RNS Number : 9309J
International Greetings PLC
11 December 2008
11th December 2008
International Greetings plc
("International Greetings" or "the Group")
HALF YEAR RESULTS
International Greetings (AIM: IGR), one of the world's leading designers, innovators and manufacturers of gift wrap, crackers, cards,
stationery and accessories, announces half year results to 30 September 2008.
Financial Highlights:
* Turnover increased to �100.5million (2007: �91.8million);
* Operating profit of �0.6million (2007: �4.1million) - before significant items;
* Finance costs increased to �3.6million (2007: �1.7million) - including re-financing;
* Loss before tax �7.8million (2007: profit �2.4million) - after significant items;
* Basic loss per share 10.8 pence (2007 3.0 pence earning). Adjusted loss per share of 1.0 pence (2007: 4.0 pence earnings);
* Adequate facilities in place to provide the necessary working capital for the business for the foreseeable future.
Operational highlights:
* Restructuring of UK Greetings Division ongoing - due to be concluded by March 2009;
* Hoomark manufacturing division maintaining market share in Europe;
* 30% increase in US sales;
* Investment in Halloween Express sold for net $3.5million;
* Machinery transferred from Latvia to China now commissioned
* Seasonal production in China successfully completed.
Keith James, Chairman of International Greetings commented: Although it is anticipated that the challenging retail environment is likely
to persist for some time, consumers and retailers continue to purchase substantial volumes of our products in all geographical territories.
With the restructuring and cost control initiatives announced last year we have not only prepared our business for the current economic
climate but we will also be in a good position to reap the rewards when market conditions improve.
For further information:
International Greetings PLC: Tel: 01707 630630
Nick Fisher, Chief Executive
Arden Partners plc:
Richard Day Tel: 020 7398 1632
Tavistock Communications: Tel: 020 7920 3150
Jeremy Carey
Matt Ridsdale
Chairman's Statement
Notwithstanding the challenges facing all businesses due to the economic climate we continue to focus on the two year recovery plan for
the turnaround of our business. Our key objectives are cash management, overhead control and margin enhancement. I announce below the
interim results for the six months to 30th September 2008
Financial Review
Turnover for the period was �100.5 million (2007: �91.7 million) with an adjusted operating profit, before significant items of �0.6
million (2007: �4.1 million). After significant items the operating loss was �4.3 million (2007:�4.1 million profit). Finance expenses
during the period increased to �3.6million from �1.7million last year. The Group's share of profits of continuing associates was �0.1million
(2007: Nil) and after significant items this resulted in a loss before tax of �7.8million (2007: �2.4 million profit). Basic loss per share
for the period was 10.8 pence (2007: 3.0 pence earnings). Adjusted loss per share before significant items and discontinued operations was
1.0 pence (2007: 4.0 pence earnings)
In light of current trading conditions the Board is of the opinion that it would not be appropriate to recommend an interim dividend at
this time (2007: 2.0 pence per share)
The increase in finance expenses reflects an increase in working capital required to support growth in turnover and interest rate
changes. In addition, to ensure that funding was secured for the year, detailed financial reviews of the Group were undertaken, and
specialist strategic and banking advice was taken. A significant item of �1.4 million relates to the associated costs of this advice. We
enjoy the continuing support of our banks and have in place adequate facilities to provide the necessary working capital for the business
for the foreseeable future.
Operational Review
In the UK, the restructuring of the Greetings Division continued during the first half of this financial year with significant items of
�1.6million. These costs relate primarily to redundancies with 116 members of staff leaving the business. A further 83 have left since the
period end. We anticipate that the restructuring will be concluded by the year end in March and that our business model will then be aligned
with the current demands of the UK market place.
In Europe, the Hoomark manufacturing division is achieving its goals of maintaining market share, but with a clear focus on improving
efficiency and, in turn, increasing margins.
In the US following last year's purchase of Glitterwrap, together with organic growth of the existing business, sales at the interim
stage increased by 30%. This trend is expected to continue for the full year.
We continue to look for ways to become more efficient in how we manufacture and distribute goods to the US market place and have
identified further rationalisation opportunities which will take place during the second half of the financial year. As previously
announced, the investment in Halloween Express was sold on April 30 with a net $3.5million being received for our share of the business.
In China we have completed a successful peak season of manufacturing at our plant. The equipment transferred from Latvia has now been
installed and commissioned which increases the range of products we are now able to manufacture rather than outsource. In light of the
economic conditions in the region we reassessed the value of this equipment which led to an impairment provision of �1.7 million. This will
result in a reduced depreciation charge in the future.
By investing in our own factory we have reduced the risk to our business from the challenging supply situation currently facing
businesses purchasing goods from China. With many factory closures in the region we, in common with others in our industry, have experienced
disruption of supply. This also includes the loss of a large quantity of seasonal goods due to a fire at a supplier's premises. These
problems have resulted in a significant loss in the period of �1m. We shall be submitting an insurance claim to cover that loss. With
greater control over our supply chain by increasing our own production we will minimise these problems in the future.
The investment in our associate Artwrap, Australia continues to meet our expectations. New business opportunities have been created by
Artwrap offering the Group's large portfolio of products to its customers and we continue to realise synergy benefits from joint sourcing in
China.
Board Changes and Management Incentive
It is being separately announced today that Nick Fisher, our CEO, who has been a key player in the development and growth of the Group
for the last 20 years, having successfully overseen the restructuring and management changes we have made over the last 12 months, has
decided to resign from the Board with effect from 31 December 2008. He has agreed to act as a consultant to the Board for the foreseeable
future and has indicated his intention to remain a shareholder.
On behalf of the Board and the shareholders, I thank Nick for his contribution to the business over many years and wish him well for the
future. Paul Fineman, who joined the Board in 2005 and became Group Managing Director last January, will succeed Nick as CEO.
We believe strongly in the future potential of our business and the motivation of our Executive Directors and Senior Management is key
to our success. To this end, the Board has approved a new share incentive scheme which will be implemented in due course. This scheme will
ensure that as our business succeeds and corporate value is restored for our shareholders, our management will also benefit from their hard
work and commitment.
Current Trading and Outlook
Our busiest trading period spans the half year end with substantial sales made during October and November. The bulk of deliveries have
now been made for the Christmas Season, in line with our expectations. Our sales teams are now actively in discussions with customers for
next year's seasonal orders with a clear focus on margin growth. In addition we continue to secure orders for our growing counter cyclical
spring and summer business which now accounts for approximately 50% of Group revenues.
Sales in the UK have remained stable year-on-year and we expect this trend to continue in the second half. It has been well publicised
that a number of retailers have either closed or are in difficulty. The Board has taken steps to protect our position and to reduce the
Group's exposure to these customers.
Although it is anticipated that the challenging retail environment is likely to persist for some time, consumers and retailers continue
to purchase substantial volumes of our products in all geographical territories. With the restructuring and cost control initiatives
announced last year we have not only prepared our business for the current economic climate but we will also be in a good position to reap
the rewards when market conditions improve.
Keith James OBE
Chairman
11 December 2008
Consolidated income statement
For the six months ended 30 September 2008
Unaudited Unaudited
six months six months
ended 30 ended 30 12 months
September September to 31 March
2008 2007 2008
Before Significant Total Before Significant Total
significant items significant items
items (note 4) items (note 4)
�000 �000 �000 �000 �000 �000 �000
Continuing operations
Revenue 100,503 - 100,503 91,736 194,168 - 194,168
Cost of sales (77,433) (2,477) (79,910) (64,829) (148,366) (4,309) (152,675)
Gross profit 23,070 (2,477) 20,593 26,907 45,802 (4,309) 41,493
Distribution expenses (9,097) (958) (10,055) (7,621) (16,041) (95) (16,136)
Administration expenses (14,024) (1,631) (15,655) (15,920) (30,096) (3,324) (33,420)
Other Operating Income 628 - 628 740 586 - 586
Profit on sales of fixed 21 199 220 - 31 257 288
assets
Operating (loss)/profit 598 (4,867) (4,269) 4,106 282 (7,471) (7,189)
Finance expenses (2,255) (1,379) (3,634) (1,674) (3,861) - (3,861)
Share of profit of associates 126 - 126 - 509 - 509
(net of tax)
(Loss)/profit before tax (1,531) (6,246) (7,777) 2,432 (3,070) (7,471) (10,541)
Income tax credit/(charge) 1,081 1,549 2,630 (552) 1,591 1,287 2,878
(Loss)/profit from continuing (450) (4,697) (5,147) 1,880 (1,479) (6,184) (7,663)
operations
Discontinued operations
Profit/(loss) from 48 - 48 (462) (1,411) (2,964) (4,375)
discontinued operations (net
of tax)
(Loss)/profit for the year (402) (4,697) (5,099) 1,418 (2,890) (9,148) (12,038)
attributable to equity holders
of parent company
(Loss)/earnings per ordinary
share
Basic & Diluted (10.8 p) 3.0 p (25.7 p)
Consolidated balance sheet
as at 30 September 2008
Unaudited Unaudited 12 months to
as at 30 as at 30 31
September September March
2008 2007 2008
�000 �000 �000
Non-current assets
Property, plant and equipment 41,034 43,813 43,485
Intangible assets 35,876 32,502 35,544
Investment in associates 3,217 3,630 3,106
Deferred tax assets 5,376 - 4,169
Total non current assets 85,503 79,945 86,304
Current assets
Inventory 72,862 66,472 56,990
Tax receivable 82 - 918
Trade and other receivables 81,662 84,192 33,779
Cash and cash equivalents 36 20 2,137
Other financial assets 427 - -
Assets classified as held for sale - - 1,718
Total current assets 155,069 150,684 95,542
Total assets 240,572 230,629 181,846
Equity
Share capital 2,353 2,353 2,353
Share premium 3,006 3,007 3,006
Reserves 17,451 13,298 15,263
Retained earnings 43,326 63,100 48,425
Total equity attributable to equity 66,136 81,758 69,047
holders of the parent company
Non-current liabilities
Loans and borrowings 8,632 1,900 1,843
Deferred income 4,276 4,597 4,752
Provisions 1,345 1,345 1,345
Other financial liabilities 924 6,170 2,806
Total non-current liabilities 15,177 14,012 10,746
Current liabilities
Bank overdraft 104,147 93,082 64,898
Loans and borrowings 442 256 241
Deferred income 953 954 954
Provisions 512 - 510
Trade and other payables 34,641 27,150 21,698
Income Tax liabilities 34 789 59
Other financial liabilities 18,530 12,628 13,693
Total current liabilities 159,259 134,859 102,053
Total liabilities 174,436 148,871 112,799
Total equity and liabilities 240,572 230,629 181,846
Consolidated cash flow statement
as at 30 September 2008
Unaudited Unaudited
6 months to 6 months to 12 months to
30 September 30 September 31 March
2008 2007 2008
�000 �000 �000
Cash flows from operating
activities
(Loss)/profit for the period/year (5,099) 1,418 (12,038)
Adjustments for:
Depreciation & impairment losses 4,581 2,833 6,759
Amortisation of intangible assets 101 - 221
Financial expenses 3,634 1,674 3,861
Share of (profit)/loss of (126) 343 390
associates
Gain on sale of property, plant (220) - (288)
and equipment
Equity settled share-based - 65 (213)
payments
Income tax (credit)/charge - (2,630) 552 (2,878)
continuing operations
Income tax charge/(credit) - 29 (54) (1,731)
discontinued operations
(Gain)/ loss on discontinued (77) - 3,969
associate included
within assets held for sale
Negative goodwill recognised - - (189)
Foreign exchange (losses)/gains - - (70)
Operating profit/(loss) before 193 6,831 (2,207)
changes in working
capital and provisions
Change in trade and other (43,048) (43,109) 7,834
receivables
Change in inventory (13,557) (14,402) (3,222)
Change in trade and other payables 12,312 9,665 3,834
Change in provisions and deferred 477 (416) (478)
income
Cash (absorbed by)/generated from (43,623) (41,431) 5,761
operations
Interest and similar charges paid (3,613) (2,074) (4,191)
Tax received/(paid) 861 (497) (1,533)
Net cash (outflow)/inflow from (46,375) (44,002) 37
operating activities
Cash flow from investing
activities
Proceeds from sale of property 1,255 3,715 5,114
plant and equipment
Acquisition of subsidiary, - (10,555) (11,187)
including overdrafts acquired
Acquisition of shares in - (791) (8,252)
associates
Net proceeds from the sale and - - 50
purchase of intangible assets
Acquisition of property plant and (1,815) (3,785) (7,295)
equipment
Receipt of government grants - 1,962 1,960
Receipts from sales of investments 1,796 20 20
Net cash inflow/(outflow) from 1,236 (9,434) (19,590)
investing activities
Cash flows from financing
activities
Change in borrowings 7,044 (159) (433)
Payment of finance lease (39) (48) (132)
liabilities
Dividends paid - (3,629) (4,570)
Net cash inflow/(outflow) from 7,005 (3,836) (5,135)
financing activities
Net decrease in cash and cash (38,134) (57,272) (24,688)
equivalents
Cash and cash equivalents at (62,761) (35,567) (35,567)
beginning of period
Effect of exchange rate (3,216) (223) (2,506)
fluctuations on cash held
Cash and cash equivalents at end (104,111) (93,062) (62,761)
of period
Consolidated statement of changes in equity
For the six months ended 30 September 2008
September 2008 Share Share Merger Retained Capital Hedging Translation
Total equity
capital Premium Reserve Earnings redemption reserve reserve
attributable to
reserve
equity holder
of
the parent
company
�000 �000 �000 �000 �000 �000 �000
�000
Balance at 1 April 2008 2,353 3,006 15,533 48,425 1,340 (125) (1,485)
69,047
Effective changes in fair - - - - - 432 -
432
value of cash flow
hedge (net of tax)
Exchange adjustment - - - - - - 1,756
1,756
Net income recognised directly - - - - - 432 1,756
2,188
in equity
Loss for the period - - - (5,099) - - -
(5,099)
Total income and expense - - - (5,099) - 432 1,756
(2,911)
recognised
for the period
Dividends paid - - - - - - -
-
Equity settled share based - - - - - - -
-
payments
Shares issued - - - - - - -
-
Balance at 30 September 2008 2,353 3,006 15,533 43,326 1,340 307 271
66,136
September 2007 Share capital Share Premium Merger Retained Capital Hedging Translation
Total equity
Reserve Earnings redemption reserve reserve
attributable to
reserve
equity holder
of
the parent
company
�000 �000 �000 �000 �000 �000 �000
�000
Balance at 1 April 2007 2,317 2,515 13,416 65,246 1,340 - (2,997)
81,837
Exchange adjustment - - - - - - (578)
(578)
Net income recognised directly - - - - - - (578)
(578)
in equity
Profit for the period - - - 1,418 - - -
1,418
Total income and expense - - - 1,418 - - (578)
840
recognised
for the period
Dividends paid - - - (3,629) - - -
(3,629)
Equity settled share based - - - 65 - - -
65
payments
Shares issued 36 492 2,117 - - - -
2,645
Balance at 30 September 2007 2,353 3,007 15,533 63,100 1,340 - (3,575)
81,758
March 2008 Share capital Share Premium Merger Retained Capital Hedging Translation
Total equity
Reserve Earnings redemption reserve reserve
attributable to
reserve
equity holder
of
the parent
company
�000 �000 �000 �000 �000 �000 �000
�000
Balance at 1 April 2007 2,317 2,515 13,416 65,246 1,340 - (2,997)
81,837
Effective changes in fair - - - - - (125) -
(125)
value of cash flow
hedge (net of tax)
Exchange adjustment - - - - - - 1,512
1,512
Net income recognised directly - - - - - (125) 1,512
1,387
in equity
Loss for the year - - (12,038)
(12,038)
Total income and expense - - - (12,038) - (125) 1,512
(10,651)
recognised
for the year
Dividends paid - - - (4,570) - - -
(4,570)
Equity settled share based - - - (213) - - -
(213)
payments
Shares issued 36 491 2,117 - - -
2,644
Balance at 31 March 2008 2,353 3,006 15,533 48,425 1,340 (125) (1,485)
69,047
Notes
1. Accounting policies
Basis of preparation
The financial information contained in this interim report does not constitute statutory accounts as defined in Section 240 of the
Companies act and is unaudited.
The group interim report has been prepared and approved by the directors in accordance with International Financial Reporting Standards
as adopted by the EU ("Adopted IFRSs."). The comparative figures for the financial year ended 31 March 2008 are based on the Group's
statutory accounts for that financial year. The report of the auditors was (i) unqualified (ii) did not include a reference to any matters
to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section
237 (2) or (3) of the Companies Act 1985.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in this group
interim report and in preparing an opening IFRS balance sheet at 1 April 2006 for the purposes of transition to Adopted IFRS.
The interim report has been prepared on the going concern basis notwithstanding the loss for the period of �5.1 million and net current
liabilities at 30 September 2008 of �4.2 million. The directors believe this to be appropriate because as in previous years, the Group
relies primarily on an overdraft facility for its working capital needs and its principal bank has stated that, without prejudice to the on
demand nature of the facility, it is their present intention that the facility will remain in place until 31 December 2009 when the renewal
of the facility will be reviewed. The bank has also confirmed, assuming the business performs in line with expectations, that the facility
will be renewed on 31 December 2009. The Directors consider that this will enable the company to continue to meet its liabilities as they
fall due for payment. As with any company placing reliance on external entities for financial support, the Directors acknowledge that there
can be no certainty that this support will continue although, at the date of approval of this interim report, they have no reason to believe it will not do so.
Adopted IFRS not yet applied
The following Adopted IFRSs were endorsed and available for early application but have not been applied by the Group in this interim
report.. Their adoption is not expected to have a material effect on the financial statements unless otherwise indicated:
IFRS 8 'Operating Segments' (mandatory for years commencing on or after 1 January 2009). The impact of this standard is to change the
way operating segments are presented in the financial statements. The standard requires disclosure of segment information based on the
internal reports regularly reviewed by Management in order to assess each segment's performance and to allocate resources to them. The Group
is currently reviewing the way in which internal reports are presented and so no segmental analysis is presented in this report.
Measurement convention
The interim report is prepared on the historical cost basis except that financial instruments used for hedging are stated at their fair
value.
Foreign currency translation
The consolidated interim report is presented in pounds sterling, which is the Group's presentational currency.
Transactions in foreign currencies are translated at the foreign exchange rate ruling 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 ruling at that date.
Foreign exchange differences arising on translation are recognised in the income statement.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated
at foreign exchange rates ruling 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 ruling 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.
2. Taxation charge
Taxation for the six months to 30 September is based on the effective rate of taxation, which is estimated to apply in each country for
the year ended 31 March 2009.
3. Earnings per share
6 months to 6 months to 12 months to
30 September 30 September 31 March
2008 2007 2008
�000 �000 �000
Adjusted basic (loss)/earnings per (1.0p) 4.0p (3.2p)
share excluding significant
items and discontinued operations
Loss per share on significant items (9.9p) - (13.2p)
Loss per share on discontinued 0.1p (1.0p) (9.3p)
operations
Basic (loss)/earnings per share (10.8p) 3.0p (25.7p)
Diluted (loss)/earnings per share (10.8p) 3.0p (25.7p)
The basic loss per share is based on the loss of �5,099,000 (2007:1,418,000 profit) and a weighted average number of ordinary shares in
issue of 47,056,685 (2007:46,600,114) calculated as follows:
Weighted average number of shares 30 September 30 September 31 March
at the start of the year in thousands 2008 2007 2008
of shares
Issued ordinary shares at start of 47,056 46,330 46,330
period
Shares issued in respect of - 262 461
acquisitions
Shares issued in respect of exercising - 8 8
of share options
Weighted average number of shares at 47,056 46,600 46,799
the
end of the year
Adjusted basic loss per share excluded significant items charged of �6,246,000 (2007:Nil), the tax relief attributable to those items of
�1,549,000 (2007: Nil), and the profit on discontinued operations (net of tax) of �48,000 (2007:�462,000 loss)
Share options have not been included in the calculation of fully diluted losses per share for 31 March 2008 because their inclusion
would be anti-dilutive. There were no options outstanding at 30 September 2008
4. Significant items
Cost Distribution Administration Profit on Financial Total
of expenses expenses disposal Expense
sales of plant
& equipment
�000 �000 �000 �000 �000 �000
Continuing operations for the
period to
30 September 2008
UK restructuring 208 110 1,436 (199) - 1,555
Financial restructuring - - - - 1,379 1,379
Woolworths bad debt provisions - 408 - - - 408
Latvia closure 1,735 - - - 1,735
Asian supplier disruption 534 440 27 - - 1,001
Other significant - - 168 - - 168
restructuring measures across
Group
2,477 958 1,631 (199) 1,379 6,246
Continuing operations for the
year ended
31 March 2008
UK restructuring 1,507 95 1,085 - - 2,687
Latvia closure 1,988 - 1,185 - - 3,173
Integration of acquisitions 814 - 735 - - 1,549
Aborted acquisition costs - - 319 - - 319
Profit on disposal of plant - - - (257) - (257)
and equipment
4,309 95 3,324 (257) - 7,471
UK restructuring costs, primarily staff redundancy, are due to the rationalisation currently being undertaken within the UK greetings
division.
Financial restructuring relates to the facility fees and external advisor costs incurred in order to secure the Group's banking
facilities of �115m required to provide the necessary working capital for the business for the foreseeable future.
The transfer of the equipment from the Group's Latvian production facility to other parts of the Group announced last year has now been
completed. In the light of current market conditions the economic value of this equipment has been reassessed which resulted in a one off
impairment of �1.7m.
After the half year end a significant UK high street retail customer went into administration, an increase in bad debt provisions of
�0.4m was made to cover the total amount unpaid prior to September. We are currently in negotiations with the administrators to recover some
or all of the amounts due.
During the year the Group incurred significant additional costs due to disruption of the supply of goods from subcontractors based in
Asia. The costs relate to the incremental expenditure incurred by switching to alternative suppliers and for air freight to customers. One
supplier suffered a fire in a warehouse filled with our seasonal products ready for shipment. The Company will be submitting an insurance
claim to cover these losses.
Other significant restructuring costs mainly relate to one off costs incurred due to the movement of production facilities within
Europe.
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