarded ‘Supplier of the Year 2019 for Seasonal and Celebration’ by Walmart, an award which recognises outstanding service and performance. This was especially pleasing during a year of transition for Impact as they integrated into the Design Group, and recognises a cohesive team effort.• Due to the strength of our relationship with a major US retailer, we have been made a strategic partner and invited to participate in two key initiatives with them. In one of these initiatives, we are the only participant from the ‘Housewares’ department and just one of three suppliers involved. These initiatives demonstrate exceptional trust in our business and will lead to very close collaboration in supply chain efficiencies and in how to grow our business through innovation in all facets of serving the end consumer. CHAIRMAN’S CORPORATE GOVERNANCE REVIEW
CONTINUED
Principle 3: continued
Take into account wider stakeholder
and social responsibilities and their
implications for long-term success
Principle 4:
Embed effective risk management,
considering both opportunities
and threats, throughout the
organisation
Customers continued
In addition we are keen to ensure
that our products keep up with key
developments in our markets. For
example, following the news that
Australia had legalised same‑sex
marriage at the end of December 2017,
our Australian business celebrated in
2018 by launching Mr&Mr and Mrs&Mrs
cards from its World Greetings brand.
Our businesses meet with our key
suppliers regularly to maintain a regular
open dialogue and to share priorities
both from the Group’s perspective
but also those of our suppliers.
Our Purchasing Managers have daily
interaction with our supplier base
covering a variety of topics such as
quality, service levels, sourcing of raw
materials etc.
The Board 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.
Suppliers
As detailed on page 17 in our social
responsibility commentary, we are
committed to engaging with our
suppliers fairly and lawfully and that
we source responsibly. We expect
our supply base to do the same.
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.
In the past few months the Board and
senior management have reviewed
key policies which support risk
management. These include the Code
of Business Conduct, Anti‑bribery &
Corruption policy and Whistleblowing.
Updated versions have been rolled
out to the senior management teams
across the business, with a wider roll
out planned to all employees in 2020.
Further detail on the principal risks
faced by the Group and the mitigating
actions taken in respect of those risks
can be found on pages 36 to 39.
This year saw the creation of a new
role, Global Procurement Managing
Director. The intention is to develop our
supply chain to be a more cohesive,
transparent and joined up organisation,
collaborating closely, where there are
tangible Group benefits, sharing data,
ideas, products and best practice,
combined with a continued focus
on driving country‑based success.
An individual was appointed in
February 2019, reporting to the Group’s
Executive Committee, and their focus
will include:
• data quality, ease of access and
transparency;
• third party manufacturing base;
• supplier on‑boarding;
• managing Group business with
suppliers; and
• ensuring best practice and
compliance across the supply chain.
Communities
Our businesses throughout the world
undertake a variety of local initiatives
to support their local communities
and national charities. See our social
responsibility section on page 17 for
some examples.
Further detail on how our business
model identifies the key resources and
relationships on which the business
relies can be found on page 7.
46
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Independence
Anders Hedlund, who founded our
Group, is a Nominee Non‑Executive
Director. Anders Hedlund is considered
not to be 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.
Following a review by the Board, all of
the other Non‑Executive Directors are
considered to be independent.
Principle 6:
Ensure that between them the
Directors have the necessary
up-to-date experience, skills
and capabilities
The Board is kept informed on an
ongoing basis by the Company
Secretary about their duties and
any update in relation to legal and
governance requirements for the
Group.
In addition, the Board has access to
the Deloitte Academy which gives each
Director (Executive and Non‑Executive)
access to a wide‑ranging programme
of technical briefings, education,
bespoke training and peer‑to‑peer
networking opportunities. This is a
useful resource to ensure that they
keep abreast of market trends in board
governance, legislative reform and
keep their skills up to date.
The Board is keen to obtain external,
specialist advice when necessary.
An example of this is when the
Remuneration Committee recently
appointed Deloitte LLP to provide
remuneration advice in relation to
employee benefit schemes.
Principle 5:
Maintain the Board as a
well-functioning, balanced team
led by the Chair
The Board consists of three Executive
Directors and four Non‑Executive
Directors (including the Chairman).
For the biographies of the Board see
pages 40 and 41.
There were no changes to the
composition of the Board during
the year.
The Board met formally seven times
during the 2019 financial year. All
Directors were present. In addition
the Board met for a strategy day,
two separate days focused on M&A
and carried out an in‑depth review of
the 2020 budgets, annual operating
plans and strategic objectives with
the Executive Directors. Prior to the
acquisition of Impact Innovations,
Inc. the Board spent three days in
Memphis, USA in August 2018 visiting
the senior management, receiving
presentations as to the company’s
history and vision for the future and the
proposed integration into the Group.
The Audit Committee met three times
and the Remuneration Committee met
four times, all were fully attended.
The Group appointed Joy Laws as
Group General Counsel and Company
Secretary in June 2018. She plays an
important role in the governance and
administration of the Group advising
the Board on procedures, corporate
governance, changes in legislation,
strategy and decision making.
47
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 CHAIRMAN’S CORPORATE GOVERNANCE REVIEW
CONTINUED
The Chairman concluded the
evaluation by highlighting the mix
of skills which exist on the Board.
Key observations and actions arising
from the evaluation were:
• a reminder that the agenda
should retain its strategic focus
whilst empowering the Executive
Committee to deliver the strategy;
and
• the members to look into training
opportunities.
The Nomination Committee is
responsible for identifying and
nominating, for the approval of
the Board, candidates to fill Board
vacancies as and when they arise
as well as putting in place plans
for succession for Directors and
Senior Executives, in particular with
respect to the Chairman and the
CEO.
Principle 8:
Promote a corporate culture that
is based on ethical values and
behaviours
The Board helps to 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 the Group.
Our performance management
systems and processes are designed
to direct and influence behaviours.
Our Senior Executives cascade our
ethical values down throughout the
wider organisation.
Feedback from all stakeholders in
the business, as set out in Principle
3, allows the Board to assess the
state of its corporate culture, as well
as performance against the Group’s
internal targets.
This year we created a Group‑wide
Code of Business Conduct in
recognition of our growing size and the
need for consistent behaviours across
the Group. This has been rolled out to
the senior management teams across
the businesses with an all‑employee
roll out to follow in the first quarter of
the financial year ending March 2020.
The Board recognised that the
principles contained in the Code of
Business Conduct were underpinned
by a set of values already present
within the Group.
Principle 7:
Evaluate Board performance based
on clear and relevant objectives,
seeking continuous improvement
In November 2018 the
Remuneration Committee conducted
a self‑assessment based on an
external template which was adapted
to incorporate the guidance contained
in the QCA Remuneration Committee
Guide. Members were asked to rate
the performance of the Remuneration
Committee based on their own
perceptions of the committee as
a whole.
Topics covered were: a) roles and
responsibilities; b) terms of reference
and planning; c) meetings – content
and running of; d) skill set of members;
and e) shareholder interaction.
Responses were collated and reviewed
and no significant concerns were
raised.
In January 2019 the Board conducted
a self‑assessment. The questionnaire
was split into ten sections with each
section based on the principles set
out in the QCA Corporate Governance
Code. There was an additional section
allowing the Directors to give their
thoughts on areas such as the main
achievements of the Board over the
previous three years, and the main
strengths and weaknesses of the
Board. Following completion of the
questionnaire, the Chairman held
one‑to‑one meetings with each
Director and the Company Secretary.
48
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 The Group Values Statement is as
follows:
Our Values
• To strive for excellence in all we do
• To behave ethically and with
integrity
• To focus on our customers and to
‘go the extra mile’
• To be open to feedback, ideas and
to positive change and promote
fulfilment and fun
• To be good ‘citizens’ within our
communities and take responsibility
for our impact on our planet
• To be innovative and entrepreneurial
• To treat everyone with dignity and
respect
• To be a team that succeeds together
and aims to be an ‘employer of
choice’
And, for our corporate policies and
practices to be consistent with these
values.
We encourage our employees to get
involved in local community initiatives –
see pages 17 for some great examples.
Principle 9:
Maintain governance structures
and processes that are fit for
purpose and support good
decision-making by the Board
There is a distinct and defined division
of responsibilities between the
Chairman and the CEO.
The Chairman is primarily responsible
for the effective working of the Board in
conjunction with management, and the
CEO is responsible for the operational
management of the business and for
the implementation of the strategy
agreed by the Board.
The Board is responsible for setting
the vision and strategy for the
Company, working closely with the
executive management team to deliver
a successful business model for our
shareholders and other stakeholders.
The Group Delegation of Authority
policy sets out the matters that are
reserved to the Board for approval.
These include:
• Matters relating to the Company’s
legal purpose and position and its
status as a public listed company;
• Changes in governance, strategy
and significant changes in internal
controls; and
• Significant financial or contractual
commitments and decisions.
The Board has three committees –
Remuneration, Audit and Nomination.
Each of these committees comprises
the Non‑Executive Chairman and
our two independent Non‑Executive
Directors; Elaine Bond and Mark
Tentori. Elaine chairs the Remuneration
Committee, Mark the Audit Committee,
and John Charlton the Nomination
Committee.
The Nomination 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.
Further detail about the activities
undertaken by the Audit Committee
this year can be found on pages 51
to 53.
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.
Further detail about the activities
undertaken by the Remuneration
Committee this year can be found
on pages 54 and 55.
49
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 CHAIRMAN’S CORPORATE GOVERNANCE REVIEW
CONTINUED
Principle 10:
Communicate how the Company is governed
and is performing by maintaining a dialogue with
shareholders and other relevant stakeholders
During 2019, the Board (itself or via
the Board committees) worked hard to
strike that essential balance between
achieving the Group’s short‑term
objectives and longer‑term growth and
development. Key activities included:
• monitoring and review of the
financial performance of the Group
on an ongoing basis including
capital expenditure proposals and
significant projects;
• review of the interim and annual
results including supplementary
papers;
• review of the effectiveness of the
Group’s internal financial controls,
general internal controls and risk
management systems;
• monitoring and review of the
effectiveness of the Business
Assurance function;
• overseeing the relationship with the
external auditor;
• approval of the strategy, three year
plans and budget;
• review of the Group risk register;
• approval of changes to remuneration
for Chairman, CEO and CEO direct
reports;
• approval of LTIP Scheme for
2018‑21;
• approval of annual bonus payments
and targets for the following
financial year;
• appointing Joy Laws as Group
General Counsel & Company
Secretary; and
• assessing and approving the
acquisition of Impact Innovations,
Inc.
Principle 9: continued
Maintain governance structures
and processes that are fit for
purpose and support good
decision-making by the Board
The Terms of Reference for each
committee were reviewed and updated
this year and can be found on our
website.
In addition to the main Board and
committees, the Executive Committee
was established in 2017. This consists
of the Managing Directors of the main
Group businesses across the world
plus the Group CEO and Group CFO.
It plays an important role in both
feeding key matters to the Board to
enable well‑informed decision making
and cascading Board initiatives to the
wider businesses. It meets four times
a year to discuss matters such as
agreeing policy guidelines for business
divisions based on an approved Group
strategy, recommending objectives
and strategy for the Group, and
ensuring the control, co‑ordination and
monitoring within the Group of risk and
internal controls, to name a few.
The Board keeps all aspects of
corporate governance under review,
with the governance framework
developing further as the Group
continues to grow.
50
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 AUDIT COMMITTEE REPORT
I am pleased to present our
first Audit Committee report.
Mark Tentori
Chair of the Audit Committee
The Committee is made up of
Non‑Executive Directors: me, as the
Chair, with Elaine Bond and John
Charlton. We regularly invite the CEO
and CFO to attend our meetings as
well as the external auditor (KPMG
LLP). Over the year we all met on three
occasions.
The Board is satisfied that I,
as Chairman of the Committee,
have recent and relevant financial
experience. I am a chartered
accountant, qualifying at PWC and
am currently Portfolio Partner at
Charterhouse Capital Partners LLP.
Dear Shareholder,
On behalf of the Board I am pleased to
present the Audit Committee report for
the year ending 31 March 2019.
The role of the Audit Committee is
to assist the Board in fulfilling its
corporate governance responsibilities
in relation to the Group’s financial
reporting, internal control and risk
management systems as well as
internal and external audit functions.
The Committee also provides advice
to the Board as to whether the annual
report and financial statements
taken as a whole are fair, balanced
and understandable and provide the
necessary information for shareholders
to assess the Company’s position and
performance, business model and
strategy.
The main duties of the Committee
include:
• providing oversight and challenge
to the financial reporting;
• ensuring the Group operates
within the correct internal controls
and adopts appropriate risk
management systems;
• ensuring the Group has suitable
arrangements and policies in place
to prevent fraud, bribery and other
compliance concerns (and to enable
employees to report such matters);
• monitoring and reviewing the
effectiveness of the Group’s Internal
Audit (Business Assurance) function
in the context of the Group’s overall
risk management framework; and
• overseeing the relationship with
the external auditor including their
appointment, remuneration, terms of
engagement, and annual audit plan.
The Terms of Reference set out the
duties in more detail and can be found
on our website. These were updated
this year to reflect the adoption of
the QCA Corporate Governance
Code. This report highlights the key
discussions, decisions and actions
that have taken place this year.
Mark Tentori
Chair of the Audit Committee
10 June 2019
51
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 AUDIT COMMITTEE REPORT
CONTINUED
Key activities and actions
over the year:
Financial statements
The Audit Committee reviewed and
approved the unaudited interim
financial statements for the period
ending 30 September 2018 and the full
year audited statements for the period
ending 31 March 2019. In reviewing the
financial statements the Committee
considered reports from the Group
finance function as well as the external
auditor.
Significant accounting matters
The significant reporting matters and
judgements the Committee considered
during the year included:
1) The acquisition accounting for
Impact Innovations under IFRS 3
Business Combinations, which
has created both intangibles in
relation to the customer lists,
as well as goodwill. As part of
our considerations this year, the
carrying value of these, as well as
already existing intangibles and
goodwill, has been assessed to
determine whether there is any
impairment. The Committee has
concluded, based on appropriate
assumptions on future cash flows,
discount rates used and long‑term
growth rates, there is sufficient
headroom available resulting in no
impairment requirement.
2) The use of alternative performance
3) The adoption of new accounting
measures (‘APMs’) to present
adjusted profit alongside its
statutory counterpart. This involved
the exclusion of costs that are
considered by the business to skew
the reader of the financial accounts’
perception of the performance of
the underlying business.
These included costs that
are considered to be material
and exceptional in nature and
share‑based payment costs
(also known as LTIP costs) and
the amortisation of acquisition
intangibles. The Committee is
satisfied that this is an appropriate
approach, and gives a clear
and more balanced view of the
underlying performance. It is also
comfortable that this is a consistent
approach that the Group has
adopted for a number of years in
respect of exceptional and LTIP
costs. Previously the acquisition
amortisation relating to the Lang and
Biscay acquisitions had not been
excluded from our APMs, however,
following the transformational
acquisition of Impact this year, the
APMs have been updated to exclude
the amortisation of acquisition
intangibles given this is now a
significant charge. In addition, the
rationale and explanations behind
the use of APMs is clearly disclosed.
standards and ensuring the Group’s
compliance with the standards.
This year the Group adopted two
new accounting standards (IFRS 9
and IFRS 15) neither of which has
a material impact on the Group’s
financial position. From 1 April 2019,
IFRS 16 Leases will be adopted.
As per the detail on page 79 of
our accounting policies note, and
as has been seen amongst all
adopters, this is thought to have a
significant impact for the Group.
The Committee has reviewed and
understood the approach taken in
respect of the assessment of the
impact of the standard and agree
with the decision of the business
in respect of the methodology
of adoption being ‘modified
retrospective’.
Internal controls
The Committee continually reviews the
effectiveness of the Group’s internal
controls. As a decentralised business,
our Business Units each have a finance
function, who are responsible for
determining their own processes and
procedures, including financial controls
and accounting policies. However,
the Group function dictates a set of
minimum financial controls that we
expect all Business Units to adhere to,
along with Group accounting policies
that each Business Unit should be
aligning to. This forms part of the
Group’s financial control framework.
52
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Each Business Unit confirms, with
every monthly accounts submission,
that they are adhering to the minimum
set of controls. Bi‑annually we also
request a more comprehensive
Self‑Assessment checklist to be
completed by each Business Unit.
This provides the Group finance
function, and therefore the Committee,
with comfort that appropriate financial
controls are in place around the Group.
To gain further comfort, although
the Group does not have an internal
audit function, we outsource this role
to Mazars LLP (‘Mazars’). They have
undertaken baseline control reviews
around each of the Business Units
(with the exception of Impact given
its recent addition to the Group),
identifying areas of weakness, that
subsequently have been addressed
with oversight from the Group function.
This year has seen the commencement
of an additional layer of review by
the Group finance function, being
detailed balance sheet and working
capital reviews for each of the
Business Units. The reviews have
been onsite visits by the Group team,
including understanding the Business
Units’ approach to balance sheet
reconciliations as well as a detailed
review of the working capital process.
Internal Audit/
Business Assurance
Mazars continue to operate our
Business Assurance function, and this
year the Mazars team carried out a
series of Business Assurance reviews
around different Business Units and
reported back to the Committee on
their findings.
One such review was undertaken
during the month of July and focused
on IG Design Group Americas’
readiness for the planned ERP software
implementation in October 2018.
The review that was conducted was
a very useful tool that helped support
the project team’s alignment on key
areas of risk and confirm there were
no issues beyond those previously
identified by the project team. It was
also a good mechanism to ensure
business expectations were set
appropriately.
Code of Business Conduct
and Anti‑bribery and
Corruption Policy
In recognising the growing size and
complexity of the Group, the Audit
Committee oversaw the roll out of
a Group‑wide Code of Business
Conduct. This contains a shared set of
principles which we all agree to follow
and which underpin our operations,
decision‑making and general conduct.
This ensures that we are all focused on
operating to the same standards and
know what behaviours to expect from
our colleagues across the world.
The Committee also took the
opportunity to review and update
the Group Anti‑bribery & Corruption
Policy and the Whistleblowing Policy.
The latter included the launch of a
Group‑wide whistleblowing hotline
complementing the subsidiaries’
existing employee‑reporting tools.
External audit
The Audit Committee monitors the
Company’s relationship with the
external auditor, KPMG, to ensure that
external independence and objectivity
are maintained. As part of its review
the Committee monitors the provision
of non‑audit services by the external
auditor.
KPMG LLP have provided audit
services to the Group since 2016.
Following the end of this financial
year, it was felt prudent in light of the
Group’s growing size and complexity
to re‑tender the external audit work
to ensure the Group is getting the
best service and value for money.
The outcome of the tender will be
notified to shareholders prior to
the AGM.
53
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 DIRECTORS’ REMUNERATION REPORT
This report sets out the
remuneration of IG Design Group
Directors for the year
to March 2019.
Elaine Bond
Chair of the Remuneration Committee
Dear Shareholder,
On behalf of the Board I am pleased
to present to you the Remuneration
Committee’s report for the year ended
31 March 2019.
The Committee is chaired by me and
the other members are Mark Tentori
and John Charlton. We met four times
formally during the year, with full
attendance by the members.
Part 1: Overview of the year –
Chair statement
Company performance
As detailed in the strategic report, the
Group has made significant progress
and delivered strong results in the year.
The key financial objectives were profit
growth and the associated increase
in earnings per share alongside cash
generation.
As can be seen in the strategic report,
the Group uses adjusted measures to
review the underlying performance of
the business and the Remuneration
Committee also uses adjusted
measures to determine the Executive
Directors’ annual bonus along with
the Long Term Incentive Plan (‘LTIP’)
performance criteria based off earnings
per share growth over three years.
Decisions on remuneration
taken during 2019
Annual bonus
The bonus opportunity for Executive
Directors during the last year was
based on the achievement of the
following targets:
• 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.
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.
This year’s results for profit before tax,
LTIP charges and Board approved
exceptional items, net cash and
earnings per share before LTIP charges
and Board approved exceptional
items will result in annual bonuses
for the Executive Directors of 78% of
the stretch award. See Part 3 for a full
breakdown per Director.
54
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Assistance to the Committee
During the period the Committee
received input from the CEO, the
CFO and the Company Secretary.
In addition it engaged Deloitte LLP to
provide remuneration advice in relation
to the executive LTIP scheme.
Payments made to former
Directors and payments for
loss of office
No payments were made to former
Directors during the year and no
payments for loss of office were made.
The Committee believes the
Group’s remuneration strategy, and
the structures implementing that
strategy, have contributed positively to
maintaining the stable and motivated
management team of the Group, who
have continued to deliver consistently
strong performances for shareholders.
Elaine Bond
Chair of Remuneration Committee
10 June 2019
For 2020, the Remuneration Committee
has agreed the following increases in
salary/fees:
• Paul Fineman to £400k per annum
reflecting the significant change
in the size and scale of the Group
following the acquisition of Impact
Innovations Inc in August 2018;
• Giles Willits to £325k per annum
– this reflects an increase of £25k
over what had been previously
agreed in his contract, following a
benchmarking exercise undertaken
by Deloitte; and
• Lance Burn to £240k per annum.
This reflects his increased
responsibilities for Far East sourcing
and includes 2% inflation.
Other key activities of the
Committee during the year
• Reviewed and updated the
Committee’s Terms of Reference
to reflect the adoption of the QCA
Corporate Governance Code
• Undertook a self‑evaluation of the
Committee. See page 48 for further
detail
• Reviewed and agreed bonus targets
and bonus awards
• Agreed LTIP scheme and LTIP
awards
• Reviewed and agreed the salary and
benefits of the CEO and his direct
reports
• Reviewed the Business Expense
Policy
• Reviewed training requirements of
committee members
• Approved remuneration section
of Company annual report and
financial statements
LTIP awards 2018‑2021
In September 2018 provisional share
awards totalling 133,579 shares
were issued to 17 members of the
leadership teams across the Group.
The performance condition applied
was compound annual growth rate
(‘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.
In November 2018, following a
benchmarking analysis performed by
Deloitte, the Remuneration Committee
approved the introduction of a separate
2018‑2021 award for the Executive
Directors and two members of the
Executive Committee. The performance
condition was in line with the above
award with the introduction of a ‘super
stretch’ target (with an effective cap of
1.5 as a multiplier on the whole award)
and the requirement to hold the shares
on vesting for a period of two years.
For more details on the performance
conditions of both awards see note 25.
In June 2019 the Remuneration
Committee approved the vesting of the
2016‑2019 LTIP awards. The results
achieved by the Group for the three
year period have met all of the stretch
performance conditions so maximum
awards have vested. 723,632 shares
(after adjusting for the effect of
dividends and leavers) vested.
Executive Director salary reviews
For 2019, the Remuneration Committee
agreed an increase in salary for:
• Giles Willits to £275k per annum
from 1 April 2018, as per his
employment contract; and
• Paul Fineman to £375k per annum
from 1 April 2018. This reflected a
benchmarking exercise completed
by Deloitte.
• Lance Burn to £231k per annum
from 1 April 2018 reflecting a 2.5%
cost of living increase.
55
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 DIRECTORS’ REMUNERATION REPORT
CONTINUED
Part 2: Remuneration policy
Executive Directors
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 five main components of the Executive Directors’ remuneration packages can be seen in the table below with a clear link
to the Group’s business model and strategy:
Reward
Base salary
Link to business model
and strategy
‘Working with the winners’
extends to our employees –
recruiting Executive Directors
with the level of skills, talent and
experience needed to execute
our strategy.
Annual bonus
LTIP
The annual bonus encourages
individuals to actively support
and engage with the delivery
of the Group strategy, with pay
out directly based on Group
performance.
The primary purpose of the LTIP
is to reward the individual for
delivering the Group strategy and,
in turn, increasing shareholder
value.
Pension
Other benefits
To assist in the recruitment
strategy by enabling Directors
to make long term provisions for
their future retirement.
The provision of additional
benefits assists in the Group’s
recruitment strategy and gives
the employee comfort and
assistance in carrying out their
roles effectively.
Operation and performance
Maximum opportunity
Salaries are based on a number
of factors including:
• the skills and experience of the
individual;
• the size, responsibilities and
complexity of the role;
• external market data; and
inter‑Group comparisons.
•
The Remuneration Committee
sets the performance measures
and targets each year. Bonuses
are paid in cash once the annual
results have been audited and
are subject to the approval of the
Committee.
LTIP awards are in the form
of shares and are subject to
performance conditions which
are assessed over a three year
period. The current performance
condition is based on CAGR in
fully diluted earnings per share
(measured before LTIP charges
and exceptional items).
Pensions are provided in line
with market practice and relevant
statutory requirements.
Benefits can include: Life
assurance/private medical
insurance/car allowance.
There is no maximum.
The maximum achievable is
120% of base salary.
For the CEO up to 175%
of base salary and for the
other Executive Directors
up to 150% of base salary.
Both then have an out
performance element of up
to 50% of the initial grant.
Up to 15% of base salary
for the CEO. Up to 10%
of base salary for other
Executive Directors.
Not applicable.
56
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 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.
Non‑Executive Directors
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 recommended by the
Executive Directors and approved
by the Remuneration Committee
(with no Director being involved in
any decision relating to their own
remuneration).
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.
2020
No additional significant changes to
the remuneration policy are envisaged
for 2020 however, the Remuneration
Committee will continue to regularly
review the policy to ensure it remains
appropriate to the business.
Part 3: Annual report on remuneration
Directors’ remuneration(a)
The summary of Directors’ remuneration is as follows:
Remuneration
Pension contribution
Total remuneration
Aggregate for all Directors
Highest paid Director
2019
£000
2018
£000
1,835
1,637
12
9
1,847
1,646
2019
£000
716
—
716
2018
£000
678
—
678
The remuneration in respect of the year ended 31 March 2019 to the Directors, by individual, was as follows:
Year ended 31 March 2019
Executive Directors
Lance Burn
Paul Fineman
Giles Willits
Total Executive
Non‑Executive Directors
Elaine Bond
John Charlton
Anders Hedlund
Mark Tentori
Total Non‑Executive
Total Directors
(a) Audited.
Salary/fees
£
Bonus
£
Benefits(b)
£
Subtotal
£
Pension
£
Total
£
254,987
25,000
3,049
283,036
11,571
294,607
448,050
292,500
12,749
753,299
314,500
214,500
2,761
531,761
—
—
753,299
531,761
1,017,537
532,000
18,559 1,568,096
11,571 1,579,667
40,192
76,242
93,790
42,303
252,527
—
—
—
—
—
2,311
42,503
8,345
84,587
3,974
97,764
—
42,303
14,630
267,157
—
—
—
—
—
42,503
84,587
97,764
42,303
267,157
1,270,064
532,000
33,189 1,835,253
11,571 1,846,824
(b) The benefits relate primarily to private health benefits.
The bonuses are the expected amounts based on the results for the current year and are expected to be paid in June/July
2019 once the year‑end statutory accounts have been approved.
The highest paid Director is Paul Fineman (2018: Paul Fineman).
The Group operated a Group personal pension plan to which the Group contributed for one Director (2018: one) and provides
death in service life assurance to the value of between four and six times pensionable salary.
An expense of £1,721,000 has been recognised in the year in respect of share‑based payments relating to Directors in
respect of the Long Term Incentive Plan (2018: £1,353,000).
57
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Part 3: Annual report on remuneration continued
Directors’ remuneration(a) continued
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.
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
41,191
7,183
81,565
3,284
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
(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.
Long Term Incentive Plan(a)
Annual awards to Executive Directors who served during the year are as follows:
Lance Burn
Paul Fineman
Giles Willits
(a) Audited.
LTIP vested
2014‑2017
LTIP vested
2015‑2018
LTIP vested(b)
2016‑2019
LTIP not
yet vested
2017‑2020
LTIP not
yet vested
2018‑2021
133,678
192,963
111,882
62,296
108,264
—
—
312,916
226,791
132,442
204,675
—
—
172,454
128,654
(b) All of these formally vest on 5 June 2019 following the Remuneration and Audit Committees’ approval of the results for the year ended 31 March 2019.
No Directors exercised any options during the year. For further details including performance conditions see note 25.
Cumulative total shareholder return (dividend reinvested) vs. selected indices
The graph below shows the percentage change in total shareholder return for the last six years compared to the FTSE Small
Cap, FTSE AIM All‑share and the FTSE AIM UK 50.
1400
1200
1000
800
600
400
200
0
Mar 13 Sep 13 Mar 14
+1000.8%
+69.7%
+58.1%
+35.3%
Sep 14 Mar 15 Sep 15 Mar 16 Sep 16 Mar 17 Sep 17 Mar 18 Sep 18 Mar 19
IG Design Group
FTSE Small Cap
FTSE AIM All-share
FTSE AIM UK 50
58
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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 2019.
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
• Mark Tentori
• Giles Willits
Results and dividends
Results for the year ended
31 March 2019 are set out in the
consolidated income statement
on page 66. The Directors are
recommending a final dividend of
6.00p per share which, if approved
at the AGM, will result in a full year
dividend of 8.5p per share for 2019.
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 only 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 25 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.
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.
Details of 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.
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.
At 31 March 2019, the Company
had been notified of the following
substantial shareholders comprising
3% or more of the issued ordinary
share capital of the Company:
% of issued share capital
Hedlund family(a)
Octopus
Milton
Schroders Plc
BlackRock
Close Brothers AM
Polar Capital
Paul Fineman(b)
27.97%
8.15%
5.05%
4.52%
3.99%
3.97%
3.37%
3.25%
(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 1.47% 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. In total the Hedlund
family is interested in 22,818,994 ordinary shares,
representing 29.12% 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 5 September
2018, 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 6,494,839 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.
Financial risk management
Details of the Directors’ assessment
of the principal risks and uncertainties
which could impact the business are
outlined in the principal risks and
uncertainties section on pages 36
to 39. The Board manages internal
risk through the ongoing review of
the Group’s risk register and the
Board manages external risk through
monitoring of the economic and
regulatory environment and market
conditions.
Brexit
The Group continues to keep the
potential implications of Brexit for the
Group under review. The risk associated
with Brexit is relatively limited for the
Group as it is mainly applicable to our
UK business which represents less
than 30% of the Group. We consider
the main impact on the Group will be
the effect of Brexit on the strength
of the sterling and FX rates. We have
significant visibility of our supply chain
and depending on the nature of the exit
from the European Union will depend
on the level of impact for us as a
Group. We have workstreams in place
and mitigation of the risks of Brexit
are underway. We are currently fully
prepared for a soft Brexit. A no deal
Brexit will increase the overall impact on
our UK business with the need to adjust
to World Trade Organisation terms,
however this is not expected to have
a material effect on the Group.
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.
59
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
DIRECTORS’ REPORT
CONTINUED
Post balance sheet events
See note 32 for details.
Political donations
No political donations were made during
the period under review.
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.
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.
Directors’ interests
The Directors who held office during the year had the following direct interests in the ordinary shares of the Company:
Interest in ordinary shares at the end of the year
Elaine Bond
Lance Burn
John Charlton(a)
Paul Fineman(b)
Anders Hedlund(c)
Mark Tentori
2019
2018
19,301
15,816
—
—
619,616
619,616
2,369,334 4,453,534
488
488
11,111
7,404
Giles Willits
In addition to the above holdings:
(a) 37,500 (2018: 37,500) shares are held by the wife of John Charlton.
(b) Paul Fineman owns a non‑beneficial interest in 174,608 (2018: 174,608) ordinary shares of 5p each.
(c) 16,642,640 (2018: 17,142,640) and 5,275,116 (2018: 5,275,116) ordinary shares of 5p each are respectively registered in the names of AC Artistic Limited (‘Artistic’) and
93,573
93,573
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 1.47% 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.
In total the Hedlund family has interests in 22,818,994 ordinary shares, representing 29.12% of the current issued share capital of the Company.
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.
Approval of the strategic report and Directors’ report
The strategic report and Directors’ report were approved by the Board on 10 June 2019.
Joy Laws
Company Secretary
10 June 2019
60
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RESPECT OF THE ANNUAL REPORT AND 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. Under 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 they 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.
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.
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.
61
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF IG DESIGN GROUP PLC
• 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.
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.
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 were as
follows:
1 Our opinion is unmodified
We have audited the financial
statements of IG Design Group plc
(‘the Company’) for the year ended
31 March 2019 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 to the consolidated
financial statements and note 1 to the
company financial statements.
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 2019 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 risk
Our response
The impact of
uncertainties due to
the UK exiting the
European Union on
our audit
New risk
Refer to page 38
(principal risks and
uncertainties) and
page 59 (directors’
report)
Unprecedented levels of uncertainty
All audits assess and challenge the reasonableness
of estimates, in particular the valuation of identified
intangibles on acquisition of Impact Innovations Inc, the
recoverability of parent Company investment below, and
related disclosures and the appropriateness of the going
concern basis of preparation of the financial statements.
All of these depend on assessments of the future
economic environment and the Group’s future prospects
and performance.
Brexit is one of the most significant economic events for
the UK and at the date of this report its effects are subject
to unprecedented levels of uncertainty of outcomes, with
the full range of possible effects unknown.
We developed a standardised firm-wide approach to the
consideration of the uncertainties arising from Brexit in
planning and performing our audits.
Our procedures included:
Our Brexit knowledge: We considered the directors’
assessment of Brexit-related sources of risk for the
Group’s business and financial resources compared with
our own understanding of the risks. We considered the
directors’ plans to take action to mitigate the risks.
Assessing transparency: As well as assessing individual
disclosures as part of our procedures on going concern,
we considered all of the Brexit related disclosures
together, including those in the strategic report and the
directors’ report, comparing the overall picture against
our understanding of the risks.
However, no audit should be expected to predict the
unknowable factors or all possible future implications
for a company and this is particularly the case in relation
to Brexit.
62
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 The risk
Revenue recognition
Risk vs 2018: tu
Refer to page 76
(accounting policy)
and page 82 (financial
disclosures)
Accounting application
The majority of the revenue of the Group is derived
through the provision of goods to customers during
the year. There is a risk of fraud relating to revenue
recognised around the year end, which requires special
audit consideration because of the nature of the risk
and the potential for misstatement in relation to the
completeness and accuracy of revenue.
Identified intangibles
on acquisition of
Impact Innovations
Inc
New risk
(£19.0 million)
Refer to page 74 and
75 (accounting policy)
and page 110 (financial
disclosures)
Forecast based valuation
On 31 August 2018, the Group acquired the entire share
capital of Impact Innovations Inc for total consideration
of £82.2 million.
We identified the identification of intangible assets and
the valuation of the customer relationships and the trade
names intangible assets as a risk because of the inherent
complexity due to the judgements and assumptions
applied by the directors in assessing the fair value of
the intangible asset, and because of the size of the
acquisition.
The effect of this matter is that, as part of our risk
assessment, we determined that the valuation of
intangible assets has a high degree of estimation
uncertainty, with a potential range of reasonable
outcomes greater than our materiality for the financial
statements as a whole.
Low risk, high value
The carrying amount of the parent Company’s
investments in the subsidiary companies held at cost less
impairment and the carrying amount of the intra-group
debtor balance together represents 54.2% (2018: 81.4%)
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.
Parent:
Recoverability of
parent Company
investment in
subsidiaries and
intra group debtors
Risk vs 2018: tu
(£72.5 million; 2018:
£56.7 million)
Refer to page 115
(accounting policy)
and page 119 (financial
disclosures)
Our response
Our procedures included:
Tests of detail:
Selected 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 appropriate period.
Inspected a sample of credit notes raised post year end
to determine whether they related to revenue recognised
in the year.
Our procedures included:
Our valuation expertise: Used our own valuation
specialists to assess the appropriateness of the valuation
methodology applied.
Benchmarking assumptions: Compared the Group’s
assumptions to externally derived data in relation to key
inputs such as revenue growth rates, customer attrition
rate and discount rates.
Assessing transparency: Assessed whether the
Group’s disclosures relating to the valuation of acquired
intangibles are appropriate.
Our procedures included:
Tests of detail:
Compared 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 91.7% of intra group debtors to identify,
with reference to the relevant debtors’ draft balance
sheet, whether they have a positive net asset value and
therefore coverage of the debt owed, as well as assessing
whether those debtor companies have historically been
profit-making
Assessing subsidiary audits:
Assessed 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.
Comparing valuations:
For the investments where the carrying amount exceeded
the net asset value, compared the carrying amount of the
investment with the expected value of the business based
on a suitable multiple of the subsidiaries’ profit.
63
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF IG DESIGN GROUP PLC
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
£0.91 million, determined with reference
to a benchmark of Group profit before
tax normalised to exclude certain
costs, of which materiality represents
4.4%. The Group team performed
procedures on the items excluded
from normalised group profit before
tax. In 2018 materiality for the Group
financial statements as a whole was
set at £0.8 million, determined in that
year with reference to a benchmark of
Group profit of £19.7 million, of which it
represented 4.1%.
Materiality for the parent Company
financial statements as a whole was
set at £0.85 million (2018: £0.70 million),
determined with reference to a
benchmark of Company net assets of
£128.2 million (2018: £64.8 million), of
which it represents 0.7% (2018: 1.1%).
We agreed to report to the Audit
Committee any corrected or
uncorrected identified misstatements
exceeding £45,500 (2018: £37,000),
in addition to other identified
misstatements that warranted
reporting on qualitative grounds.
Of the Group’s fourteen (2018:
fourteen) reporting components,
which includes the parent Company,
we subjected ten (2018: eight) to full
scope audits for Group purposes.
The components within the scope of
our work accounted for 96.1% (2018:
88.9%) of total Group revenue, 92.9%
(2018: 98.2%) of Group profit before
tax and 98.2% (2018: 88.6%) of total
Group net assets. The remaining 3.9%
(2018: 11.1%) of total Group revenue,
7.1% (2018: 1.8%) of Group profit
before tax and 1.8% (2018: 11.4%) of
total Group net assets is represented
by four (2018: five plus one component
where we performed specific risk
procedures) 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.
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 £0.25 million to
£0.48 million (2018: £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 five of the
fourteen in scope components (2018:
two 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 seven
(2018: eight) 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
The directors have prepared the
financial statements on the going
concern basis as they do not intend to
liquidate the Company or the Group or
to cease their operations, and as they
have concluded that the Company’s
and the Group’s financial position
means that this is realistic. They have
also concluded that there are no
material uncertainties that could have
cast significant doubt over their ability
to continue as a going concern for at
least a year from the date of approval
of the financial statements ("the going
concern period").
Our responsibility is to conclude on
the appropriateness of the directors’
conclusions and, had there been a
material uncertainty related to going
concern, to make reference to that in
this audit report. However, as we cannot
predict all future events or conditions
and as subsequent events may result
in outcomes that are inconsistent with
judgements that were reasonable at
the time they were made, the absence
of reference to a material uncertainty in
this auditor’s report is not a guarantee
that the group or the parent Company
will continue in operation.
In our evaluation of the directors’
conclusions, we considered the
inherent risks to the Group’s and
parent Company’s business model
and analysed how those risks might
affect the Group’s and Company’s
financial resources or ability to continue
operations over the going concern
period. The risk that we considered
most likely to adversely affect the
Group’s and parent Company’s
available financial resources over this
period was the impact of a significant
business continuity issues affecting a
number of the Group’s key customers.
As this was the risk that could
potentially cast significant doubt on
the Group's and the parent Company's
ability to continue as a going concern,
we considered sensitivities over the
level of available financial resources
indicated by the Group’s financial
forecasts taking account of reasonably
possible (but not unrealistic) adverse
effects that could arise from these
risks individually and collectively and
evaluated the achievability of the
actions the directors consider they
would take to improve the position
should the risks materialise. We
also considered less predictable
but realistic second order impacts,
such as the impact of a disorderly
Brexit and the erosion of customer
64
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 or supplier confidence, which could
result in a rapid reduction of available
financial resources.
•
in our opinion those reports have
been prepared in accordance with
the Companies Act 2006.
Based on this work, 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
a year from the date of approval of the
financial statements.
We have nothing to report in these
respects, and we did not identify going
concern as a key audit matter.
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
•
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.
7 Respective responsibilities
Directors’ responsibilities
As explained more fully in their
statement set out on page 61, 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.
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
Milton Keynes
MK9 1NE
10 June 2019
65
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Note
2019
£000
2018
£000
4
448,362
327,516
(365,533)
(257,532)
82,829
69,984
(23,095)
(20,005)
(40,596)
(30,346)
620
19,758
(2,476)
17,282
(4,031)
1,477
21,110
(1,392)
19,718
(5,384)
13,251
14,334
7
5
8
9
11,925
13,545
1,326
789
10
12
25
32,646
23,199
(8,274)
(1,609)
(3,005)
19,758
539
(371)
(2,257)
21,110
(2,318)
(1,392)
10
(158)
—
(2,476)
(1,392)
2019
Diluted
pence
16.0
Basic
pence
16.2
2018
Diluted
pence
20.5
Basic
pence
21.1
Note
23
CONSOLIDATED INCOME STATEMENT
YEAR ENDED 31 MARCH 2019
Revenue
Cost of sales
Gross profit
Selling expenses
Administration expenses
Other operating income
Operating profit
Finance expenses
Profit before tax
Income tax charge
Profit for the year
Attributable to:
Owners of the Parent Company
Non-controlling interests
Operating profit analysed as:
Adjusted operating profit
Exceptional items
Acquisition amortisation
LTIP charges
Operating profit
Finance expenses analysed as:
Adjusted finance expenses
Exceptional items
Finance expenses
Earnings per ordinary share
Earnings per share
66
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 MARCH 2019
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 gain/(loss) on cash flow hedges (net of tax)
Other comprehensive 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
2019
£000
2018
£000
13,251
14,334
240
27
118
(1,632)
(271)
(27)
385
13,636
(1,930)
12,404
12,372
12,001
1,264
403
13,636
12,404
67
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 MARCH 2019
At 31 March 2017
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
Options exercised (note 22)
Equity dividends paid
At 31 March 2018
Profit for the year
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
3,132
9,769
17,164
271
2,551
53,330
86,217
3,833
90,050
—
—
—
—
—
—
—
—
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
—
62
—
—
46
—
—
—
—
3,194
9,815
17,164
—
—
—
—
—
—
—
—
(27)
—
145
—
—
—
(111)
(37)
(111)
71
—
—
(111)
71
(3,000)
(3,000)
(575)
(3,575)
1,305
65,404
96,855
3,661
100,516
—
11,925
11,925
1,326
13,251
302
—
447
(62)
385
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
Recognition of non-
controlling interest
Disposal of minority interest
Options exercised (note 22)
Equity dividends paid
—
—
—
145
302
11,925
12,372
1,264
13,636
—
—
—
—
—
2,333
2,333
—
2,333
—
—
641
63,065
—
—
83
—
—
—
18
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
764
764
—
63,706
—
—
764
63,706
—
—
(72)
—
—
29
311
(110)
—
311
(110)
29
(4,553)
(4,553)
(1,075)
(5,628)
At 31 March 2019
3,918
72,898
17,164
118
1,607
75,801
171,506
4,051
175,557
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.
68
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2019
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
Capital redemption reserve
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
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
Note
2019
£000
2018
£000
11
12
13
14
15
26
16
22
17
18
19
20
13
17
18
19
21
20
4
4
39,835
83,690
3,610
127,135
69,571
45,405
129
19,458
35,499
36,547
2,663
74,709
49,311
37,369
113
9,031
134,563
95,824
261,698
170,533
3,918
71,558
1,340
18,889
75,801
171,506
4,051
3,194
8,475
1,340
18,442
65,404
96,855
3,661
175,557
100,516
1,421
751
2,671
1,817
692
7,352
953
99
1,090
3,370
58,563
14,714
3,781
998
894
1,440
373
7,486
894
99
429
3,364
38,757
18,988
78,789
62,531
86,141
70,017
261,698
170,533
These financial statements were approved by the Board of Directors on 10 June 2019 and were signed on its behalf by:
Paul Fineman
Director
Giles Willits
Director
The notes on pages 71 to 111 form part of the financial statements.
69
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
CONSOLIDATED CASH FLOW STATEMENT
YEAR ENDED 31 MARCH 2019
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation
Amortisation of intangible assets
Impairment of goodwill
Finance expenses
Income tax charge
Profit on sales of property, plant and equipment
Loss on disposal 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
Cash acquired with acquisition
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
Payment of finance lease liabilities
New bank loans raised
Loan arrangement fees
Equity dividends paid
Dividends paid to non-controlling interests
Net cash inflow from financing activities
Net increase 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
70
Note
2019
£000
2018
£000
13,251
14,334
11
12
12
8
9
25
5,328
2,309
—
2,476
4,031
(6)
331
3,005
30,725
25,616
6,508
(17,949)
(137)
44,763
(3,694)
(2,053)
39,016
5,312
31
(66,809)
12
11
1,208
(2,190)
(5,699)
—
4,345
818
36
1,392
5,384
(1,953)
1
2,257
26,614
(9,133)
819
3,612
(199)
21,713
(3,099)
(1,483)
17,131
2,596
(5,145)
—
(1,377)
(7,992)
15
(68,178)
(11,903)
22
48,348
24
(2,350)
—
—
(30)
(4,553)
(1,075)
40,340
11,178
9,031
(751)
16
19,458
71
(165)
(46)
5,108
(111)
(3,000)
(575)
1,282
6,510
2,743
(222)
9,031
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 31 MARCH 2019
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.
On 5 June 2019, to meet the funding
requirements, the business has
refinanced with a banking group
comprising HSBC, NatWest, BNP
Paribas, Sun Trust and PNC Bank as
part of a three year deal.
After making enquiries, the Directors
have a reasonable expectation that
the Company and the Group have
adequate resources to continue in
operational existence for at least
twelve months from the date of signing
these financial statements. 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 majority of 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 2018 with the exception of
IFRS 9 (Financial Instruments) and
IFRS 15 (Revenue from Contracts
with Customers) which were new
accounting standards adopted
for the first time in these financial
statements with IFRS 15 being adopted
retrospectively. Accounting policies
have been updated to reflect the
new standards although there was
no material impact of adopting either
standard.
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.
71
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
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.
Financial instruments (policy
adopted from 1 April 2018)
(i) Recognition and initial
measurement
Trade receivables are initially
recognised when they are originated.
All other financial assets and financial
liabilities are initially recognised
when the Company becomes a party
to the contractual provisions of the
instrument. A financial asset (unless
it is a trade receivable without a
significant financing component) or
financial liability is initially measured at
fair value, plus, for an item not at fair
value through profit or loss (‘FVTPL’),
transaction costs that are directly
attributable to its acquisition or issue.
A trade receivable without a significant
financing component is initially
measured at the transaction price less
attributable transaction costs.
(ii) Classification and
subsequent measurement
Financial assets
a) Classification
On initial recognition, a financial asset
is classified as measured at amortised
cost or FVTPL.
Financial assets are not reclassified
subsequent to their initial recognition
unless the Group changes its business
model for managing financial assets in
which case all affected financial assets
are reclassified on the first day of the
first reporting period following the
change in the business model.
A financial asset is measured at
amortised cost if it meets both of the
following conditions:
•
•
it is held within a business model
whose objective is to hold assets to
collect contractual cash flows; and
its contractual terms give rise on
specified dates to cash flows that
are solely payments of principal and
interest on the principal amount
outstanding.
All financial assets not classified
as measured at amortised cost are
measured at FVTPL. This includes all
derivative financial assets. Investments
in subsidiaries are carried at cost less
impairment in accordance with IFRS 9.
b) Subsequent measurement and
gains and losses
Financial assets at FVTPL – these
assets (other than derivatives
designated as hedging instruments)
are subsequently measured at fair
value. Net gains and losses, including
any interest or dividend income, are
recognised in profit or loss.
Financial assets at amortised cost
– These assets are subsequently
measured at amortised cost using
the effective interest method.
The amortised cost is reduced by
impairment losses. Interest income,
foreign exchange gains and losses and
impairment are recognised in profit or
loss. Any gain or loss on derecognition
is recognised in profit or loss.
Classification of financial
instruments issued by the Group
Financial liabilities are classified
as measured at amortised cost or
FVTPL. A financial liability is classified
as at FVTPL if it is classified as
held-for-trading, it is a derivative or
it is designated as such on initial
recognition. Financial liabilities at
FVTPL are measured at fair value
and net gains and losses, including
any interest expense, are recognised
in profit or loss. Other financial
liabilities are subsequently measured
at amortised cost using the effective
interest method. Interest expense
and foreign exchange gains and
losses are recognised in profit or loss.
Any gain or loss on derecognition is
also recognised in profit or loss.
72
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Trade and other receivables
The Group have trade receivables
without significant financing
components. These assets are
recognised initially at transaction
price less attributable transaction
costs. Trade and other receivables
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.
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.
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).
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.
Impairment of financial
instruments
The Company recognises loss
allowances for expected credit
losses ('ECLs') on financial assets
measured at amortised cost. The
Company measures loss allowances
at an amount equal to lifetime ECLs,
except for other debt securities
and bank balances for which
credit risk (i.e. the risk of default
occurring over the expected life of
the financial instrument) has not
increased significantly since initial
recognition, which are measured as
twelve-month ECLs. Loss allowances
for trade receivables and contract
assets are always measured at an
amount equal to lifetime ECLs. When
determining whether the credit risk
of a financial asset has increased
significantly since initial recognition
and when estimating ECLs, the
Company considers reasonable and
supportable information that is relevant
and available without undue cost or
effort. This includes both quantitative
and qualitative information and
analysis, based on the Company’s
historical experience and informed
credit assessment and including
forward-looking information.
Lifetime ECLs are the ECLs that result
from all possible default events over the
expected life of a financial instrument.
twelve-month ECLs are the portion of
ECLs that result from default events
that are possible within the twelve
months after the reporting date (or a
shorter period if the expected life of the
instrument is less than twelve months).
The maximum period considered
when estimating ECLs is the maximum
contractual period over which the
Company is exposed to credit risk.
73
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
1 Accounting policies continued
Impairment of financial
instruments continued
Measurement of ECLs
ECLs are a probability-weighted
estimate of credit losses. Credit
losses are measured as the present
value of all cash shortfalls (i.e. the
difference between the cash flows due
to the entity in accordance with the
contract and the cash flows that the
Company expects to receive). ECLs are
discounted at the effective interest rate
of the financial asset.
Credit-impaired financial assets
At each reporting date, the Company
assesses whether financial assets
carried at amortised cost are
credit-impaired. A financial asset is
‘credit-impaired’ when one or more
events that have a detrimental impact
on the estimated future cash flows of
the financial asset have occurred.
Write-offs
The gross carrying amount of a
financial asset is written off (either
partially or in full) to the extent that
there is no realistic prospect of
recovery.
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 its
useful life.
74
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 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
lives are as follows:
• Computer software
• Trade names
• Customer lists
3-5 years
3-5 years
3-15 years
Amortisation charges are included
under ‘administrative expenses’ in
the income statement.
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 of non‑financial
assets excluding inventories
and deferred tax
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.
75
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
1 Accounting policies continued
Revenue recognition
During the year, as required by IFRS,
a new accounting standard has
been adopted retrospectively – IFRS
15 Revenue from Contracts with
Customers. This introduces the concept
of a performance obligation which
is effectively a written or unwritten
contract for a good or a service.
The Group recognise revenue on
sales of Celebration, Stationery and
creative play, Giftware and ‘Not-for-
resale’ consumable products across
four geographical segments. Typically
the products that we supply form the
only performance obligations within a
customer agreement, and although the
Group can provide ancillary services
such as merchandising, these are not
separately identifiable obligations.
Revenue recognised in respect of these
obligations 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.
Revenue is generated solely from
contracts with customers and is
measured based on the consideration
specified in a contract with a customer.
The Group recognises revenue when
it transfers control over a good to a
customer.
We evaluate our Revenue with
customers based on the five-step
model under IFRS 15 Revenue from
Contracts with Customers: (1) identify
the contract with the customer; (2)
identify the performance obligations
in the contract; (3) determine the
transaction price; (4) allocate
the transaction price to separate
performance obligations; and (5)
recognise revenues when (or as) each
performance obligation is satisfied.
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. Revenue is only recognised
when highly probable that a significant
reversal in the amount of cumulative
revenue will not be required.
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.
The Group disaggregates its revenue
across four geographical segments.
Geographical information about
revenues from external customers can
be found in note 4.
Government grants
Government grants for specific
expenses are recognised in the
profit and loss in the same period
as the relevant expense or when
there is reasonable assurance that
the Company will comply with the
conditions attached to it and that the
grant will be received. Capital-based
government grants (i.e. those relating
to depreciable assets) are usually
included within other financial liabilities
in the balance sheet and recognised
in profit or loss over the periods and in
the proportions in which depreciation
expense on those assets is recognised.
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.
Finance income and expenses
Finance expenses comprise interest
payable, finance charges on finance
leases, amortisation of capitalised
fees, and unwinding of discounts
on provisions.
Net movements in the fair value of
derivatives which have not been
designated as an effective hedge,
and any ineffective portion of fair value
movement on derivatives designated
as a hedge are also included within
finance income or expense.
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.
76
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 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.
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 fair value is determined by using
an appropriate pricing model. The fair
value cost is then recognised over the
vesting period, ending on the date on
which the relevant employees become
fully entitled to the award.
The quantum of awards expected to
vest and the relevant cost charged is
reviewed annually such that at each
balance sheet date the cumulative
expense is the relevant share of the
expected total cost, pro-rated across
the vesting period.
No expense is recognised for awards
that are not expected to ultimately
vest, for example due to an employee
leaving or business performance
targets not being met. The annual
expense for equity settled transactions
is recognised in the income statement
with a corresponding entry in equity.
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.
Own shares held by
Employee Benefit Trust
Transactions of the Group-sponsored
‘International Greetings Employee
Benefit Trust’ are included in the Group
financial statements. In particular, the
trust’s purchases and sales of shares in
the Company are debited and credited
directly to equity.
Borrowing costs
Borrowing costs directly attributable
to the acquisition, construction or
production of an asset that necessarily
takes a substantial period of time to
get ready for its intended use or sale
are capitalised as part of the cost of
the respective asset. Costs directly
attributable to the arrangement of new
borrowing facilities are included within
the fair value of proceeds received and
amortised over the life of the relevant
facilities. Other borrowing costs which
can include costs associated with
the extension of existing facilities are
expensed in the period they occur.
Borrowing costs consist of interest
and other costs that an entity incurs
in connection with the borrowing
of funds.
77
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
1 Accounting policies continued
Use of non‑GAAP measures
These financial statements include
alternative performance measures
(‘APMs’) that are presented in addition
to the standard GAAP metrics.
The Directors believe that these
APMs provide important additional
information regarding the underlying
performance of the business including
trends, performance and position of
the Group. APMs are used to enhance
the comparability of information
between reporting periods and
segmental business units by adjusting
for exceptional or uncontrollable
factors which affect IFRS measures, to
aid the understanding of the Group’s
performance. Consequently, APMs are
used by the Directors and management
for strategic and performance analysis,
planning, reporting and reward setting.
The APMs are adjusted profit, adjusted
EBITDA, adjusted operating profit and
adjusted EPS. The adjustments made
to these adjusted results are:
Exceptional items
These include acquisition related costs
and reorganisation and restructuring
costs. These items are excluded
to present the performance of the
business in a consistent manner
and in line with how the business is
managed and measured on a day-to-
day basis. They are typically gains or
costs associated with events that are
not considered to form part of the core
operations, or are considered to be a
‘non-recurring’ event (although they
may span several accounting periods).
Further detail can be seen in note 10 to
the financial statements.
Acquisition related costs
Costs directly associated with
acquisitions, including legal and
advisory fees on deals, form part of
our reported results on an IFRS basis.
These costs however, in our view, form
part of the capital transaction, and as
they are not attributed to investment
value under IFRS 3, they are excluded
from our adjusted measures for the
purposes of reporting underlying
results. Similarly, where acquisitions
have employee related payments
(exclusive of LTIPs) which lock in and
incentivise legacy talent, we have
also excluded these costs. As these
costs are employment linked, they are
treated as an expense and form part
of the IFRS results, however, as with
transaction costs, we do not consider
these to form part of the underlying
results of the business. In accordance
with IFRS 3, on acquisition, businesses
need to be fair valued, which can result
in an uplift to stock on hand relating to
sales orders already attached to the
acquired stock. This uplift will distort
the margins associated with the stock,
and typically unwinds quickly as stock
is sold soon after acquisition. The
unwind of the stock uplift is excluded
from our adjusted results as we deem
this to be a cost of the acquisition.
Reorganisation and
restructuring costs
In order to maximise efficiencies as
well as recognise synergies from
acquisitions, certain projects are
undertaken to achieve these.
These are projects outside of the
normal operations of the business and
typically are very sizeable in terms
of costs. This is particularly relevant
during a large scale restructuring
that can result in some disruption
to the normal business (for example
manufacturing patterns) leading to
operational inefficiencies occurring in
this time frame.
If we deem this to be the case, we will
present the details and associated
costs of the projects separately in our
financial statements and exclude them
from our adjusted measures.
IFRS 2 (LTIP) costs
As part of our senior management
remuneration, the Group operate a
Long Term Incentive Plan (‘LTIP’) in
the form of options for ordinary shares
of the Group. In accordance with
accounting principles, despite this plan
not being a cash cost to the business,
a share-based payments charge is
taken to the income statement. We
consider that these charges do not
form part of the underlying operational
costs and therefore exclude them from
our adjusted measures.
Acquisition amortisation costs
Under IFRS, as part of the acquisition
of a company, it is necessary to
identify intangible assets such as
customer lists and brand which form
part of the intangible value of the
acquired business but are not part of
the acquired balance sheet. These
intangible assets are then amortised
to the income statement over an
appropriately judged period. These are
not operational costs relating to the
running of the acquired business and
are directly related to the accounting
for the acquisition. As such we exclude
them from the underlying results of
the business. 2019 is the first year that
these costs have been included given
the significant acquisition of Impact
Innovations, Inc.
Like‑for‑like comparators
Figures quoted at like-for-like exchange
rates are calculated by retranslating the
previous year’s figures at the current
year’s exchange rates.
78
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 The Group plans on adopting the
modified retrospective approach.
The estimated impact to profit before
tax for the 2020 financial year is
a reduction of between £nil and
£1.0 million. Non-current assets are
expected to increase by £31.0 million
and gross liabilities are expected to
increase by £35.0 million. The Group
has elected not to recognise right
of use assets and lease liabilities for
short-term leases or low-value assets
and will continue to expense the lease
payments associated with these leases
on a straight-line basis over the term of
the lease.
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 or amended EU endorsed
accounting standards
The Group has adopted IFRS
15 Revenue from Contracts with
Customers from 1 April 2018. The
standard has not had a material effect
on the Group’s financial statements.
The Group has adopted IFRS 9
Financial Instruments. The standard
sets out a single impairment model
to ensure expected credit losses
on financial instruments are always
recognised as soon as they are
forecast.
The Group has assessed the credit
risk around the financial instruments
and expected credit losses under
IFRS 9 compared the credit loss
provisioning method formerly used
under IAS 39 Financial Instruments:
Recognition and Measurement and
has not found a material difference.
As a result prior year balances have not
been restated and there has been no
material impact on the Group’s Income
statement, Balance sheet and Cash
flow statement.
New accounting standards
not yet adopted
IFRS 16 Leases
IFRS 16 Leases is effective for annual
reporting periods beginning on or after
1 January 2019 and replaces IAS 17
Leases. The Group will adopt IFRS
16 from 1 April 2019. For lessees, the
new standard requires leases to be
recognised on the balance sheet as
a right-of-use asset (representing the
right to use the leased item) and a
liability, representing the obligation to
make future lease payments. Under
IFRS 16, the operating lease expense
will be replaced with a depreciation
charge for the right-of-use asset and
interest expense on the lease liability.
New and amended accounting standards endorsed by the EU
IFRS 16 Leases
IFRIC 23 Uncertainty over Income Tax Treatments
Prepayment features with Negative Compensation (Amendments to IFRS 9)
Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)
Annual Improvements to IFRSs 2015-2017 Cycle
(Amendments to IFRSs 3 & 11, IASs 12 & 23)
Effective date
1 Jan 2019
1 Jan 2019
1 Jan 2019
1 Jan 2019
To be adopted
by the Group
1 Apr 2019
1 Apr 2019
1 Apr 2019
1 Apr 2019
1 Jan 2019
1 Apr 2019
No other standards, interpretations or amendments, other than IFRS 16, 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.
79
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
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
the Group has provisions of £8,827,000
(2018: £7,757,000) over the total
inventory value.
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.
80
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Since the acquisition of Impact
Innovations, Inc. the Group now
has a second China factory (wholly
owned) and Asian procurement which
form part of Impact’s operations and
therefore is included in the overall
US segment.
Inter-segment pricing is determined on
an arm’s length basis. Segment results
include items directly attributable to a
segment as well as those that can be
allocated on a reasonable basis.
Financial performance of each segment
is measured on adjusted operating
profit before management recharges.
Interest and tax are managed on a
Group basis and not split between
reportable segments. However the
related financial liability and cash has
been allocated out into the reportable
segments as this is how they are
managed by the Group.
Segment assets are all non-current and
current assets, excluding deferred tax
and income tax, which are shown in
the eliminations column. 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.
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.
3 Financial risk management
Risk management is discussed in
the strategic report and a discussion
of risks and uncertainties can be
found on pages 36 to 39 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.
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, seasonal
décor, design-led giftware, and
‘not-for-resale’ consumables.
For management purposes the Group
is organised into four geographic
business units.
The results in this note are allocated
based on the region in which the
businesses are located; this reflects
the Group’s management and internal
reporting structure. The Group has a
China factory and Asian procurement
operations which are overseen by
our UK operational management
team and we therefore continue to
include UK owned and managed Asian
operations within the internal reporting
of the UK operations, comprising one
operating segment.
81
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
4 Segmental information continued
Year ended 31 March 2019
Revenue – external
– inter segment
Total segment revenue
Segment result before exceptional items,
acquisition amortisation, LTIP charges
and management recharge
Exceptional items
Acquisition amortisation
LTIP charges
Operating profit
Finance expenses
Finance expense treated as exceptional
Income tax
Profit for the year ended 31 March 2019
Balances at 31 March 2019
Segment assets
Segment liabilities
Capital expenditure additions
UK(a)
£000
Europe
£000
USA(a)
£000
Australia
£000
Central &
eliminations
£000
Group
£000
123,006
63,188
223,101
39,067
—
448,362
4,112
1,377
—
—
(5,489)
—
127,118
64,565
223,101
39,067
(5,489)
448,362
8,073
8,871
15,522
4,278
(4,098)
32,646
(8,274)
(1,609)
(3,005)
19,758
(2,318)
(158)
(4,031)
13,251
188,766
19,240
36,306
13,776
3,610
261,698
(28,295)
(10,457)
(35,931)
(7,396)
(4,062)
(86,141)
– property, plant and equipment
2,635
901
1,780
383
—
5,699
– property, plant and equipment
on acquisition of business
– intangible assets
– intangible assets on acquisition of business
Depreciation
Amortisation
(a) Including Asian manufacturing and sourcing.
—
285
—
2,333
167
—
12
—
920
35
9,313
1,893
47,042
1,452
1,781
—
—
—
623
326
—
—
—
—
—
9,313
2,190
47,042
5,328
2,309
82
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
Year ended 31 March 2018
Revenue – external
– inter segment
Total segment revenue
Segment result before exceptional items,
acquisition amortisation, LTIP charges
and management recharge
Exceptional items
Acquisition amortisation
LTIP charges
Operating profit
Net finance expenses
Income tax
Profit for year ended 31 March 2018
Balances at 31 March 2018
Segment assets
Segment liabilities
Capital expenditure additions
UK(a)
£000
Europe
£000
USA
£000
Australia
£000
Central &
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
7,899
6,697
9,608
2,998
(4,003)
23,199
539
(371)
(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
– property, plant and equipment
on acquisition of business
– intangible assets
—
109
– intangible assets on acquisition of business —
Depreciation
Amortisation
(a) Including Asian manufacturing and sourcing.
2,229
219
—
50
—
722
27
—
1,218
—
871
474
795
798
—
2,624
523
98
—
7,992
—
—
—
—
—
798
1,377
2,624
4,345
818
• Capital expenditure consists of additions of property, plant and equipment, intangible assets and goodwill.
• The Group has one customer that accounts for 18% of the total Group revenues. In the year ended 31 March 2019 total
sales to that customer were £79,138,000 (2018: £15,978,000). This customer falls solely within the USA operating segment
above. No other single customer accounts for over 10% of total sales.
• The assets and liabilities that have not been allocated to segments consist of deferred tax assets £3,160,000
(2018: £2,663,000), income tax payable of £3,370,000 (2018: £3,364,000) and deferred tax liability £692,000
(2018: £373,000).
Geographical information
The Group’s information about its segmental assets (non-current assets excluding deferred tax assets and other financial
assets) and revenue by customer destination and product are detailed below:
UK and Asia
USA
Europe
Australia
Non-current assets
2019
£000
2018
£000
40,539
40,126
61,559
9,076
16,350
16,610
5,077
6,234
123,525
72,046
83
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
4 Segmental information continued
Revenue by customer destination
UK
USA
Europe
Australia
Rest of the world
All revenue arose from the sale of goods.
5 Expenses and auditor’s remuneration
Included in profit are the following charges/(credits):
Depreciation
Loss on sales of property, plant and equipment and intangible assets
Release of deferred grant income
Amortisation of intangible assets
Operating lease payment – minimum lease payment
Sub-lease rental income
Write down of inventories to net realisable value
Reversal of previous write downs on inventory
Loss on foreign exchange
Auditor’s remuneration:
Amounts receivable by auditor and its associates in respect of:
Audit of these financial statements
Audit of financial statements of subsidiaries pursuant to legislation
– Overseas subsidiaries
– UK subsidiaries
Tax services
Services relating to corporate finance transactions
Other services
2019
£000
2018
£000
97,260
89,292
235,092
136,782
68,314
37,707
9,989
58,080
36,972
6,390
2019
%
22
53
15
8
2
2018
%
27
42
18
11
2
448,362
327,516
100
100
Note
11
7
12
27
7
14
14
2019
£000
2018
£000
5,328
4,345
325
(247)
2,309
4,865
(583)
4,173
(478)
814
17
(99)
818
5,289
(710)
5,491
(197)
373
2019
£000
2018
£000
90
37
326
66
40
—
10
184
51
31
54
5
84
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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
2019
641
1,723
2,364
2018
520
1,434
1,954
2019
£000
2018
£000
62,083
51,283
3,005
4,795
3,532
2,257
3,950
3,634
73,415
61,124
Note
25
For information on Directors’ remuneration please refer to the section titled ‘Directors’ remuneration’ within the Directors’
remuneration report (pages 57 and 58) and Long Term Incentive Plan (page 58), which form part of these audited
financial statements.
7 Other operating income
Grant income received
Sub-lease rentals credited to the income statement
Other
Exceptional items
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
Exceptional items
10
2019
£000
247
583
(210)
620
—
620
2019
£000
2,334
(74)
—
86
2018
£000
99
710
(424)
385
1,092
1,477
2018
£000
946
332
2
80
2,346
1,360
(28)
2,318
158
2,476
32
1,392
—
1,392
85
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
9 Taxation
Recognised in the income statement
Current tax charge
Current year
Adjustments for previous periods
Deferred tax charge/(credit)
Origination and reversal of temporary differences
Adjustments in respect of previous periods
Total tax in income statement
Total tax charge/(credit) on adjusted items
Total tax on profit before exceptional items, acquisition amortisation and LTIP costs
Total tax on exceptional items
Total tax on acquisition amortisation
Total tax on LTIP costs
Total tax in income statement
Reconciliation of effective tax rate
Profit before tax
Profit before tax multiplied by the standard rate of corporation tax rate of 19% in the UK (2018: 19%)
Effects of:
Income not taxable
Expenses not deductible for tax purposes
Movement in unrecognised tax assets
Effect of tax rate changes
Differences between UK and overseas tax rates
Movement in uncertain tax provision
Local tax incentives
Other items
Adjustments in respect of previous periods
Total tax in income statement
2019
£000
2018
£000
4,770
38
4,808
(617)
(160)
(777)
4,031
7,094
(2,038)
(847)
(178)
3,355
128
3,483
1,986
(85)
1,901
5,384
6,188
(238)
(121)
(445)
4,031
5,384
2019
£000
17,282
3,284
2018
£000
19,718
3,746
(88)
208
296
33
(502)
249
270
593
1,053
1,637
(408)
(100)
(125)
(122)
(400)
(108)
(90)
(11)
4,031
5,384
86
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
10 Exceptional items
These include acquisition related costs and reorganisation and restructuring costs. These items are excluded to present
the performance of the business in a consistent manner and in line with how the business is managed and measured on a
day-to-day basis. They are typically gains or costs associated with events that are not considered to form part of the core
operations, or are considered to be a ‘non-recurring’ event (although they may span several accounting periods).
Acquisition related costs
Costs associated with acquisitions, including legal and advisory fees on deals, form part of our reported results on an IFRS
basis. These costs, however, in our view form part of the capital transaction and as they are not attributed to investment
value under IFRS 3, they are excluded from our adjusted measures for the purposes of reporting underlying results. Similarly,
where acquisitions have employee related payments (exclusive of LTIPs) which lock in and incentivise legacy talent, we have
also excluded these costs. As these costs are employment linked, they are treated as an expense and form part of the IFRS
results, however, as with transaction costs, we do not consider these to form part of the underlying results of the business.
In accordance with IFRS 3, on acquisition, businesses need to be fair valued, which can result in an uplift to stock on hand
relating to sales orders already attached to the acquired stock. This uplift will distort the margins associated with the stock,
and typically unwinds quickly as stock is sold soon after acquisition. The unwind of the stock uplift is excluded from our
adjusted results as we deem this to be a cost of the acquisition.
Reorganisation and restructuring costs
In order to maximise efficiencies, as well as recognise synergies from acquisitions, certain projects are undertaken to
achieve these. These are projects outside of the normal operations of the business and typically are very sizeable in terms of
costs. This is particularly relevant during a large scale restructuring that can result in some disruption to the normal business
(for example manufacturing patterns) leading to operational inefficiencies occurring in this time frame. If we deem this to be
the case, we will present the details and associated costs of the projects separately in our financial statements and exclude
them from our adjusted measures.
Year ended 31 March 2019
Transaction costs(a)
UK unification(b)
US restructure(c)
Total before tax
Income tax credit
Exceptional items after tax
(a) Transaction costs relating predominantly to the acquisition of Impact Innovations Inc.
Cost of
sales
£000
—
—
(1,748)
(1,748)
Selling
expenses
£000
—
—
(222)
(222)
Admin
expenses
£000
(2,254)
(428)
(3,622)
(6,304)
Other
finance
expenses
£000
Total
£000
(158)
(2,412)
—
—
(158)
(428)
(5,592)
(8,432)
2,038
(6,394)
(b) Remaining unification cost associated with relocating a part of our UK business to another site and associated redundancies with the move.
(c) The restructure of our US operations including the profit on sale of our manufacturing facility in Midway and closure costs. The cost of relocating equipment and
personnel to Memphis, Tennessee along with manufacturing inefficiencies associated with the start up of converting operations. The charge relating to the unwind
of the inventory fair value adjustment arising on acquisition and final charges in relation to the Lang integration.
Year ended 31 March 2018
Transaction costs(d)
Sale of Hirwaun property(e)
Total before tax
Income tax credit
Exceptional items after tax
Admin
expenses
£000
(553)
—
(553)
Other
operating
income
£000
—
1,092
1,092
Total
£000
(553)
1,092
539
238
777
(d) 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.
(e) 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.
87
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
10 Exceptional items continued
The cash flow effect on exceptional items
There was £287,000 net outflow on the current year’s cash flow (2018: £1,637,000 inflow) which included £473,000
(2018: £350,000) of outflow deferred from last year.
11 Property, plant and equipment
Cost
Land and buildings
Freehold
£000
Leasehold
£000
Plant and
equipment
£000
Fixtures and
fittings
£000
Motor
vehicles
£000
Total
£000
Balance at 1 April 2017
21,393
10,501
48,172
3,460
955
84,481
Additions
Disposals
Additions on acquisition of business
Transfers to computer software
Effect of movements in foreign exchange
Balance at 1 April 2018
Additions
Disposals
Additions on acquisition of business
Transfers between fixed asset categories
Transfers to computer software
Effect of movements in foreign exchange
Balance at 31 March 2019
Depreciation and impairment
Balance at 1 April 2017
Depreciation charge for the year
Disposals
Transfers to computer software
Effect of movements in foreign exchange
Balance at 1 April 2018
Depreciation charge for the year
Disposals
Transfers between fixed asset categories
Transfers to computer software
Effect of movements in foreign exchange
432
(1,903)
—
—
174
20,096
1,078
(405)
462
(57)
—
(127)
138
—
—
—
(1,006)
9,633
126
(8,252)
—
83
—
636
6,588
(4,148)
424
—
(963)
804
(216)
27
294
(128)
30
(18)
347
—
(60)
7,992
(6,285)
798
294
(1,983)
50,073
4,241
1,254
85,297
3,712
(352)
8,851
(43)
(620)
351
550
(285)
—
17
—
62
233
(351)
—
—
—
(8)
5,699
(9,645)
9,313
—
(620)
914
21,047
2,226
61,972
4,585
1,128
90,958
(11,511)
(5,036)
(32,268)
(2,575)
(749)
1,349
—
(67)
(470)
—
—
447
(2,590)
4,079
—
544
(389)
205
(239)
76
(10,978)
(5,059)
(30,235)
(2,922)
(769)
152
6
—
57
(414)
3,769
—
—
(301)
(3,478)
86
35
170
(224)
(502)
248
(41)
—
(44)
(484)
(147)
9
—
18
(604)
(165)
84
—
—
6
(51,874)
(4,345)
5,642
(239)
1,018
(49,798)
(5,328)
4,339
—
170
(506)
Balance at 31 March 2019
(11,532)
(2,005)
(33,646)
(3,261)
(679)
(51,123)
Net book value
Balance at 31 March 2019
At 31 March 2018
9,515
9,118
221
28,326
4,574
19,838
1,324
1,319
449
650
39,835
35,499
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.
Security
All freehold properties are subject to a fixed charge.
88
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
12 Intangible assets
Cost
Balance at 1 April 2017
Additions
Additions on acquisition of businesses
Transfer from fixed assets
Disposals
Effect of movements in foreign exchange
Balance at 1 April 2018
Additions
Additions on acquisition of businesses
Transfer from fixed assets
Disposals
Effect of movements in foreign exchange
Balance at 31 March 2019
Amortisation and impairment
Balance at 1 April 2017
Amortisation for the year
Impairments
Transfers from fixed assets
Disposals
Effect of movements in foreign exchange
Balance at 1 April 2018
Amortisation for the year
Transfers from fixed assets
Disposals
Effect of movements in foreign exchange
Goodwill
£000
Computer
software
£000
Trade
names
£000
Customer
lists
£000
Other
intangibles
£000
Total
£000
42,474
—
1,703
—
—
(809)
43,368
—
28,042
—
(33)
404
4,151
1,377
—
(294)
(40)
(325)
4,869
2,190
—
620
(940)
246
320
—
197
—
—
(44)
473
—
680
—
724
—
—
(110)
1,294
—
1,846
17,154
—
—
20
—
—
44
133
47,758
—
—
—
—
—
133
—
—
—
—
—
1,377
2,624
(294)
(40)
(1,288)
50,137
2,190
47,042
620
(973)
714
71,781
6,985
2,339
18,492
133
99,730
(10,443)
(3,204)
—
(36)
—
—
785
(447)
—
239
39
228
(9,694)
(3,145)
—
—
33
(475)
(700)
(170)
609
(101)
(80)
(120)
—
—
—
14
(186)
(392)
—
—
(11)
(260)
(233)
—
—
—
36
(457)
(1,214)
—
—
(26)
(90)
(18)
—
—
—
—
(14,077)
(818)
(36)
239
39
1,063
(108)
(13,590)
(3)
—
—
—
(2,309)
(170)
642
(613)
Balance at 31 March 2019
(10,136)
(3,507)
(589)
(1,697)
(111)
(16,040)
Net book value
Balance at 31 March 2019
At 31 March 2018
61,645
33,674
3,478
1,724
1,750
16,795
287
837
22
25
83,690
36,547
The aggregate carrying amounts of goodwill allocated to each geographical segment are as follows:
UK and Asia
Europe
USA
Australia
Total
2019
£000
2018
£000
25,600
25,600
5,248
5,329
28,042
2,755
—
2,745
61,645
33,674
89
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
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 89), 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 five years plus a terminal value based on a conservative estimate of market growth of 0.5% (2018: between
0.5% and 2.0%).
Generally the Group’s post tax weighted average cost of capital ('WACC') is 8% and this has been compared to other similar
companies and is felt to be appropriate.
The cash-generating units used the following pre-tax discount rates which are derived from an estimate of the Group’s future
WACC adjusted to reflect the market assessment of the risks specific to the current estimated cash flows over the same
period.
Pre-tax discount rates used were:
UK and Asia
Europe
USA
Australia
2019
10.9%
11.7%
12.5%
13.4%
2018
10.4%
10.7%
—
12.4%
All of the cash-generating units’ values in use were determined to be higher than fair value less costs to sell, thus this was
used as the recoverable amount. In all businesses, the carrying value of the goodwill was supported by the recoverable
amount and there are currently no reasonably foreseeable changes to assumptions that would give rise to an impairment
of the carrying value.
The Directors do not believe a reasonably possible change to the assumptions would give rise to an impairment.
The Directors have considered a 3% movement in the discount rate and a flat budget growth rate assumption in their
sensitivity assessment; with these changes in assumptions there is still considerable headroom and no indication of
impairment.
90
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
13 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
At 1 April 2018
(Charge)/credit to income statement
(Charge)/credit to equity
At 31 March 2019
Deferred tax liabilities
Deferred tax assets
At 1 April 2017
(Charge)/credit to income statement
(Charge)/credit to equity
Acquisitions
At 31 March 2018
Deferred tax liabilities
Deferred tax assets
Property, plant
Tax losses
and equipment carried forward
Share-based
payments
Other timing
differences(a)
(1,137)
(2,653)
(115)
(3,905)
(4,159)
254
(3,905)
584
1,103
187
1,874
—
1,874
1,874
1,943
1,004
(358)
2,589
—
2,589
2,589
900
1,325
135
2,360
(205)
2,565
2,360
Tax losses
Property, plant
and equipment carried forward
Share-based
payments
Other timing
differences(a)
(1,173)
75
(39)
—
(1,137)
(1,318)
181
(1,137)
1,794
(1,152)
(58)
—
584
—
584
584
1,949
2,303
150
(156)
—
1,943
—
1,943
1,943
(974)
(216)
(213)
900
(140)
1,040
900
Total
2,290
779
(151)
2,918
(4,364)
7,282
2,918
Total
4,873
(1,901)
(469)
(213)
2,290
(1,458)
3,748
2,290
(a) Other timing differences include a closing balance of £905,000 (2018: £819,000) in respect of provision for doubtful debts and £1,851,000 (2018: £1,086,000) provision for
inventory.
Deferred tax is presented net on the balance sheet in so far as a right of offset exists. The net deferred tax asset is
£3,610,000 (2018: £2,663,000) and the net deferred tax liability is £692,000 (2018: £373,000).
The deferred tax asset in respect of tax losses carried forward at 31 March 2019 of £1,874,000 (2018: £584,000) comprises
UK tax losses of £991,000 (2018: £440,000) and US losses of £883,000 (2018: £144,000). The majority of the US tax losses
carried forward will become irrecoverable in March 2029. 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 £574,000 (2018: £310,000),
£369,000 (2018: £490,000) in respect of China, and £235,000 (2018: £221,000) in respect of Asia.
A deferred tax liability of £237,000 (2018: £153,000) 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.
Included within current tax liabilities is £1,263,000 (2018: £1,670,000) in respect of uncertain tax positions. This consists of
various tax risks which individually are not material. These risks arise because the Group operates in a complex multinational
tax environment. The position is reviewed on an ongoing basis and generally these tax positions are released at the end of
the relevant territories’ statute of limitations.
A total tax credit of £764,000 has been recognised through the statement of changes in equity in respect of share-based
payments (consisting of a deferred tax debit and current tax credit of (£358,000) and £1,122,000 respectively).
There are no deferred tax balances with respect to cash flow hedges.
91
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
14 Inventory
Raw materials and consumables
Work in progress
Finished goods
2019
£000
19,242
7,818
42,511
69,571
2018
£000
6,325
8,927
34,059
49,311
Of the £69,571,000 (2018: £49,311,000) stock value £63,001,000 (2018: £46,984,000) is held at cost and £6,570,000
(2018: £2,327,000) is held at net realisable value. The write down in the year of inventories to net realisable value amounted
to £4,173,000 (2018: £5,491,000). The reversal of previous write downs amounted to £478,000 (2018: £197,000). 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
£323,486,000 (2018: £228,776,000).
15 Trade and other receivables
Trade receivables
Prepayments and accrued income
Other receivables
VAT receivable
2019
£000
2018
£000
39,778
32,490
4,822
171
634
1,553
3,015
311
45,405
37,369
The Group had receivable financing arrangements in the UK, Europe, the US and Hong Kong. None of this facility was drawn
at 31 March 2019 (2018: £nil).
Please see note 17 for more details of the banking facilities.
There are no trade receivables in the current year (2018: £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 per cash flow statement
Net cash
Cash and cash equivalents
Bank loans and overdrafts
Loan arrangement fees
Net cash as used in the financial review
2019
£000
2018
£000
19,458
9,031
Note
17
2019
£000
19,458
(2,405)
31
17,084
2018
£000
9,031
(4,780)
105
4,356
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.
92
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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 94)
Loan arrangement fees
Current liabilities
Current portion of secured bank loans (see page 94)
Loan arrangement fees
Terms and debt repayment schedule
Due within one year:
Bank loans and borrowings (see page 94)
Due between one and two years:
Secured bank loans (see page 94)
Due between two and five years:
Secured bank loans (see page 94)
Changes in liabilities from financing activities
Balance at 1 April 2017
Changes from financing cash flows
New bank loans raised
Repayment of borrowings
New loan arrangement fees
Other changes
Amortisation of loan arrangement fees
Effect of movements in foreign exchange
Balance at 1 April 2018
Changes from financing cash flows
Repayment of borrowings
New loan arrangement fees
Other changes
Amortisation of loan arrangement fees
Effect of movements in foreign exchange
Balance at 31 March 2019
2019
£000
2018
£000
1,421
—
1,421
3,791
(10)
3,781
984
(31)
953
2019
£000
989
(95)
894
2018
£000
984
989
984
989
437
2,405
2,802
4,780
Loans and
borrowings
£000
Loan
arrangement
fees
£000
—
(271)
5,108
(165)
—
—
(163)
4,780
(2,350)
—
—
(25)
2,405
—
—
(111)
277
(105)
—
(30)
104
—
(31)
93
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
17 Loans and borrowings continued
Secured bank loans
The wholly owned Group during the year was funded by HSBC. The facilities comprise:
• a three-year revolving credit facility (‘RCF’) for £28 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 £139.0 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.
There are financial covenants, tested quarterly, attached to the existing 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 (AU$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.
£2,350,000 was repaid during the year which, along with £25,000 exchange movement results in a balance at 31 March 2019
of £2,405,000 (AU$4,400,000).
On 5 June we entered into a new three year Group facility with a club of five banks chosen to reflect and support the
geographical spread of the Group. HSBC continue to be significant partner and have been joined in the new facility by
NatWest, BNP Paribas, Sun Trust and PNC.
The new Group facilities, which run to May 2022, comprises of:
• a revolving credit facility (‘RCF A’) of $80.0 million;
• a further flexible revolving credit facility (‘RCF B’) with availability varying from month to month of up to £85.0 million.
This RCF is flexed to meet our working capital requirements during those months when inventory is being built within our
annual business cycle and is nil when not required, minimising carry costs; and
• the existing invoice financing arrangements in Hong Kong which will remain in place for a minimum of the first year.
In total, the available facilities at approximately £160 million are more than sufficient to cover our peak requirements.
Being partially framed in US dollars they provide a hedge against currency movements. The facilities, which do not amortise
with time, include an additional uncommitted amount to finance potential acquisitions.
See pages 33 and 34 of the executive review for further details.
94
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 18 Deferred income
Included within non-current liabilities
Deferred grant income
Included within current liabilities
Deferred grant income
2019
£000
2018
£000
751
998
99
99
The deferred grant income is in respect of government grants relating to the development of the site in Wales.
19 Provisions
Balance at 1 April 2018
Additions on acquisition of business
Reclassified from other creditors
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 2019
Non-current
Current
Property
£000
986
2,197
180
67
(9)
86
(71)
(2)
Other
£000
337
—
—
335
(340)
—
—
(5)
Total
£000
1,323
2,197
180
402
(349)
86
(71)
(7)
3,434
327
3,761
2019
£000
2,671
1,090
3,761
2018
£000
894
429
1,323
The property provision represents the estimated reinstatement cost of six of the Group’s leasehold properties under fully
repairing leases and a 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. £935,000
(2018: £882,000) of the non-current balance relates to a lease expiring in 2036; the balance relates to items between one
and five years.
Other provisions represents management’s best estimate in respect of minor claims arising in the normal course of business.
20 Other financial liabilities
Included within non-current liabilities
Other creditors and accruals
Included within current liabilities
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
2019
£000
2018
£000
1,817
1,440
14,712
18,832
—
2
40
116
14,714
18,988
95
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
21 Trade and other payables
Trade payables
Other payables including income taxes and social security
VAT payable
2019
£000
2018
£000
57,336
37,056
947
280
817
884
58,563
38,757
22 Share capital
Authorised share capital at 31 March 2019 and 2018 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 issue as part of the consideration for Impact Innovations, Inc.
Share placing
In issue at 31 March – fully paid
Allotted, called up and fully paid
Ordinary shares of £0.05 each
Ordinary shares
2019
2018
63,890
62,642
1,655
3,017
9,804
1,248
—
—
78,366
63,890
2019
£000
2018
£000
3,918
3,194
Of the 78,366,000 shares in the Company, 31,000 (2018: 31,000) are held by the International Greetings Employee
Benefit Trust.
Share options exercised during the year resulted in 200,000 ordinary shares being issued (2018: 510,000) which generated
cash proceeds of £28,000 (2018: £71,000).
LTIP options exercised during the year resulted in 1,455,000 ordinary shares being issued at nil cost (2018: 738,000 ordinary
shares being issued at nil cost).
On 31 August 2018, the Group acquired Impact Innovations, Inc. Part of the consideration was settled by 3,017,000 shares.
On 29 August 2018, the Group raised £31,926,000 (before expenses) by way of a share placing of 6,260,000 new ordinary
shares at a price of £5.10 per share. On 19 September 2018, the Group raised an additional £18,074,000 (before expenses)
by way of a share placing of 3,544,000 new ordinary shares at a price of £5.10 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.
96
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
23 Earnings per share
Adjusted earnings per share excluding exceptional items,
acquisition amortisation and LTIP charges(a)
Cost per share on exceptional items
Adjusted earnings per share excluding
acquisition amortisation and LTIP charges(b)
Cost per share on acquisition amortisation
Adjusted earnings per share excluding LTIP charges(c)
Cost per share on LTIP charge
Earnings per share(d)
2019
Diluted
pence
29.3
(8.6)
20.7
(0.9)
19.8
(3.8)
16.0
Basic
pence
29.6
(8.7)
20.9
(0.9)
20.0
(3.8)
16.2
2018
Diluted
pence
22.1
1.4
23.5
(0.3)
23.2
(2.7)
20.5
Basic
pence
22.7
1.4
24.1
(0.2)
23.9
(2.8)
21.1
(a) Excludes exceptional items, acquisition amortisation and LTIP charges of £12,891,000 (2018: £1,889,000) and tax relief
attributable to those items of £3,016,000 (2018: £765,000), to give adjusted profit (including the effect of non-controlling
interest) of £21,800,000 (2018: £14,669,000).
(b) Excludes acquisition amortisation and LTIP charges of £4,459,000 (2018: £2,589,000) and tax relief attributable to those
items of £978,000 (2018: £554,000), to give adjusted profit (including the effect of non-controlling interest) of £15,406,000
(2018: £15,580,000).
(c) Excludes LTIP charges of £3,005,000 (2018: £2,257,000) and tax relief attributable to those items of £178,000 (2018:
£445,000), to give adjusted profit (including the effect of non-controlling interest) of £14,752,000 (2018: £15,357,000).
(d) The basic earnings per share is based on the profit attributable to equity holders of the Company of £11,925,000
(2018: £13,545,000) and the weighted average number of ordinary shares in issue of 73,661,000 (2018: 64,538,000)
calculated as follows:
In thousands of shares
Issued ordinary shares at 1 April
Shares held by Employee Benefit Trust
Shares relating to share options
Shares issued as part of the consideration for Impact
Shares issued in respect of share placing
Weighted average number of shares at 31 March
2019
2018
63,890
62,642
(31)
2,506
1,752
5,544
(31)
1,927
—
—
73,661
64,538
Diluted earnings per share
The average number of share options under the Executive share options 2008 scheme outstanding in the year is nil
(2018: 612,795 at an average exercise price of 14p). The average number of share options under the LTIP scheme outstanding
in the year is 1,366,118 (2018: 1,371,743) 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 723,632 share options. At 31 March 2019 the diluted number of shares was 74,385,000
(2018: 66,358,000).
97
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
24 Dividends paid and proposed
A final dividend for year ending 31 March 2018 of 4.00p (for year ending 31 March 2017: 2.75p) was paid on 6 September 2018.
An interim dividend of 2.50p was paid on 18 January 2019 (2018: 2.00p). The Directors are recommending a final dividend of
6.00p per share in respect of the year ended 31 March 2019 (2018: 4.00p). If approved it will be paid in September 2019 to
shareholders on the register at the close of business on 2 August 2019.
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
2019
2018
Pence
per share
4.00
2.50
2019
Pence
per share
6.00
£000
2,597
1,956
4,553
£000
4,702
Pence
per share
2.75
2.00
2018
Pence
per share
4.00
£000
1,734
1,266
3,000
£000
2,556
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 2019 there were no approved options outstanding (2018: 200,000) with a weighted average contractual life of 0
years (2018: 0.7 years). No share options were granted under this scheme during the year (2018: nil).
The number 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
2019
2018
Weighted
average
exercise price
pence
Weighted
average
exercise price
pence
Number of
options
14.00
200,000
14.00
(200,000)
14.00
14.00
—
—
14.00
14.00
14.00
14.00
Number of
options
710,000
(510,000)
200,000
200,000
The weighted average share price at the date of exercise of share options exercised during the period was 547.8p
(2018: 376.0p).
98
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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 not be more than 325% in value of the relevant employee’s salary base. The maximum
opportunity available is up to 175% for the CEO and for other Executive Directors up to 150% of base salary. For the 2018-21
scheme grant B there is an outperformance element of up to 50% of the initial grant.
Vested LTIP schemes – outstanding options
2014-2017 LTIP scheme
2015-2018 LTIP scheme
2016-2019 LTIP scheme(a)
Number of
ordinary shares
273,921
577,832
723,632
1,575,385
Exercise
price
pence
nil
nil
nil
Exercise dates
June 2017-August 2024
June 2018-January 2028
June 2019-January 2028
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
2019
2018
Weighted
average
exercise price
pence
Weighted
average
exercise price
pence
Number of
options
Number of
options
nil 2,306,034
nil
723,632
nil
(1,454,281)
nil 1,575,385
nil 1,575,385
nil 1,830,351
nil
nil
1,213,794
(738,111)
nil 2,306,034
nil 2,306,034
(a) The shares relating to the 2016-2019 scheme formally vest on 5 June 2019 following the Remuneration Committee and Audit Committee approval of the results of the year
ended 31 March 2019.
99
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
25 Share‑based payments continued
Scheme details for LTIPs in vesting periods during the year
During the financial year to 31 March 2019 there were three LTIP schemes still within their vesting periods (2018: 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
2016-2019
2017-2020
2018-2021
Grant A
Grant B
Grant A
Grant B
Grant A
Grant B
1.82
23
4.04
1
3.71
24
4.04
2
5.55
20
5.56
5
827,220
72,885
347,101
297,844
151,859
633,372
23,283
2,714
7,097
7,053
575
2,708
(202,470)
—
(48,797)
—
(18,280)
—
Expected to vest as at 31 March 2019
648,033
75,599
305,401
304,897
134,154
636,080
Expected to vest as at 31 March 2018
720,395
75,582
347,278
304,829
—
—
The LTIP awards ‘Grant A’ were made in 2017, 2018 and 2019 respectively. The LTIP awards ‘Grant B’ were made in January
2018 to Paul Fineman in respect of the 2015-2018 and 2016-2019 schemes and to Paul Fineman and Giles Willits in respect
of the 2017-2020 scheme. There was also a ‘Grant B’ award in respect of the 2018-2021 scheme to Paul Fineman, Giles
Willits, Lance Burn and the other two member of the Executive Committee in November 2018.
The grant date fair value of the options granted in the year assuming they are to vest in full is £4,364,000 (2018: £3,191,000).
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(a) target for the 2016-2019 scheme is the sole exception to this: the threshold of 7.5% CAGR(b) pays out at 0%,
with the award vesting straight-line from here to 100% at stretch.
The ‘Grant B’ of the 2018-2021 scheme also includes a super stretch target which will vest in accordance with the following
bands relating to CAGR(b) in EPS(a):
• more than 17% but not more than 20%: 10% x number of shares in respect of which the base award vests;
• more than 20% but not more than 22.5%: 22% x number of shares in respect of which the base award vests;
• more than 22.5% but not more than 25%: 35% x number of shares in respect of which the base award vests; and
• more than 25%: 50% x number of shares in respect of which the base award vests.
Weighting
Threshold
Stretch
Super stretch
2016-19 scheme
EPS(a)
PBT(a)
2017-20 scheme
EPS(a)
2018-21 scheme
EPS(a)
60%
40%
CAGR(b) 7.5%
CAGR(b) 10%
CAGR(a) 17.5%
CAGR(a) 17.5%
100%
CAGR(b) 10%
CAGR(a) 17.5%
100%
CAGR(b) 10%
CAGR(a) 17.0%
CAGR(a) 25.0%
(a) EPS before LTIP charges and Board approved exceptional items.
(b) CAGR = compound annual growth rate.
100
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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 2015-2018 LTIP scheme
Charge in relation to the 2016-2019 LTIP scheme
Charge in relation to the 2017-2020 LTIP scheme
Charge in relation to the 2018-2021 LTIP scheme
Equity-settled share-based payments
Social security charge on 2008 executive share option awards
Social security charge on LTIP awards
Total equity-settled share-based payments
2019
£000
—
637
1,083
613
2,333
—
672
2018
£000
913
473
291
—
1,677
29
551
3,005
2,257
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 £1,088,000
(2018: £1,197,000).
26 Financial instruments
Derivative financial assets
Financial assets designated at fair value through the income statement
2019
£000
129
2018
£000
113
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 2019, the Group had derivative contracts, which were measured at Level 2 fair value subsequent to initial
recognition, to the value of an asset of £129,000 (2018: £113,000) and a liability of £2,000 (2018: £156,000).
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.
101
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
26 Financial instruments continued
Derivative financial assets continued
b) Credit risk
Financial risk management
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations and arises principally from the Group’s receivables from customers and investment securities.
The Group’s exposure to credit risk is managed by dealing only with banks and financial institutions with strong credit
ratings. The Group’s financial credit risk is primarily attributable to its trade receivables.
The main customers of the Group are large and mid-sized retailers, other manufacturers and wholesalers of greetings
products, service merchandisers and trading companies. The Group has established procedures to minimise the risk of
default of trade receivables including detailed credit checks undertaken before new customers are accepted and rigorous
credit control procedures after sale. These processes have proved effective in minimising the level of provisions for doubtful
debts required.
The amounts presented in the balance sheet are net of allowances for doubtful receivables estimated by the Group’s
management, based on prior experience and their assessment of the current economic environment.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. Therefore, the maximum exposure to
credit risk at the balance sheet date was £59,536,000 (2018: £44,649,000) 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
2019
£000
8,998
21,614
5,303
3,863
2018
£000
10,685
12,863
4,549
4,393
39,778
32,490
Credit quality of financial assets and impairment losses
There was no change to the level of provision for doubtful debts upon the adoption of IFRS 9.
The ageing of trade receivables at the balance sheet date was:
Not past due
Past due 0-60 days
61-90 days
More than 90 days
2019
2018
Expected
loss rate
%
Provisions for
Gross doubtful debts
£000
£000
Expected
loss rate
%
Provisions for
Gross doubtful debts
£000
£000
0.6
5.4
18.4
90.9
13.2
31,666
6,854
1,601
5,727
(200)
(369)
(295)
(5,206)
45,848
(6,070)
—
1.0
14.8
24.7
2.4
19,786
10,404
628
2,476
33,294
—
(100)
(93)
(611)
(804)
There were no unimpaired balances outstanding at 31 March 2019 (2018: £nil) where the Group had renegotiated the terms
of the trade receivable.
The provisions for doubtful debts more than 90 days include £3,700,000 relating to doubtful debts in the opening balance
sheet of Impact Innovations, Inc.
102
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
Expected credit loss assessment
For the Group’s trade receivables, expected credit losses are measured using a provisioning matrix based on the reason
the trade receivable is past due. The provision matrix rates are based on actual credit loss experience over the past three
years and adjusted, when required, to take into account current macro-economic factors. The Group applies experienced
credit judgement that is determined to be predictive of the risk of loss to assess the expected credit loss, taking into account
external ratings, financial statements and other available information.
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at 1 April
Charge for the year
Unused amounts reversed
Acquisition of businesses
Amounts written off
Effects of movement in foreign exchange
Balance at 31 March
2019
£000
804
1,697
(51)
3,724
(407)
303
6,070
2018
£000
822
434
(237)
—
(149)
(66)
804
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 2019 are set out in note 17.
The following are the contractual maturities of financial liabilities, including estimated interest payments:
31 March 2019
Non-derivative financial liabilities
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
Note
Secured bank loans – Australian dollar(a)
2,405
(2,532)
(1,069)
(1,023)
20
21
21
16,529
(16,529)
(14,712)
(373)
57,336
(57,336)
(57,336)
1,227
(1,227)
(1,227)
—
—
(440)
(171)
—
—
—
(1,273)
—
—
Other financial liabilities(b)
Trade payables(b)
Other payables(b)
Derivative financial liabilities
Forward foreign exchange contracts
carried at fair value through the
hedging reserve (b)
(a) Nominal interest rate 4.49%.
(b) Measured at Level 2.
2
(248)
(248)
—
—
—
77,499
(77,872)
(74,592)
(1,396)
(611)
(1,273)
103
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
26 Financial instruments continued
Derivative financial assets continued
c) Liquidity risk continued
Financial risk management continued
31 March 2018
Non-derivative financial liabilities
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
Note
Secured bank loans – Australian dollar(a)
4,780
(5,242)
(1,162)
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.
20
21
21
20,272
(20,272)
(18,832)
37,056
(37,056)
(37,056)
1,701
(1,701)
(1,701)
40
—
—
116
(5,835)
(5,835)
(1,121)
(176)
(2,959)
—
(10)
(1,254)
—
—
—
—
—
—
—
—
—
—
—
—
63,965
(70,106)
(64,586)
(1,297)
(2,969)
(1,254)
The following table shows the facilities for bank loans, overdrafts, asset-backed loans and revolving credit facilities:
31 March 2019
31 March 2018
Carrying
amount
£000
Facility used
contractual
cash flows
£000
Facility
unused
£000
Total
facility
£000
Carrying
amount
£000
Facility used
contractual
cash flows
£000
Facility
unused
£000
Total
facility
£000
Secured bank loans
2,405
(2,532)
—
(2,532)
4,780
(5,242)
—
(5,242)
Corporate revolving
credit facilities
Receivables financing
Bank overdraft
—
—
—
—
—
—
(29,602)
(29,602)
(15,967)
(15,967)
(3,249)
(3,249)
—
—
—
—
—
—
(19,622)
(19,622)
(17,981)
(17,981)
(3,654)
(3,654)
2,405
(2,532)
(48,818)
(51,350)
4,780
(5,242)
(41,257)
(46,499)
The receivables financing facilities are dependent upon the levels of the relevant receivables.
The major bank facilities vary in the year depending on forecast debt requirements. The maximum limit across all facilities
with the major bank was £139.0 million (2018: £127.9 million).
At 31 March 2019 the facility amounted to £45.6 million (2018: £37.6 million).
Additional facilities were available at other banks of £3.2 million (2018: £3.7 million).
On 5 June 2019 we entered into a new three year Group banking facility, see note 17 for more information.
104
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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 2019
Forward exchange contracts:
Liabilities
31 March 2018
Forward exchange contracts:
Liabilities
Carrying
amount
£000
Contractual
cash flows
£000
One year
or less
£000
2
(248)
(248)
Carrying
amount
£000
Contractual
cash flows
£000
One year
or less
£000
116
(5,835)
(5,835)
The Group has forward currency hedging contracts outstanding at 31 March 2019 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 2020 were assessed to be highly effective and as at
31 March 2019 a net unrealised gain of £118,000 (2018: £27,000 loss) with related deferred tax credit of £nil (2018: £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 2019
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
Notes
16
15
17
17
21
21
Sterling
£000
Euro
£000
US dollar
£000
65,845
(4,617)
(46,596)
7,731
966
5,403
22,793
22
1,651
110
—
31
—
—
—
—
—
—
Other
£000
4,826
3,851
40
19
Total
£000
19,458
39,778
2,679
129
(2,405)
(2,405)
—
31
(10,494)
(7,013)
(30,378)
(9,451)
(57,336)
(541)
(409)
—
(277)
63,648
(6,614)
(52,530)
(3,397)
(1,227)
1,107
105
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
26 Financial instruments continued
Derivative financial assets continued
e) Market risk continued
Financial risk management continued
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
Note
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
—
28
Total
£000
9,031
32,490
1,768
113
(4,780)
(4,780)
—
105
(10,009)
(5,368)
(16,260)
(5,419)
(37,056)
(978)
749
(497)
(1,293)
—
(226)
(1,701)
1,604
(1,090)
(30)
The following significant exchange rates applied during the year:
Euro
US dollar
Average rate
Reporting date spot rate
2019
1.13
1.31
2018
1.14
1.34
2019
1.16
1.30
2018
1.14
1.40
Sensitivity analysis
A 10% weakening of the following currencies against sterling at 31 March 2019 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 2018.
Euro
US dollar
Equity
Profit/(loss)
2019
£000
601
4,775
2018
£000
118
(146)
2019
£000
6
883
2018
£000
(879)
(521)
On the basis of the same assumptions, a 10% strengthening of the above currencies against sterling at 31 March 2019 would
have affected equity and profit or loss by the following amounts:
Equity
2019
£000
(735)
(5,837)
Profit/(loss)
2018
£000
(144)
178
2019
£000
(8)
(1,079)
2018
£000
1,075
637
Euro
US dollar
106
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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
Net debt
Note
2019
£000
2018
£000
19,458
(2,405)
31
16
17,084
9,031
(4,780)
105
4,356
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 2018.
Sensitivity analysis
Equity
Increase
Decrease
Profit or loss
Increase
Decrease
2019
£000
2018
£000
85
—
85
—
21
—
21
—
f) Capital management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to
sustain future development of the business. The Group is dependent on the continuing support of its bankers for working
capital facilities and so the Board’s major objective is to keep borrowings within these facilities.
The Board manages as capital its trading capital, which it defines as its net assets plus net debt. Net debt is calculated
as total debt (bank overdrafts, loans and borrowings as shown in the balance sheet), less cash and cash equivalents.
The banking facilities with our principal bank have covenants relating to interest cover, cash flow cover and leverage, and
our articles currently permit borrowings (including letter of credit facilities) to a maximum of four times equity.
Net assets attributable to owners of the Parent Company
Net cash
Trading capital
Equity
2019
£000
2018
£000
Note
171,506
96,855
16
(17,084)
(4,356)
154,422
92,499
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 CFO and CFO 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, acquisition amortisation and LTIP
charges.
107
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
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 leases are receivable as follows:
Between one and five years
2019
£000
5,236
10,257
16,443
31,936
2018
£000
5,108
9,925
17,807
32,840
2019
£000
837
2018
£000
1,728
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 £583,000 (2018: £710,000) were received during the financial year.
During the year, £4,865,000 was recognised as an expense in the income statement in respect of operating leases
(2018: £5,289,000).
28 Capital commitments
At 31 March 2019, the Group had outstanding authorised capital commitments to purchase plant and equipment for
£2,647,000 (2018: £551,000).
29 Related parties
Sale of goods:
Hedlunds Pappers Industri AB
Festive Productions Ltd
Hedlund Import AB
S A Greetings (South African Greetings)
Purchase of goods:
Mattr Media Ltd
Receivables
Hedlund Import AB
S A Greetings (South African Greetings)
Balance at 31 March
108
2019
£000
2018
£000
69
12
2,955
126
3,162
56
56
29
31
60
172
24
2,718
91
3,005
62
62
17
—
17
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
Identity of related parties and trading
Hedlund Import AB and AB Alrick-Hedlund are under the ultimate control of the Hedlund family who are a major shareholder
in the Company. Anders Hedlund is a director of Hedlunds Pappers Industri AB which is under the ultimate control of the
Hedlund family. Festive Productions Ltd is a subsidiary undertaking of Malios Holding AG, a company under the ultimate
control of the Hedlund family.
John Charlton is Chairman of SA Greetings (pty) Ltd and Elaine Bond is a shareholder.
During the year the Company paid £56,000 (2018: £62,000) 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 34% (2018: 45%) of the voting shares of the
Company. The shareholdings of Directors and changes during the year are shown in the Directors’ report on page 60.
See the Directors’ remuneration report on pages 57 to 58 for more detail.
30 Subsidiary with significant non‑controlling interest
The Company has two subsidiary companies which have a material non-controlling interest, IG Design Group Australia
Pty Ltd ('Australia') and Anker Play Products LLC ('APP'). Summary financial information in relation to Australia and APP is
shown below.
Non-controlling interest – balance sheet as at 31 March
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Non-controlling interest – comprehensive income for the year ended 31 March
Revenue
Profit after tax
Total comprehensive income
Non-controlling interest – cash flow for the year ended 31 March
Net increase/(decrease) in cash and cash equivalents
Non-controlling interest
1 April
Share of profits for the year
Other comprehensive income
Recognition of non-controlling interest
Disposal of Urban Dollar
Dividend paid to the non-controlling interest
Currency translation
31 March
2019
Australia
£000
4,582
10,052
APP
£000
16
Total
£000
4,598
3,219
13,271
2018
Australia
£000
5,538
7,637
(6,755)
(2,600)
(9,355)
(5,604)
(143)
—
(143)
Australia
£000
2019
APP
£000
Total
£000
Australia
£000
39,067
11,078
50,145
36,972
2,434
2,229
531
531
2,965
2,760
2019
APP
£000
(35)
2019
APP
£000
—
—
—
311
—
—
—
Total
£000
409
Total
£000
3,661
1,326
(10)
311
(110)
(1,075)
(52)
Australia
£000
444
Australia
£000
3,661
1,326
(10)
—
(110)
(1,075)
(52)
3,740
(45)
2018
1,265
1,345
2018
Australia
£000
550
2018
Australia
£000
3,833
789
40
—
—
(575)
(426)
311
4,051
3,661
109
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
31 Acquisitions of subsidiaries
Acquisitions in the current period
Impact Innovations Inc.
On 31 August 2018, the Group acquired 100% of the equity of Impact Innovations Inc. ('Impact'), a leading supplier of gift
packaging and seasonal décor products in the US.
The acquisition, made through a wholly owned subsidiary of IG Design Group plc, IG Design Group Americas Inc., was
satisfied by total consideration of £82.2 million ($107.2 million), £66.8 million paid in cash and the remaining £15.4 million
settled in shares in IG Design Group plc. The consideration (excluding the working capital adjustment) represents 4.9 times
underlying EBITDA multiple.
Founded in 1968 and employing more than 250 staff globally, Impact is a designer, manufacturer and distributor of seasonal
and special occasions products specialising in paper, fabric and décor. The company is headquartered in Clara City,
Minnesota, where its fabric and décor business is located, and its gift wrap manufacturing, warehousing and distribution
facilities are located in Memphis, Tennessee. Impact has additional manufacturing operations in Shaoxing, China and offices
in Hong Kong. Impact has long-term relationships with major US retailers, including Walmart, Target, Kroger and Meijer, all of
which have been in place for in excess of 20 years. Walmart is expected to account for nearly 20% of total Group revenue
following the acquisition.
The Directors believe that the acquisition will:
• create the world’s largest consumer gift packaging business;
• deliver significant earnings accretion in each of the next three financial years;
• deliver annual synergies in excess of $5.0 million by year three; and
• enable expansion into the growing and adjacent seasonal décor product category both in North America and in
established Design Group markets around the world.
In the period from acquisition to 31 March 2019, Impact contributed sales of £88,693,000 to the consolidated Group revenue
for the period ended 31 March 2019. If the acquisition had occurred on 1 April 2018, Group revenue would have been
£489,756,000. Following the restructuring of the US business to combine manufacturing facilities into one operation, it is no
longer possible to separately disclose the profit of the Impact business.
Effect of acquisition of Impact
The acquisition had the following effect on the Group’s assets and liabilities.
Property, plant and equipment
Intangible assets
Inventories
Trade and other receivables
Cash
Trade and other payables
Provisions
Net identifiable assets and liabilities
Consideration paid in shares
Consideration paid in cash
Total consideration
Goodwill
Fair value adjustments were made to trade names, customer relationships and inventory.
110
Recognised
fair values
on acquisition
£000
9,313
19,000
26,295
31,966
1,208
(31,433)
(2,197)
54,152
15,385
66,809
82,194
28,042
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
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.
•
•
The goodwill recognised above includes certain intangible assets that cannot be separately identified and measured due
to their nature. This includes control over the acquired business, the skills and experience of the assembled workforce, the
increase in scale, significant synergies and the future growth opportunities that the business provide to the Group’s operations.
The goodwill recognised arises in the USA and is deductible for tax purposes (capitalised and written down over 15 years).
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.
Acquisitions in the prior year
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 £5.1 million
(AU$8.9 million) using local debt facilities. The consideration represented 2.7x EBITDA for the year ended 30 June 2017
although an injection of working capital of up to £1.7 million (AU$3.0 million) might 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 for the year ended 31 March 2018 would have been £334,854,000.
The trade of Biscay has been incorporated into that of IG Design Group Australia Pty Limited and therefore it is not possible
to disclose separately the profit of the Biscay business.
Effect of acquisition of Biscay
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
There has been no adjustment to the fair value relating to the Biscay acquisition.
32 Non‑adjusting post balance sheet events
On 5 June 2019 we entered into a new three year Group facility with a club of five banks chosen to reflect and support the
geographical spread of the Group. HSBC continue to be significant partner and have been joined in the new facility by
NatWest, BNP Paribas, Sun Trust and PNC. See note 17 for further details.
111
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
COMPANY BALANCE SHEET
AS AT 31 MARCH 2019
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
2019
£000
—
2
2018
£000
26
25
44,630
44,632
27,972
28,023
1,973
2,105
28,847
28,618
110
58,093
89,023
34
10,807
41,564
Creditors: amounts falling due within one year
11
(5,369)
(4,655)
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
83,654
36,909
—
(115)
10
(104)
128,171
64,838
3,918
71,558
1,340
17,164
110
34,081
128,171
3,194
8,475
1,340
17,164
(91)
34,756
64,838
IG Design Group plc is registered in England and Wales, number 1401155.
These financial statements were approved by the Board of Directors on 10 June 2019 and were signed on its behalf by:
Paul Fineman
Director
Giles Willits
Director
The notes on pages 115 to 124 form part of the financial statements.
112
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
COMPANY STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 MARCH 2019
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
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
Shares issued
Equity dividend paid
At 31 March 2019
Share
capital
£000
3,132
Share
premium
account
£000
8,429
Capital
redemption
reserve
£000
1,340
Merger
reserves
£000
17,164
—
—
62
—
—
—
—
—
—
46
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,194
8,475
1,340
17,164
—
—
83
—
—
—
641
—
—
—
18
—
—
—
63,065
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Cash flow
hedging
reserve
£000
146
—
(237)
—
—
—
—
—
(91)
—
201
—
—
—
—
—
—
Profit and
loss account
£000
32,901
3,017
—
(37)
1,019
198
658
Total
equity
£000
63,112
3,017
(237)
71
1,019
198
658
(3,000)
(3,000)
34,756
64,838
1,160
1,160
—
(72)
201
29
1,478
1,478
457
855
—
457
855
63,706
(4,553)
(4,553)
3,918
71,558
1,340
17,164
110
34,081
128,171
Within the profit and loss account is a cumulative amount of £2,776,000 (2018: £1,909,000) which is unrealised in respect
of share options granted to subsidiary employees. See the consolidated statement of changes in equity for descriptions of
reserve.
113
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
Notes
2019
£000
2018
£000
1,160
3,017
3, 4
62
(418)
(1,186)
(668)
(2,834)
2,064
228
(1,592)
4
(948)
1,287
(64)
(1,313)
1,983
670
42
572
(1,064)
367
(5,884)
1,502
(144)
(1,592)
(12)
387
6,229
(72)
4,940
2,673
7,613
2,834
5,884
4
(13)
—
2,821
5,884
48,348
2
(4,553)
43,795
47,286
10,807
58,093
10
71
(3,000)
(2,929)
10,568
239
10,807
COMPANY CASH FLOW STATEMENT
YEAR ENDED 31 MARCH 2019
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation and amortisation
Foreign exchange (gains)/losses
Interest receivable and similar income
Interest payable and similar charges
Dividends received from Group undertakings
Equity-settled share-based payment expenses
Taxation
Operating loss after adjustments for non-cash items
Decrease/(increase) in trade and other debtors
(Increase)/decrease in trade and other creditors
Decrease in amounts owed by Group undertakings
Increase in provisions
Cash (used in)/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)
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 2019
(a) See note 22 in the Group’s financial statements.
114
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE COMPANY FINANCIAL STATEMENTS
YEAR ENDED 31 MARCH 2019
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 20.
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 71. 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 at least
twelve months from the date of signing
these financial statements. 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.
115
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
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.
116
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 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.
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.
Own shares held by Employee
Benefit Trust
Transactions of the Group-sponsored
‘International Greetings Employee
Benefit Trust’ are included in the Group
financial statements. In particular, the
trust’s purchases and sales of shares in
the Company are debited and credited
directly to equity.
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.
117
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
2 Dividends paid and proposed
A final dividend for year ending 31 March 2018 of 4.00p (for year ending 31 March 2017: 2.75p) was paid on 6 September 2018.
An interim dividend of 2.50p was paid on 18 January 2019 (2018: 2.00p). The Directors are recommending a final dividend in
respect of the year ended 31 March 2019 of 6.00p per share (2018: 4.00p). If approved, it will be paid in September 2019 to
shareholders on the register at the close of business on 2 August 2019.
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 2018 and 31 March 2019
Depreciation and impairment
Balance at 1 April 2018
Amortisation charge for the year
Balance at 31 March 2019
Net book value
At 31 March 2019
At 31 March 2018
2019
2018
Pence
per share
4.00
2.50
Pence
per share
2.75
2.00
£000
2,597
1,956
4,553
2019
2018
Pence
per share
6.00
£000
4,702
Pence
per share
4.00
£000
1,734
1,266
3,000
£000
2,556
Software
£000
86
(60)
(26)
(86)
—
26
118
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
4 Tangible assets
Cost
Balance at 1 April 2018
Additions
Balance at 31 March 2019
Depreciation and impairment
Balance as at 1 April 2018
Depreciation charge for the year
Balance at 31 March 2019
Net book value
At 31 March 2019
At 31 March 2018
5 Investments
Cost
At 1 April 2017
Additions – share option charge relating to subsidiary employees
Effects of movement in foreign exchange
At 31 March 2018
Additions – share option charge relating to subsidiary employees
Additions – investment in subsidiary
Effects of movement in foreign exchange
At 31 March 2019
Provisions
At 31 March 2018 and 2019
Net book value
At 31 March 2019
At 31 March 2018
Fixtures and
fittings
£000
165
13
178
(140)
(36)
(176)
2
25
Total
£000
Shares in Group Loans to Group
undertakings
£000
undertakings
£000
24,546
6,000
30,546
658
—
—
(572)
658
(572)
25,204
5,428
30,632
855
15,386
—
—
—
417
855
15,386
417
41,445
5,845
47,290
(2,660)
—
(2,660)
38,785
22,544
5,845
5,248
44,630
27,972
119
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
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)
Impact Innovations, Inc.(e)
Impact Innovations Asia Ltd(f)
Zhejiang Shaoxing Royal Arts and Crafts Co., Ltd(g)
The Lang Companies Inc(d)
Anker Play Products, LLC(d)
International Greetings Asia Ltd(h)
The Huizhou Gift International Greetings Company Limited(i)
Greetings Ningbo Business Consulting Ltd (formerly IG Design (Ningbo) Ltd)(j)
IG Design Group BV (formerly Hoomark BV)(k)
Anchor International BV(l)
IG Design Group S.p.z.o.o (formerly Hoomark S.p.z.o.o)(m)
IG Design Group Australia Pty Ltd(n)
Non-trading and 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)
Impact Paper Products, LLC(e)
Impact Paper Hong Kong Ltd(f)
Polaris Plastics Ltd(c)
Santa’s Collection Shaoxing Co., Ltd(o)
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)
Variety Accessories, LLC(e)
(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.
120
Country of
incorporation
Percentage
of ordinary
shares held
2019
Percentage
of ordinary
shares held
2018
Great Britain
US
US
Hong Kong
China
US
US
Hong Kong
China
China
Netherlands
Netherlands
Poland
Australia
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Netherlands
Great Britain
US
Netherlands
Great Britain
US
Hong Kong
Great Britain
China
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Netherlands
US
100(b)
100
100(a)
100(a)
100(a)
100(a)
50(a)
100
100(a)
100(a)
100(a)
100(a)
100(a)
50
100(a)
100
100
99(a)
100
50(a)
100(a)
100(a)
100(a)
100
100(b)
100(a)
100(a)
100(a)
100(a)
100(a)
100(a)
100(a)
100
100(b)
100
100(a)
100(a)
100(a)
100(b)
100
—
—
—
100(a)
50(a)
100
100(a)
100(a)
100(a)
100(a)
100(a)
50
100(a)
100
100
99(a)
100
50(a)
100(a)
100(a)
100(a)
100
100(b)
—
—
100(a)
—
100(a)
100(a)
100(a)
100
100(b)
100
100(a)
100(a)
—
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
(e) Registered office: 233 SE 1st Avenue, Clara City, Minnesota 5622, USA.
(f) Registered office: Flat 11A, Eldex Industrial Building, 21 Ma Tam Wai Road, To Kwa Wan Kowloon, Hong Kong.
(g) Registered office: Floor 2, A Zone, Floor 1, Building 3, Northeast Corner of Sanjiang Road and Tanggong Road, Paojiang Shaoxing Zhejiang, China.
(h) Registered office: 21F, 69 Jervois Street, Sheung Wan, Hong Kong.
(i) Registered office: Fuda industrial Zone, Futian Town, Bolao, Huizho City, Guangdong, China
(j) Registered office: 13-8, Building 003, No 3, 5 and 6 of Century Oriental Business Plaza, Yinzhou, Ningbo, China.
(k) Registered office: Industrieweg 62, 7903 AK Hoogeveen, The Netherlands.
(l) Registered office: Voltastraat 12, 3281 NG Numansdorp, The Netherlands.
(m) Registered office: Jędrzychowice 116A, 59-900 Zgorzelec, Poland.
(n) Registered office: 121 Rayhur Street, Clayton, South Victoria 3169, Australia.
(o) Registered office: 3 Sanjiang Road West, Paojiang Ind Zone, Paojiang Shaoxing Zhejiang, China.
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 2020.
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
Accelerated capital allowances
Tax loss carried forward
Other timing differences
10 Cash and cash equivalents/bank overdrafts
Cash at bank and in hand
2019
£000
17
2018
£000
—
1,065
1,892
757
134
58
155
1,973
2,105
Note
9
2019
£000
2018
£000
26,849
26,849
1,998
28,847
1,769
28,618
2019
£000
—
110
110
2019
£000
81
760
1,157
1,998
2018
£000
10
24
34
2018
£000
88
264
1,417
1,769
2019
£000
2018
£000
58,093
10,807
121
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
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
2019
£000
(31)
130
1,533
203
3,534
—
5,369
2018
£000
(95)
462
398
187
3,550
153
4,655
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
Reclassified from other creditors
Provisions made in the year
Provisions used during the year
Unwinding of discounted amount
2019
£000
—
2019
£000
—
—
—
2019
£000
104
43
7
(71)
32
115
2018
£000
(10)
2018
£000
38
115
153
2018
£000
149
—
—
(72)
27
104
The provisions represent a provision for an onerous lease and dilapidations provision. The dilapidations provision relates
to a property lease that expires in August 2021. The onerous lease expires in November 2019 and the provision will be fully
utilised at that point.
15 Share capital
Allotted, called up and fully paid
78,365,046 (2018: 63,889,942) ordinary shares of 5p each
2019
£000
2018
£000
3,918
3,194
Of the 78,365,046 shares in the Company, 31,208 (2018: 31,208) are held by the International Greetings Employee
Benefit Trust.
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.
122
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
16 Share‑based payments
Refer to 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
2019
£000
—
110
2018
£000
10
24
86,781
39,606
—
—
(1,663)
(38)
(115)
(860)
85,228
38,627
(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.
(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
2019
Expected
cash flows
£000
One year
or less
£000
Carrying
amount
£000
2018
Expected
cash flows
£000
110
—
110
5,799
5,799
—
—
5,799
5,799
24
(115)
(91)
2,405
6,317
8,722
One year
or less
£000
2,405
6,317
8,722
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 2019 was £110,000 asset (2018: £91,000 liability) recognised in
other comprehensive income.
The amount recognised in the profit and loss account for the year was £nil (2018: £28,000 charge).
(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
2019
£000
Fair value
2018
£000
110
—
110
34
(153)
(119)
123
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31 MARCH 2019
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. At 31 March 2019, the Company had cash of
£58.7 million which offset net borrowings elsewhere in the Group of £44.7 million. Therefore, the total of this guarantee at
the year end, in relation to the Company only, was £44.7 million (2018: £20.1 million).
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 (£1.0 million), the USA $84.5 million (£65.0 million) and in Hong Kong $18.5 million (£14.2 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:
International Greetings Asia Ltd;
IG Design Group UK Ltd;
IG Design Group Americas, Inc;
Impact Innovations Inc;
•
•
•
• Lang Companies Inc;
•
• The Huizhou Gift International Greetings Company Ltd;
IG Design Group BV;
•
• Anchor International BV;
•
•
IG Design Group S.p.z.o.o; and
IG Design Group Australia Pty Ltd.
Transactions with key management personnel – total compensation (made up solely of short-term benefits) of key
management personnel (the Directors) in the year amounted to £1,867,000 (2018: £2,999,000). For further details see the
Directors’ remuneration report (pages 54 to 58).
Related party transactions – transactions with Group undertakings
Management recharges
Receivables outstanding
Creditors outstanding
2019
£000
2,613
27,914
(1,533)
2018
£000
2,546
28,741
(398)
During the year the Company paid £56,000 (2018: £62,000) 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 accounting estimates or judgements other than those showing
in note 2 to the Group financial statements.
21 Non‑adjusting post balance sheet event
On 5 June 2019 we entered into a new three year Group facility with a club of five banks chosen to reflect and support the
geographical spread of the Group. HSBC continue to be significant partner and have been joined in the new facility by
NatWest, BNP Paribas, Sun Trust and PNC. See note 17 of the Group’s financial statements for further details.
124
IG Design Group plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019
ADVISERS
AWARDS
Financial and nominated
adviser and broker
Canaccord Genuity Limited
88 Wood Street
London EC2V 7QR
Share registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham BR3 4TU
Design Group was delighted that
Impact Innovations, acquired in
August 2018, have been awarded
Walmart’s Celebration and Seasonal
‘Supplier of the Year’ award for 2019.
By phone:
UK 0871 664 0300,
Overseas +44 (0) 371 664 0300
By email: enquiries@linkgroup.co.uk
Visit us online at
thedesigngroup.com
Auditor
KPMG LLP
Altius House
One North Fourth Street
Milton Keynes MK9 1NE
Public relations
Alma PR
71‑73 Carter Lane
London EC4V 5EQ
Registered office
No 7, Water End Barns
Water End
Eversholt MK17 9EA
IG Design Group plc is registered in
England and Wales, number 1401155
Designed and produced by
www.lyonsbennett.com
The paper used in this report is produced using virgin wood fibre from
well‑managed forests with FSC© certification. All pulps used are elemental
chlorine free and manufactured at a mill that has been awarded the ISO 14001
and EMAS certificates for environmental management. The use of the FSC© logo
identifies products which contain wood from well‑managed forests certified 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 plcANNUAL REPORT AND FINANCIAL STATEMENTS 2019 I
G
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n
G
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A
N
N
U
A
L
R
E
P
O
R
T
A
N
D
F
I
N
A
N
C
I
A
L
S
T
A
T
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M
E
N
T
S
2
0
1
9
IG Design Group plc
No 7 Water End Barns
Water End
Eversholt MK17 9EA
T +44 (0)1525 887 310
thedesigngroup.com