TIDMFOUR
RNS Number : 9756S
4imprint Group PLC
15 March 2023
15 March 2023
4imprint Group plc
Final results for the period ended 31 December 2022
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
4imprint Group plc (the "Group"), a direct marketer of
promotional products, today announces its final results for the 52
weeks ended 31 December 2022.
2022 2021
Financial Overview $m $m Change
--------- --------
Revenue 1,140.29 787.32 +45%
Operating profit 102.90 30.65 +236%
Profit before tax 103.71 30.23 +243%
Cash and bank deposits 86.75 41.59 +109%
------------------------------------------- --------- -------- ---------------
Basic EPS (cents)
Total paid and proposed regular dividend
per share (cents)
285.57 80.46 +255%
Total paid and proposed regular dividend
per share (pence) 160.00 45.00 +256%
Proposed special dividend per share 132.24 33.82 +291%
(cents)
200.00 - -
Proposed special dividend per share
(pence) 165.38 - -
------------------------------------------- --------- -------- ---------------
Operational Overview
* Strong trading momentum; strategic revenue target of
$1bn surpassed and profit before tax exceeded $100m
* 1,860,000 total orders processed in 2022 (2021:
1,429,000); 307,000 new customers acquired in the
year (2021: 263,000)
* Brand investment driving a step change in the
productivity of the overall marketing mix
* Very strong financial position, with cash and bank
deposits of $86.8m; no debt
* Special dividend proposed of 200.00c per share
* Good progress on ESG, including completion of the $2m
solar array project at the Oshkosh distribution
centre
Paul Moody, Chairman said:
Following an extremely strong trading performance in 2022, we
enter the 2023 financial year with momentum and confidence. Trading
results in the first few weeks of 2023 have been encouraging.
The person responsible for arranging the release of this
announcement on behalf of 4imprint Group plc is David Seekings, its
Chief Financial Officer.
For further information, please contact:
4imprint Group plc MHP Group
Tel. + 44 (0) 20 3709 9680 Tel. + 44 (0) 7884 494112
hq@4imprint.co.uk 4imprint@mhpgroup.com
Kevin Lyons-Tarr - Chief Executive Katie Hunt
Officer
David Seekings - Chief Financial Eleni Menikou
Officer
Chairman's Statement
Overview
2022 was an outstanding year for 4imprint. Two major financial
milestones were achieved:
-- We surpassed our strategic revenue target of $1bn; and
-- For the first time in the Group's history, profit before tax exceeded $100m.
Underpinning the numbers, 2022 was characterised by the
resilience and scalability of our direct marketing business model
and, above all, by the extraordinary dedication and tenacity of our
people in providing the best possible service to our customers in
the face of unprecedented growth in demand.
Financial performance
After a relatively quiet first quarter, strong trading momentum
was evident in the Group's financial performance for the remainder
of the year, prompting several unscheduled positive market
updates.
Enhanced productivity from our marketing activities, relative
stability in gross margins and operational leverage over fixed and
semi-fixed elements of the cost base joined together to produce a
powerful combination of growth, profitability and cash generation
for the year.
Group revenue for 2022 was $1.14bn, an increase of $353.0m or
45% over 2021. Profit before tax for the year was $103.7m (2021:
$30.2m), resulting in basic earnings per share of 285.57c, (2021:
80.46c). The Group ended 2022 in a strong financial position, with
cash and bank deposits of $86.8m (2021: $41.6m).
Strategic direction
The Group's progress in 2022 is a direct consequence of both the
clarity of our strategic direction and our deep-seated cultural
commitment to 'doing the right thing' for all stakeholders. In
particular, we took a long-term view of the business and its
prospects throughout the pandemic-affected years of 2020 and 2021.
Notably:
-- We did not deviate from our commitment to our people. They
are the cornerstone of the 4imprint culture and are essential to
producing such impressive financial results.
-- We continued to develop and invest in the increasingly
important brand component of our marketing programme. This
sustained strategic commitment has given us the flexibility we
anticipated and is clearly having a beneficial impact on the
efficiency of our marketing mix.
The Board recognises that adding more than $350m of organic
revenue in 2022 was an outstanding achievement, particularly after
a two-year period marked by the significant adverse impact of the
pandemic. As such, following on from its annual strategic review in
Oshkosh in early November 2022, the Board has approved significant
incremental investment in the business in 2023, primarily in
people, in order to consolidate gains already made and to drive
future profitable revenue growth.
In this context, the Board remains committed to the Group's
strategy and business model as well as confident in the strength of
its competitive position.
ESG
There have been several important developments in 2022 in
support of the Group's ESG objectives. We were re-certified as a
CarbonNeutral(R) company by Climate Impact Partners, and the team
has worked on several additional energy reduction initiatives, most
notably the installation of a 2,660 panel solar array at the
Oshkosh distribution centre. In addition, there has been
significant progress in expanding and developing Better
Choices(TM), our sustainable product initiative.
Dividend
The Group enters 2023 in a very strong financial position, with
cash and bank deposits of $86.8m. In view of the Group's financial
performance in 2022 and its likely cash requirements in 2023, the
Board recommends a final dividend per share of 120.00c (2021:
30.00c), giving a total paid and proposed 2022 regular dividend per
share of 160.00c (2021: 45.00c).
In addition, and consistent with both the Group's capital
allocation framework and its balance sheet funding guidelines, the
Board is pleased to recommend an additional, special dividend per
share of 200.00c (2021: 0.00c), to be paid in June 2023 alongside
the 2022 final dividend.
Outlook
Following an extremely strong trading performance in 2022, we
enter the 2023 financial year with momentum and confidence. Trading
results in the first few weeks of 2023 have been encouraging.
Paul Moody
Chairman
14 March 2023
Chief Executive's Review
2022 2021
Revenue $m $m Change
----------------------------- --------- ------- -------
North America 1,120.52 773.71 +45%
UK & Ireland 19.77 13.61 +45%
Total 1,140.29 787.32 +45%
----------------------------- --------- ------- -------
2022 2021
Operating profit $m $m Change
----------------------------- --------- ------- -------
Direct Marketing operations 107.91 34.54 +212%
Head Office costs (5.01) (3.89) +29%
Total 102.90 30.65 +236%
----------------------------- --------- ------- -------
Performance overview
2022 was a remarkable year for 4imprint. Guided by a clear
strategic plan and driven by the tremendous efforts of our
teammates and supplier partners, we have emerged from the pandemic
stronger than we entered it, generating record levels of revenue
and profitability, increased market share and excellent progress on
several important initiatives.
The first quarter of 2022 was broadly in line with our initial
expectation to deliver another solid step forward in the recovery
of the business after two years that were badly affected by the
pandemic. Total orders received in the first quarter were up a
respectable 7% when measured against 2019, the last 'normal'
comparative. However, from the start of the second quarter through
to the end of 2022 the trading performance of the Group improved
markedly. Total orders in that period were up over the same 2019
comparative by an aggregate of 20%.
Comparisons to the prior year are equally impressive. In total,
1,860,000 orders were processed in 2022, representing an increase
of 30% over 2021. Importantly, the proportion of new customers
acquired has been very encouraging. In 2022 we acquired 307,000 new
customers, a 17% increase over the 263,000 acquired in the prior
year. The recovery in new customer acquisition in both 2021 and
2022 drove robust existing customer order counts which had
previously been hindered by the sharp decrease in customer
acquisition activity during the worst of the pandemic in 2020. It
is reassuring that customers acquired during the pandemic/recovery
timeframe have demonstrated typical or even slightly improved
retention characteristics, indicating that they are squarely within
our target profile.
Average order values in 2022 were 5% above prior year, the
result of changes in the merchandising mix as well as general
inflationary price adjustments through the year. This led to a
total increase at the demand revenue (value of orders received)
level of 36% over 2021.
These very strong demand numbers translated into significant
gains in year-on-year financial performance.
-- Group revenue for 2022 was $1.14bn, representing an increase
of 45% or $353.0m over 2021. It should be noted that 2022 revenue
was boosted by a timing effect of around $30m related to an
unusually high order backlog at the 2021 year-end. This was caused
by global and local supply chain issues delaying orders in process.
As anticipated, this situation largely unwound to the benefit of
2022 reported revenue as the supply situation improved and orders
were completed.
-- In terms of profitability, the Group delivered a step change
in results. Operating profit for 2022 of $102.90m was 236% above
the 2021 comparative of $30.65m. Clearly, the revenue volume growth
outlined above was a key factor in driving this very favourable
profitability dynamic, but the effect was amplified by: (i) gross
margins remaining broadly stable in an inflationary environment;
(ii) significant gains in the productivity of our marketing
investment; and (iii) operational gearing over the fixed and
semi-fixed elements of the cost base.
-- The 4imprint direct marketing business model remains very
cash generative, with free cash flow in the year of $63.88m (2021:
$5.95m) leading to cash and bank deposits at the 2022 year-end of
$86.8m (2021: $41.6m).
We are convinced that the strength of the Group's financial
performance in 2022 is a direct result of our strategic commitment
to keep investing in the business even during a severe economic
downturn. We know that this continued investment, primarily in
people and marketing, forms the foundation necessary to take
advantage of the significant market share opportunity that lies
ahead.
Operational highlights
Beyond the financial performance, much progress was made on
operational initiatives, all set in the context of the stresses and
strains on the organisation from delivering more than $350m of
incremental organic revenue growth in a short space of time.
-- People. Our people are crucial to our current and future
success. This was clearly demonstrated in the context of the very
strong demand levels seen in the business from the second quarter
of 2022 onwards. Our team members across the entire business were
willing to go above and beyond to deliver the best possible
customer service in the face of record order intake volumes and an
improving but still challenging supply chain. We have invested in
remuneration and benefit initiatives in the year, including the
full restoration of quarterly payouts under our quarterly
'gainshare' and other leadership bonus plans that had been paused
during the pandemic. In addition, in September 2022 we paid a
special "one-off" bonus of $1,000 or local equivalent to all team
members in recognition of extraordinary effort and an attitude of
mind that so clearly reflects 4imprint's culture and values. So far
we have been successful in attracting, recruiting and training the
additional team members that we need to service our further growth
aspirations.
-- Marketing. Our commitment to staying in front of our
customers during an economic downturn was validated as the pandemic
receded. The strategic evolution of our marketing mix in recent
years to include and increasingly invest in a brand awareness
element was accelerated and we have used the improved flexibility
this new mix offers to take full advantage of the immediate market
share opportunity, at the same time as strengthening the business
for the long term. The success of this approach to managing our
marketing budget in 2022 was reflected in large part in our revenue
per marketing dollar KPI in the year of $8.86, an increase of 44%
over prior year (2021: $6.17).
-- Supply. As anticipated, the supply chain constraints seen in
2021 continued into the first half of 2022. The deep relationships
that we have with our key tier 1 suppliers again proved to be
invaluable in dealing with these situations, with the effect that
the logistics, inventory and production labour pressures eased
considerably in the second half of the year. In common with most
businesses, we experienced significant inflationary pressure on
cost of product during the year. Whilst we implemented carefully
considered price increases to help address these increasing costs,
we continued to approach pricing thoughtfully so as to remain very
well positioned in the market, supporting the strong customer
acquisition and retention numbers described above.
-- Screen-printing. In April 2022 we completed the purchase of
the business and assets of a small, nearby apparel screen-printing
business that had been a long-standing and valued supplier. The
assets, but more importantly the expertise acquired will provide
the seed from which we can expand our apparel decorating
capabilities and capacity in support of the continued growth of
this category. In terms of strategic rationale, the parallel is the
substantial in-house embroidery operation, built from small
beginnings, that has underpinned our significant growth in this
important category.
ESG
Even as the team worked incredibly hard to manage the swift and
sharp recovery, excellent progress was made on our ESG agenda in
2022.
-- We maintained and renewed our CarbonNeutral (R) business certification.
-- The team has worked on further energy and waste reduction
initiatives, with the ultimate goal of moving towards clean energy
initiatives and reducing reliance on carbon offset products.
-- A 2,660 panel solar array was installed and became
operational in the year at the Oshkosh distribution centre.
-- There has been exciting progress in expanding and developing
our Better Choices (TM) sustainable products range.
Looking ahead
We are proud of what our business has achieved in 2022. Our
strategy is clear, our business model is flexible and scalable and
we see opportunities to take more share in the markets in which we
operate.
Financial Review
2022 2021
$m $m
--------------------------- -------- -------
Operating profit 102.90 30.65
Net finance income/(cost) 0.80 (0.42)
--------------------------- -------- -------
Profit before tax 103.70 30.23
Taxation (23.56) (7.64)
Profit for the period 80.14 22.59
--------------------------- -------- -------
The Group's operating result in the period, summarising expense
by function, was as follows:
2022 2021
$m $m
-------------------------------------------------------- --------- ---------
Revenue 1,140.29 787.32
-------------------------------------------------------- --------- ---------
Gross profit 321.94 226.02
Marketing costs (128.68) (127.53)
Selling costs (38.64) (32.16)
Administration and central costs (50.36) (34.73)
Share option charges and related social security costs (0.84) (0.61)
Defined benefit pension scheme administration costs (0.52) (0.34)
-------------------------------------------------------- --------- ---------
Operating profit 102.90 30.65
-------------------------------------------------------- --------- ---------
Operating result
Following the recovery of the business from the effects of the
pandemic in the prior year, the positive trading momentum continued
throughout 2022, resulting in record levels of demand. This trading
profile, along with an increase in average order values and
improved supply chain conditions, drove full year revenue to
$1.14bn, an increase of $0.35bn or 44.8% compared to $0.79bn in
2021.
The gross profit percentage declined 0.5% to 28.2% (2021:
28.7%). Persistent inflationary pressures in the challenging
macroeconomic and geopolitical environment increased product,
transportation and labour costs, which were partially offset by a
considered approach to selling price adjustments taken to maintain
customer acquisition to drive future growth.
Marketing costs reduced to 11.3% of revenue, compared to 16.2%
of revenue in 2021. 2022 saw a step change in marketing
productivity driven by investment in the brand element of marketing
mix, and our commitment to staying in front of customers during the
pandemic. This has led to the revenue per marketing dollar KPI
rising to $8.86, a 43.6% increase over prior year (2021:
$6.17).
Selling, administration and central costs together increased
33.1% to $89.00m (2021: $66.89m). This increase is attributable to
additional investment in team members, particularly in customer
service and at our operational facilities to support elevated
demand activity, and higher incentive compensation costs and bad
debt reserves in line with trading performance.
These factors, when combined together, demonstrate the financial
leverage in the business model, thereby delivering material uplifts
in both operating profit to $102.90m (2021: $30.65m) and operating
margin to 9.02% (2021: 3.89%).
Foreign exchange
The primary US dollar exchange rates relevant to the Group's
2022 results were as follows:
2022 2021
Period-end Average Period-end Average
Sterling 1.20 1.24 1.35 1.38
Canadian dollars 0.74 0.77 0.79 0.80
------------------ ----------- -------- ----------- --------
The Group reports in US dollars, its primary trading currency.
It also transacts business in Canadian dollars, Sterling and Euros.
Sterling/US dollar is the exchange rate most likely to impact the
Group's financial performance.
The primary foreign exchange considerations relevant to the
Group's operations are as follows:
-- Translational risk in the income statement remains low with
98% of the Group's revenue arising in US dollars, the Group's
reporting currency. The net impact on the 2022 income statement
from trading currency movements was not material to the Group's
results.
-- Most of the constituent elements of the Group balance sheet
are US dollar-based. Exceptions are the Sterling-based defined
benefit pension asset and the UK cash balances, which produced
exchange losses of $0.20m and $1.21m respectively for the year.
-- The Group generates cash mostly in US dollars, but its
primary applications of post-tax cash are Shareholder dividends,
pension contributions and some Head Office costs, all of which are
paid in Sterling. As such, the Group's cash position is sensitive
to Sterling/US dollar exchange movements. By way of example, using
actual exchange rates, the movement of Sterling against the US
dollar during 2022 meant that every US$1m converted to Sterling was
worth around GBP89,000 more at the 2022 closing rate compared to
the 2021 closing rate.
Share option charges
A total of $0.84m (2021: $0.61m) was charged in the year in
respect of IFRS 2 'Share-based Payments'. This was made up of two
elements: (i) executive awards under the Deferred Bonus Plan (DBP)
and 2015 Incentive Plan; and (ii) charges in respect of the 2019 UK
SAYE and the 2021 US Employee Stock Purchase Plan.
Current options and awards outstanding are 2,059 shares under
the UK SAYE, 89,388 shares under the 2021 US Employee Stock
Purchase Plan, and 29,633 shares under the 2015 Incentive Plan.
Awards under the DBP in respect of 2022 are anticipated to be made
in late March 2023.
Net finance income/(cost)
Net finance income for the year was $0.80m (2021: net finance
cost $0.42m). This comprises interest earned on cash deposits,
lease interest charges under IFRS 16, and the net income/(charge)
on the defined benefit pension plan assets and liabilities.
Interest income increased significantly during the year to
$1.16m (2021: $0.03m), driven by improving yields on higher cash
deposits, particularly in the US where interest rates have been
steadily raised during the year in response to economic
conditions.
Taxation
The tax charge for the year was $23.56m (2021: $7.64m), giving
an effective tax rate of 23% (2021: 25%). The charge comprises a
current tax charge of $23.99m representing tax payable on US
taxable profits; a current tax charge of $1.19m in respect of UK
profits; and a deferred tax credit of $1.62m.
The decrease in the effective tax rate is principally due to UK
tax losses utilised in the year and the recognition of a deferred
tax asset for UK tax losses that, following a review of updated
forecasts of UK taxable profits, are expected to be utilised in the
next three years. The US business also benefitted from a federal
tax credit of $0.47m in respect of its investment in a solar array
at the Oshkosh distribution centre.
Earnings per share
Basic earnings per share was 285.57c (2021: 80.46c), an increase
of 255%. This reflects the 255% increase in profit after tax, and a
weighted average number of shares in issue similar to prior
year.
Dividends
Dividends are determined in US dollars and paid in Sterling,
converted at the exchange rate on the date that the dividend is
declared.
The Board has proposed a final dividend of 120.00c per share
(2021: 30.00c) which, together with the interim dividend of 40.00c
per share, gives a total paid and proposed regular dividend
relating to 2022 of 160.00c per share (2021: 45.00c), an increase
of 256% compared to prior year.
The final dividend has been converted to Sterling at an exchange
rate of GBP1.00/$1.2093. This results in a final dividend per share
payable to Shareholders of 99.23p (2021: 22.99p), which, combined
with the interim dividend paid of 33.01p per share, gives a total
dividend per share for the year of 132.24p (2021: 33.82p).
In addition to the interim and final dividends, the Board has
also proposed a special dividend of 200.00c per share (165.38p)
(2021: nil), which will be paid at the same time as the final
dividend in June 2023. This special dividend is non-recurring in
nature and is in accordance with the Group's established balance
sheet funding and capital allocation policies which are described
in more detail below.
The final and special dividends, together amounting to 320.00c
per share (264.61p), will be paid on 1 June 2023 to Shareholders on
the register at the close of business on 5 May 2023.
Defined benefit pension plan
The Group sponsors a legacy UK defined benefit pension plan (the
"Plan") which has been closed to new members and future accrual for
several years. The Plan has 118 pensioners and 210 deferred
members.
At 31 December 2022, the surplus of the Plan on an IAS 19 basis
was $1.23m (2021: $1.97m). Gross Plan assets under IAS 19 were
$21.52m, and liabilities were $20.29m.
The change in the net IAS 19 Plan position is analysed as
follows:
$m
----------------------------------------------------- --------
IAS 19 surplus at 1 January 2022 1.97
Company contributions to the Plan 4.37
Defined benefit pension scheme administration costs (0.52)
Pension finance income 0.07
Re-measurement gain due to changes in assumptions 11.91
Return on scheme assets (excluding interest income) (16.37)
Exchange loss (0.20)
----------------------------------------------------- --------
IAS 19 surplus at 31 December 2022 1.23
----------------------------------------------------- --------
The net IAS 19 surplus decreased by $0.74m in the year. This was
mainly the result of a fall in the Plan asset values driven by high
inflation (the assets are held in gilts, the values of which move
with inflation and interest rate expectations, and liquidity
funds), partly offset by the increase in the discount rate used to
measure the Plan liabilities. In Sterling, the net IAS 19 surplus
decreased by GBP0.44m in the year to a surplus of GBP1.02m.
The Company continues to pay regular monthly contributions into
the Plan as part of a recovery plan agreed by the Company and the
Trustee that aims towards funding on a buyout basis by mid-2024. As
the Plan moves towards becoming 'buyout ready', the Company and the
Trustee continue to assess options on the timing and route to
achieving this objective.
A triennial actuarial valuation of the Plan was completed in
September 2019 and this forms the basis of the 2022 IAS 19
valuation set out above. The next triennial Plan valuation is
underway and is expected to be completed in the first half of
2023.
Business combination
On 25 April 2022, the Group acquired the trade and assets of Fox
Graphics Ltd, a private company based in Oshkosh, Wisconsin, that
specialises in screen-printing services. The acquired
screen-printing operations will enable the Group to bring this
capability in-house. With future investment the objective is to
secure the capacity to meet the anticipated growth in demand for
the apparel category.
The acquisition constitutes a business combination as defined in
IFRS 3, as the three elements of a business (input, process,
output) have been identified as having been acquired. Accordingly,
the acquisition has been accounted for using the acquisition
method.
The fair value of the consideration transferred was $1.70m and
the net identifiable assets acquired and liabilities assumed as at
the date of acquisition have been determined at $0.69m. The
resulting goodwill of $1.01m has been recognised on the balance
sheet during the period.
Further information on this acquisition is provided in note
5.
Cash flow
The Group had cash and bank deposits of $86.75m at 31 December
2022, an increase of $45.16m against the 1 January 2022 balance of
$41.59m.
Cash flow in the period is summarised as follows:
2022 2021
$m $m
------------------------------------------------------ -------- --------
Operating profit 102.90 30.65
Share option charges 0.82 0.60
Defined benefit pension scheme administration charge 0.52 0.34
Depreciation and amortisation 4.02 3.67
Lease depreciation 1.51 1.34
Change in working capital (8.44) (13.76)
Capital expenditure (8.01) (3.47)
------------------------------------------------------ -------- --------
Underlying operating cash flow 93.32 19.37
Tax and interest (20.06) (6.82)
Consideration for business combination (1.70) -
Defined benefit pension scheme contributions (4.37) (4.59)
Own share transactions (0.87) (0.84)
Capital element of lease payments (1.23) (1.12)
Exchange and other (1.21) (0.05)
Free cash flow 63.88 5.95
Dividends to Shareholders (18.72) (4.13)
------------------------------------------------------ -------- --------
Net cash inflow in the period 45.16 1.82
------------------------------------------------------ -------- --------
The Group generated underlying operating cash flow of $93.32m
(2021: $19.37m), a conversion rate of 91% of operating profit
(2021: 63%). The net working capital position, whilst remaining
elevated, has fallen significantly as a percentage of revenue
compared to the 2021 year-end reflecting the improved supply chain
conditions. Capital expenditure includes $1.82m on a solar array at
the Oshkosh distribution centre which became fully operational in
December 2022, and $2.93m on equipment and facility build out costs
in relation to the acquired screen-printing operations.
Free cash flow improved by $57.93m to $63.88m (2021: $5.95m).
This is attributable to the excellent trading performance during
the period and is net of $1.70m of business acquisition
consideration.
The 2021 final dividend of $8.14m was paid in May 2022 and the
2022 interim dividend of $10.58m was paid in September 2022.
Balance sheet and Shareholders' funds
Net assets at 31 December 2022 were $140.22m, compared to
$82.97m at 1 January 2022. The balance sheet is summarised as
follows:
31 December 1 January
2022 2022
$m $m
--------------------------------------- ------------ ----------
Non-current assets (excluding pension
asset) 46.71 38.04
Working capital 20.84 12.27
Cash and bank deposits 86.75 41.59
Lease liabilities (13.75) (12.09)
Pension asset 1.23 1.97
Other assets - net (1.56) 1.19
Net assets 140.22 82.97
--------------------------------------- ------------ ----------
Shareholders' funds increased by $57.25m since the 2021
year-end. Constituent elements of the movement were net profit in
the period of $80.14m and share option related movements of $1.01m,
net of equity dividends paid to Shareholders $(18.72)m, own share
transactions of $(0.87)m, the after tax impact of returns on
pension scheme assets and re-measurement gains on pension
obligations of $(2.70)m, and exchange losses of $(1.61)m.
The Group had a net positive working capital balance of $20.84m
at 31 December 2022 (2021: $12.27m), reflecting the build-up of
accrued revenue and inventory on orders in process at year-end. As
a percentage of revenue, the net working capital balance has
reduced materially from the prior year-end, which was significantly
impacted by global and local supply chain issues caused by the
pandemic.
Balance sheet funding
The Board is committed to aligning the Group's funding with its
strategic priorities. This requires a stable, secure and flexible
balance sheet through different economic cycles. The Group will
therefore typically remain ungeared and hold a positive cash and
bank deposits position.
The Board's funding guidelines are unchanged, and aim to provide
operational and financial flexibility:
-- To facilitate continued investment in marketing, people and
technology through different economic cycles, recognising that an
economic downturn typically represents a market share opportunity
for the business.
-- To protect the ability of the business to act swiftly as
growth opportunities arise in accordance with the Group's capital
allocation guidelines.
-- To underpin a commitment to Shareholders through the
maintenance of regular interim and final dividend payments.
-- To meet our pension contribution commitments as they fall due.
The quantum of the cash target at each year-end will be
influenced broadly by reference to the investment requirements of
the business, and the subsequent year's anticipated full year
ordinary dividend and pension payment obligations.
The Board will keep these guidelines under review and is
prepared to be flexible if circumstances warrant.
Capital allocation
The Board's capital allocation framework is designed to deliver
increasing Shareholder value, driven by the execution of the
Group's growth strategy. The Group's capital allocation priorities
are:
-- Organic growth investments
o Either capital projects or those expensed in the income
statement.
o Market share opportunities in existing markets.
-- Interim and final dividend payments
o Increasing broadly in line with earnings per share through the
cycle.
o Aim to at least maintain dividend per share in a downturn.
-- Residual legacy pension funding
o In line with agreed funding schedule.
o Further de-risking initiatives, if viable.
-- Mergers & acquisitions
o Not a near-term priority.
o Opportunities that would support organic growth.
-- Other Shareholder distributions
o Quantified by reference to cash over and above balance sheet
funding requirement.
o Special dividends most likely method: other methods may be
considered.
In keeping with these capital allocation priorities and taking
into account both the cash-generative nature of business operations
and the Group's investment plans for 2023 and beyond, the Board has
recommended a return to Shareholders of around $56.1m by way of a
special dividend of 200.00c per share, payable in June 2023.
Treasury policy
The financial requirements of the Group are managed through a
centralised treasury policy. The Group operates cash pooling
arrangements for its North American operations. Forward contracts
may be taken out to buy or sell currencies relating to specific
receivables and payables as well as remittances from overseas
subsidiaries. There were no forward contracts open at the
period-end or prior period-end. The Group holds most of its cash
with its principal US and UK bankers.
The Group has a $20.0m working capital facility with its
principal US bank, JPMorgan Chase, N.A. The facility has a minimum
EBITDA test and standard debt service coverage ratio and debt to
EBITDA covenants. The interest rate is the Secured Overnight
Financing Rate (SOFR) plus 2.1%, and the facility expires on 31 May
2024. In addition, an overdraft facility of GBP1.0m, with an
interest rate of the Bank of England base rate plus 2.0% (or 2.0%
if higher), is available from the Group's principal UK bank, Lloyds
Bank plc, until 31 December 2023. The Group expects these
facilities to be renewed prior to their respective expiry
dates.
The Group had cash and bank deposits of $86.75m at the year-end
and has no current requirement or plans to raise additional equity
or core debt funding.
Estimates and judgments
The preparation of the consolidated financial statements
requires management to make judgments and estimates that affect the
application of accounting policies, the amounts reported for assets
and liabilities as at the balance sheet date and the amounts
reported for revenues and expenses during the year.
Critical accounting judgments are those judgments, apart from
those involving estimations, that have been 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. Key assumptions and sources of estimation uncertainty
are those that have a significant risk of resulting in a material
adjustment to the carrying amounts of the Group's assets and
liabilities within the next financial year.
Management considers the critical accounting judgments to be in
respect of revenue and the retirement benefit asset, and key
assumptions and sources of estimation uncertainty to relate to the
valuation of the defined benefit pension plan liabilities.
A review of internal and external indications of impairment was
undertaken in accordance with IAS 36 for both the North American
and UK cash-generating units (CGU). This did not lead to formal
impairment reviews being undertaken for either CGU. The Company has
released GBP329k from the expected credit loss provision on a loan
to a subsidiary undertaking in its individual financial
statements.
Viability statement
In accordance with Provision 31 of the UK Corporate Governance
Code 2018, the Board has assessed the prospects and viability of
the Group.
Assessment of prospects
In making their assessment of the Group's prospects, the
Directors have carefully considered:
-- The Group's strategy, market position and business model.
-- The principal risks and uncertainties facing the Group, as
outlined in this Financial Review and Appendix 1.
-- Information contained in this Financial Review concerning the
Group's financial position, cash flows and liquidity.
-- Regular management reporting and updates from the Executive Directors.
-- Recent detailed financial forecasts and analysis for the
three-year period to 27 December 2025.
Principal risks and uncertainties
The Directors have carefully considered the Group's principal
risks and uncertainties in assessing the Group's prospects, which
include strategic risks, operational risks, reputational risks, and
environmental risks. Whilst all the risks identified could have an
impact on the Group, given the prevailing external climate and
potential to impact the Group's financial position and longer-term
viability, macroeconomic and environmental risks are considered in
further detail below.
Macroeconomic risks
Whilst the risk of a negative effect on demand for our products
from the pandemic is considered to have receded during the year,
the macroeconomic and geopolitical environment remains
challenging.
The ongoing uncertainty associated with the outlook for a
potential global recession and continued geopolitical unrest poses
downside risks to growth and the cost base. Inflationary pressures
(mainly in relation to product, transportation, and labour costs)
have persisted since the onset of the pandemic although the impact
on the business has to date been successfully mitigated through
appropriate and timely adjustments to the customer proposition, the
marketing mix and expense budgets. In addition, the maintenance of
high levels of liquidity has facilitated continued investment in
the business for future growth.
The operational and financial resilience of the business through
the pandemic and current economic and political uncertainty,
coupled with the strong financial position of the Group, give the
Board confidence that the strategy, competitive position, and
business model remain entirely relevant and that despite residual
uncertainty as to future market conditions, the Group expects to be
in a good position both to withstand further economic stress and to
take market share opportunities as they arise.
The potential impacts from the current macroeconomic risks and
associated mitigating actions have been reflected in the demand and
cost assumptions of the financial forecasts used to assess
viability and going concern.
Environmental risks
As a primary strategic objective of the Group and as noted above
in the assessment of prospects, environment-related risks and
opportunities are specifically considered by the Board in their
assessment of viability and going concern.
The Group has established an appropriate governance structure,
in the form of the Group Environmental Committee and Business Risk
Management Committee, to identify new and emerging risks related to
climate change and the environment.
Environmental risks have the potential to impact the Group's
ability to achieve its strategic objectives through damage to our
reputation, our operational facilities and those of our supplier
partners, and the failure to respond to trends and shifts in
consumer product preferences.
The Group has proactively responded to these risks with several
initiatives. These include the achievement of CarbonNeutral(R)
company status, the installation of a solar panel array at our
distribution centre in Oshkosh, the introduction of our Better
Choices(TM) programme to make it easier for our customers to find
products with the characteristics that are most important to them,
and participation in the UPS carbon neutral shipping programme. The
flexible nature of our 'drop-ship' model and close relationships
maintained with key and alternative suppliers allows for relatively
rapid adjustment to episodes of extreme weather.
Whilst governmental and societal responses to climate change
risks are still developing, and therefore all possible future
outcomes are not known, the Group has embedded environmental
matters into its strategic objectives and sees climate change and
other aspects of environmental stewardship as a fundamental part of
a commitment to build a commercially and environmentally
sustainable business that delivers value to all stakeholders.
The cash flow impacts of our environmental initiatives are
incorporated into the financial forecasts used to assess viability
and going concern.
Viability assessment period
In their assessment of viability, the Directors have reviewed
the assessment period and have determined that a three-year period
to 27 December 2025, in line with the Group's rolling strategic
planning process, continues to be most appropriate.
In the context of the fast-moving nature of the business, its
markets, and the relatively short-term nature of the order book,
the Directors consider that the robustness of the strategic plan is
higher in the first three years and recognises that forecast
information beyond this period is significantly less reliable.
The Group's business model does not rely heavily on fixed
capital, long-term contracts, or fixed external financing
arrangements.
Assessment of viability
Whilst the principal risks and uncertainties outlined in this
Financial Review and Appendix 1 could all have an impact on the
Group's performance, the Board considers that the key factor that
would prejudice the ongoing viability and liquidity of the Group
would be a severe downturn in demand, which negatively impacts new
customer acquisition and existing customer retention.
The 'base case' three-year plan, developed for the purposes of
the Group's strategic planning process, provides the basis for the
financial modelling used to assess viability. Over the three-year
period this 'base case' shows improving financial results, an
accumulating cash balance and no liquidity concerns.
Severe, but plausible, downside demand assumptions were then
determined and used to adjust the 'base case' forecast to model the
effects on the Group's liquidity. These 'downside' scenarios assume
a significant deterioration in demand patterns during 2023, similar
to those experienced in 2020 when the pandemic started, with order
volumes for the first year of the three-year forecast period
dropping back to around 70% of 2022 levels, before gradually
recovering back to 2022 order levels by 2025. Marketing and direct
costs were flexed in line with revenue, capital expenditure was
moderated to reflect the reduction in demand, and dividend payments
were reduced in line with earnings per share, but other payroll and
overhead costs remained at 2022 levels with an allowance for
inflationary increases. These 'downside' scenarios are intended to
simulate a severe shock to demand resulting in sustained diminished
corporate demand in a downsized promotional products market.
Even under the severe stress built into the 'downside' models,
the Group retains strong liquidity throughout the assessment
period. This liquidity is in the form of cash balances. In
addition, there are further mitigating actions that the Group could
take, including further cutting marketing costs and reducing
headcount, that are not reflected in the distressed forecast but
would, if required, be fully under the Group's control.
Given the scalability of the Group's business model, as
demonstrated over the past few years, the absence of external
financing, and low fixed or working capital requirements, a reverse
stress testing scenario has not been undertaken. The Group has
proven during the onset of the pandemic in 2020 its ability to flex
its marketing and other costs to mitigate the impact of falls in
revenue and retains flexibility to further reduce other costs
should the need arise.
Though the Group maintains a $20m line of credit with its US
bankers that expires on 31 May 2024 and a small overdraft facility
with its UK bankers that expires on 31 December 2023, the modelling
in both the 'base case' and 'downside' scenarios shows the
maintenance of positive cash balances throughout the assessment
period and, as such, there is no current requirement to utilise the
facilities or intention to secure any additional facilities.
The assumptions used in the 'base case' and 'downside' scenarios
and resulting financial forecasts have been reviewed and approved
by the Board. The conclusion of this review is that the Group has
significant flexibility in its variable costs, a low fixed cost
base, and enters the 2023 financial year with a strong cash and
bank deposits position of $86.8m, enabling it to remain cash
positive even under severe economic stress.
Confirmation of viability
Based on this review of the Group's prospects and viability, the
Directors confirm that they have a reasonable expectation that the
Group will continue to operate and to meet its liabilities as they
fall due, for the next three years to 27 December 2025.
Going concern
Based on their assessment, the Directors have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group's and Company's ability to continue as a going concern from
the date the financial statements are approved until 29 June 2024.
Accordingly, they continue to adopt the going concern basis in
preparing the Group's and Company's financial statements.
Principal Risks & Uncertainties
The Board recognises that effective risk management and a robust
system of internal control are integral components of good
corporate governance and are fundamental to the long-term
sustainable success of the Group. Risk appetite, the risk
management process, and associated mitigating activities and
controls are all essential elements of the Group's strategic and
operational planning processes.
Risk appetite
4imprint's business model means that it may be affected by
numerous risks, not all of which are within its control. The Board
seeks to take a balanced approach to the risks and uncertainties
that it faces, encouraging an appetite for measured risk-taking
that contributes to both the operational agility and innovative
culture that it believes is necessary to meet the Group's strategic
objectives. That risk appetite is, however, tempered by risk
identification, evaluation and management.
Risk management process
The Board has ultimate responsibility for oversight and
management of risk and control across the Group. The Audit
Committee assists the Board in fulfilling its responsibilities to
maintain effective governance and oversight of the Group's risk
management and internal controls.
Risks are identified on a top-down and bottom-up basis from many
sources, including internally, through the Board and operational
and functional management teams, and externally, to ensure that
emerging risks are considered. Risk identification focuses on those
risks which, if they occurred, have the potential to have a
material impact on the Group and the achievement of its strategic,
operational and compliance objectives. Risks are categorised into
the following groups: strategic risks; operational risks;
reputational risks; and environmental risks.
Management is responsible for evaluating each significant risk
and implementing specific risk mitigation activities and controls
with the aim of reducing the resulting residual risk to an
acceptable level, as determined in conjunction with the Group's
risk appetite. The Business Risk Management Committee reviews the
consolidated Group risk register and the mitigating actions and
controls at regular meetings and provides updates to the Audit
Committee on a bi-annual basis. This process is supplemented with
risk and control assessments completed by the operating locations
and Group function annually.
The Board
The Board undertakes a formal review of the Group's principal
and emerging risks at least annually, assessing them against the
Group's risk appetite and strategic objectives. The Executive
Directors will routinely update the Board on urgent emerging issues
and principal risks where the residual risk exceeds the Group's
risk appetite to allow the Board to determine whether the actions
being taken by management are sufficient.
Outlined in Appendix 1 are the current principal risks and
uncertainties that would impact the successful delivery of the
Group's strategic goals. These are consistent with those disclosed
in the prior year. The list is not exhaustive and other, as yet
unidentified, factors may have an adverse effect.
Kevin Lyons-Tarr David Seekings
Chief Executive Officer Chief Financial Officer
14 March 2023
Group Income Statement for the 52 weeks ended 31 December
2022
2022 2021
Note $'000 $'000
-------------------------------- ---- ----------- ---------
Revenue 1 1,140,286 787,322
Operating expenses (1,037,384) (756,676)
-------------------------------- ---- ----------- ---------
Operating profit 1 102,902 30,646
Finance income 1,162 33
Finance costs (425) (435)
Pension finance income/(charge) 67 (15)
-------------------------------- ---- ----------- ---------
Net finance income/(cost) 804 (417)
Profit before tax 103,706 30,229
Taxation 2 (23,563) (7,643)
-------------------------------- ---- ----------- ---------
Profit for the period 80,143 22,586
-------------------------------- ---- ----------- ---------
Cents Cents
-------------------------------- ---- ----------- ---------
Earnings per share
Basic 3 285.57 80.46
Diluted 3 284.95 80.26
-------------------------------- ---- ----------- ---------
Group S tatement of Comprehensive Income for the 52 weeks ended
31 December 2022
2022 2021
Note $'000 $'000
Profit for the period 80,143 22,586
---------------------------------------------------- ---- -------- -------
Other comprehensive income
Items that may be reclassified subsequently
to the income statement:
Currency translation differences (1,614) (97)
Items that will not be reclassified subsequently
to the income statement:
Return on pension scheme assets (excluding
interest income) (16,374) (1,391)
Re-measurement gains on post-employment obligations 11,916 2,506
Tax relating to components of other comprehensive
income 2 1,756 (1,411)
Other comprehensive income for the period,
net of tax (4,316) (393)
---------------------------------------------------- ---- -------- -------
Total comprehensive income for the period,
net of tax 75,827 22,193
---------------------------------------------------- ---- -------- -------
Group Balance Sheet at 31 December 2022
2022 2021
Note $'000 $'000
--------------------------------------- ---- -------- --------
Non-current assets
Property, plant and equipment 29,255 24,667
Intangible assets 957 1,045
Goodwill 5 1,010 -
Right-of-use assets 13,103 11,725
Deferred tax assets 2,381 600
Retirement benefit asset 7 1,234 1,974
47,940 40,011
--------------------------------------- ---- -------- --------
Current assets
Inventories 18,090 20,559
Trade and other receivables 87,511 63,589
Current tax debtor - 2,034
Other financial assets - bank deposits 34,913 -
Cash and cash equivalents 51,839 41,589
--------------------------------------- ---- -------- --------
192,353 127,771
--------------------------------------- ---- -------- --------
Current liabilities
Lease liabilities 6 (1,435) (1,150)
Trade and other payables (84,761) (71,877)
Current tax creditor (1,205) -
(87,401) (73,027)
--------------------------------------- ---- -------- --------
Net current assets 104,952 54,744
--------------------------------------- ---- -------- --------
Non-current liabilities
Lease liabilities 6 (12,315) (10,939)
Deferred tax liabilities (357) (850)
(12,672) (11,789)
--------------------------------------- ---- -------- --------
Net assets 140,220 82,966
--------------------------------------- ---- -------- --------
Shareholders' equity
Share capital 18,842 18,842
Share premium reserve 68,451 68,451
Other reserves 4,406 6,020
Retained earnings 48,521 (10,347)
--------------------------------------- ---- -------- --------
Total Shareholders' equity 140,220 82,966
--------------------------------------- ---- -------- --------
Group Statement of Changes in Shareholders' Equity for the 52
weeks ended 31 December 2022
Retained earnings
-----------------------
Share
Share premium Other Profit Total
capital reserve reserves Own shares and loss equity
$'000 $'000 $'000 $'000 $'000 $'000
----------------------------------------- --------- -------- --------- ------------ --------- --------
Balance at 3 January 2021 18,842 68,451 6,117 (581) (27,458) 65,371
----------------------------------------- --------- -------- --------- ------------ --------- --------
Profit for the period 22,586 22,586
Other comprehensive income
Currency translation differences (97) (97)
Re-measurement gains on post-employment
obligations 1,115 1,115
Tax relating to components
of other comprehensive income
(note 2) (1,411) (1,411)
Total comprehensive income (97) 22,290 22,193
----------------------------------------- --------- -------- --------- ------------ --------- --------
Own shares utilised 573 (573) -
Own shares purchased (843) (843)
Share-based payment charge 602 602
Deferred tax relating to share
options 5 5
Deferred tax relating to UK
tax losses (228) (228)
Dividends (4,134) (4,134)
Balance at 1 January 2022 18,842 68,451 6,020 (851) (9,496) 82,966
----------------------------------------- --------- -------- --------- ------------ --------- --------
Profit for the period 80,143 80,143
Other comprehensive income
Currency translation differences (1,614) (1,614)
Re-measurement losses on post-employment
obligations (4,458) (4,458)
Tax relating to components
of other comprehensive income
(note 2) 1,756 1,756
Total comprehensive income (1,614) 77,441 75,827
Proceeds from options exercised 344 344
Own shares utilised 1,191 (1,191) -
Own shares purchased (1,210) (1,210)
Share-based payment charge 815 815
Deferred tax relating to share
options 52 52
Deferred tax relating to UK
tax losses 148 148
Dividends (18,722) (18,722)
Balance at 31 December 2022 18,842 68,451 4,406 (870) 49,391 140,220
----------------------------------------- --------- -------- --------- ------------ --------- --------
Group Cash Flow Statement for the 52 weeks ended 31 December
2022
2022 2021
Note $'000 $'000
--------------------------------------------- ---- -------- -------
Cash flows from operating activities
Cash generated from operations 8 97,040 18,257
Tax paid (20,755) (6,414)
Finance income received 1,130 33
Finance costs paid (33) (65)
Lease interest (398) (377)
Net cash generated from operating activities 76,984 11,434
--------------------------------------------- ---- -------- -------
Cash flows from investing activities
Purchases of property, plant and equipment (7,719) (3,083)
Purchases of intangible assets (341) (382)
Proceeds from sale of property, plant and
equipment 49 -
Consideration for business combination 5 (1,700) -
Increase in current asset investments - bank
deposits (35,003) -
Net cash used in investing activities (44,714) (3,465)
--------------------------------------------- ---- -------- -------
Cash flows from financing activities
Capital element of lease payments (1,225) (1,117)
Proceeds from share options exercised 344 -
Purchases of own shares (1,210) (843)
Dividends paid to Shareholders 4 (18,722) (4,134)
--------------------------------------------- ---- -------- -------
Net cash used in financing activities (20,813) (6,094)
--------------------------------------------- ---- -------- -------
Net movement in cash and cash equivalents 11,457 1,875
Cash and cash equivalents at beginning of
the period 41,589 39,766
Exchange losses on cash and cash equivalents (1,207) (52)
--------------------------------------------- ---- -------- -------
Cash and cash equivalents at end of the
period 51,839 41,589
--------------------------------------------- ---- -------- -------
Notes to the Financial Statements
General information
4imprint Group plc, registered number 177991, is a public
limited company incorporated in England and Wales, domiciled in the
UK and listed on the London Stock Exchange. Its registered office
is 25 Southampton Buildings, London WC2A 1AL.
The Group presents the consolidated financial statements in US
dollars and numbers are shown in US dollars thousands. A
substantial portion of the Group's revenue and earnings are
denominated in US dollars and the Board is of the opinion that a US
dollar presentation gives a more meaningful view of the Group's
financial performance and position.
Accounting policies
The principal accounting policies applied in these financial
statements are consistent with those of the annual financial
statements for the period ended 1 January 2022, as described in
those annual financial statements, except for the additional
accounting policy detailed below.
Business combinations and goodwill
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the fair value of
the consideration transferred. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair value at the
acquisition date. The excess of the cost of acquisition over the
Group's share of identifiable net assets is recorded as goodwill.
Acquisition-related costs are expensed as incurred.
For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated to
the Group's cash-generating units that are expected to benefit from
the combination. Goodwill is not amortised but is reviewed annually
for impairment.
Basis of preparation
This announcement was approved by the Board of Directors on 14
March 2023. The financial information in this announcement does not
constitute the Group's statutory accounts for the periods ended 31
December 2022 or 1 January 2022 but it is derived from those
accounts. Statutory accounts for 1 January 2022 have been delivered
to the Registrar of Companies, and those for 31 December 2022 will
be delivered after the Annual General Meeting. The auditor has
reported on those accounts. Their reports were unqualified, did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
did not contain a statement under section 498(2) or (3) of the
Companies Act 2006.
The audited consolidated financial statements from which these
results are extracted have been prepared under the historical cost
convention in accordance with UK-adopted International Accounting
Standards.
New accounting standards applicable for the first time in this
reporting period have no impact on the Group's results or balance
sheet.
Environmental risks
In preparing the financial statements, management has considered
the impact of environmental risks. Whilst the impact of
environmental risks is still developing and therefore all possible
future outcomes are uncertain, risks known to the Group have been
considered in forming judgments, estimates and assumptions and in
assessing viability and going concern. These considerations did not
have a material impact on the financial statements.
Going concern
In making their assessment of going concern from the date of
approval of these financial statements until 29 June 2024, the
Directors have carefully considered the Group's prospects:
-- The Group's strategy, market position and business model.
-- The principal risks and uncertainties facing the Group, as outlined in the Financial Review
-- Information contained in the Financial Review concerning the
Group's financial position, cash flows and liquidity.
-- Regular management reporting and updates from the Executive Directors.
-- Recent detailed financial forecasts and analysis.
Principal risks and uncertainties
The Directors have carefully considered the Group's principal
risks and uncertainties in assessing the Group's prospects, which
include strategic risks, operational risks, reputational risks, and
environmental risks. Whilst all the risks identified could have an
impact on the Group, given the prevailing external climate and
potential to impact the Group's financial position and longer-term
viability, macroeconomic and environmental risks are considered in
further detail below.
Macroeconomic risks
Whilst the risk of a negative effect on demand for our products
from the pandemic is considered to have receded during the year,
the macroeconomic and geopolitical environment remains
challenging.
The ongoing uncertainty associated with the outlook for a
potential global recession and continued geopolitical unrest poses
downside risks to growth and the cost base. Inflationary pressures
(mainly in relation to product, transportation, and labour costs)
have persisted since the onset of the pandemic although the impact
on the business has to date been successfully mitigated through
appropriate and timely adjustments to the customer proposition, the
marketing mix and expense budgets. In addition, the maintenance of
high levels of liquidity has facilitated continued investment in
the business for future growth.
The operational and financial resilience of the business through
the pandemic and current economic and political uncertainty,
coupled with the strong financial position of the Group, give the
Board confidence that the strategy, competitive position, and
business model remain entirely relevant and that despite residual
uncertainty as to future market conditions, the Group expects to be
in a good position both to withstand further economic stress and to
take market share opportunities as they arise.
The potential impacts from the current macroeconomic risks and
associated mitigating actions have been reflected in the demand and
cost assumptions of the financial forecasts used to assess
viability and going concern.
Environmental risks
As a primary strategic objective of the Group and as noted above
in the assessment of prospects, environment-related risks and
opportunities are specifically considered by the Board in their
assessment of viability and going concern.
The Group has established an appropriate governance structure,
in the form of the Group Environmental Committee and Business Risk
Management Committee, to identify new and emerging risks related to
climate change and the environment.
Environmental risks have the potential to impact the Group's
ability to achieve its strategic objectives through damage to our
reputation, our operational facilities and those of our supplier
partners, and the failure to respond to trends and shifts in
consumer product preferences.
The Group has proactively responded to these risks with several
initiatives. These include the achievement of CarbonNeutral(R)
company status, the installation of a solar panel array at our
distribution centre in Oshkosh, the introduction of our Better
Choices(TM) programme to make it easier for our customers to find
products with the characteristics that are most important to them,
and participation in the UPS carbon neutral shipping programme. The
flexible nature of our 'drop-ship' model and close relationships
maintained with key and alternative suppliers allows for relatively
rapid adjustment to episodes of extreme weather.
Whilst governmental and societal responses to climate change
risks are still developing, and therefore all possible future
outcomes are not known, the Group has embedded environmental
matters into its strategic objectives and sees climate change and
other aspects of environmental stewardship as a fundamental part of
a commitment to build a commercially and environmentally
sustainable business that delivers value to all stakeholders.
The cash flow impacts of our environmental initiatives are
incorporated into the financial forecasts used to assess viability
and going concern.
Assessment of going concern
Whilst the principal risks and uncertainties could all have an
impact on the Group's performance, the Board considers that the key
factor that would prejudice the ongoing viability and liquidity of
the Group would be a severe downturn in demand, which negatively
impacts new customer acquisition and existing customer
retention.
The 'base case' three-year plan, developed for the purposes of
the Group's strategic planning process, provides the basis for the
financial modelling used to assess viability. Over the three-year
period this 'base case' shows improving financial results, an
accumulating cash balance and no liquidity concerns.
Severe, but plausible, downside demand assumptions were then
determined and used to adjust the 'base case' forecast to model the
effects on the Group's liquidity. These 'downside' scenarios assume
a significant deterioration in demand patterns during 2023, similar
to those experienced in 2020 when the pandemic started, with order
volumes for the first year of the three-year forecast period
dropping back to around 70% of 2022 levels, before gradually
recovering back to 2022 order levels by 2025. Marketing and direct
costs were flexed in line with revenue, capital expenditure was
moderated to reflect the reduction in demand, and dividend payments
were reduced in line with earnings per share, but other payroll and
overhead costs remained at 2022 levels with an allowance for
inflationary increases. These 'downside' scenarios are intended to
simulate a severe shock to demand resulting in sustained diminished
corporate demand in a downsized promotional products market.
Even under the severe stress built into the 'downside' models,
the Group retains strong liquidity throughout the assessment
period. This liquidity is in the form of cash balances. In
addition, there are further mitigating actions that the Group could
take, including further cutting marketing costs and reducing
headcount, that are not reflected in the distressed forecast but
would, if required, be fully under the Group's control.
Given the scalability of the Group's business model, as
demonstrated over the past few years, the absence of external
financing, and low fixed or working capital requirements, a reverse
stress testing scenario has not been undertaken. The Group has
proven, during the onset of the pandemic in 2020, its ability to
flex its marketing and other costs to mitigate the impact of falls
in revenue and retains flexibility to further reduce other costs
should the need arise.
Though the Group maintains a $20m line of credit with its US
bankers that expires on 31 May 2024 and a small overdraft facility
with its UK bankers that expires on 31 December 2023, the modelling
in both the 'base case' and 'downside' scenarios shows the
maintenance of positive cash balances throughout the assessment
period and, as such, there is no current requirement to utilise the
facilities or intention to secure any additional facilities.
The assumptions used in the 'base case' and 'downside' scenarios
and resulting financial forecasts have been reviewed and approved
by the Board. The conclusion of this review is that the Group has
significant flexibility in its variable costs, a low fixed cost
base, and enters the 2023 financial year with a strong cash and
bank deposits position of $86.8m, enabling it to remain cash
positive even under severe economic stress.
Going concern
Based on their assessment, the Directors have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group's and Company's ability to continue as a going concern from
the date the financial statements are approved until 29 June 2024.
Accordingly, they continue to adopt the going concern basis in
preparing the Group's and Company's financial statements.
Estimates and judgments
The preparation of the consolidated financial statements
requires management to make judgments and estimates that affect the
application of accounting policies, the amounts reported for assets
and liabilities as at the balance sheet date and the amounts
reported for revenues and expenses during the year.
Critical accounting judgments are those judgments, apart from
those involving estimations, that have been 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. Key assumptions and sources of estimation uncertainty
are those that have a significant risk of resulting in a material
adjustment to the carrying amounts of the Group's assets and
liabilities within the next financial year.
Management considers the following to be the critical accounting
judgments and key assumptions and sources of estimation
uncertainty:
Critical accounting judgments
Revenue
For most of its product line, the Group operates a 'drop-ship'
business model whereby suppliers hold blank inventory, imprint the
product and ship directly to customers. In order to determine the
amount of revenue to recognise, it is necessary for the Group to
make a judgment to assess if it is acting as principal or an agent
in fulfilling the performance obligations and promises to customers
for these transactions.
The Group has full discretion to accept orders, agrees artwork
with the customer, sets the transaction price, selects the
suppliers used to fulfil orders, and considers its customer
satisfaction promises ('on-time or free', price and quality
guarantees) to be integral to meeting its performance
obligations.
Accordingly, the Group is of the opinion that it acts as
principal in providing goods to customers and recognises the gross
amount of consideration as revenue.
Retirement benefit asset
At the balance sheet date, the fair value of the defined benefit
assets exceeded the present value of the defined benefit
obligations of the 4imprint 2016 Pension Plan. Although the Group
anticipates that the surplus will be utilised during the life of
the plan to address members' liabilities, the Group recognises the
surplus in full on the basis that it is management's judgment that
there are no restrictions on the return of residual plan assets in
the event of a winding up of the plan after all member obligations
have been met.
Key assumptions and sources of estimation uncertainty
Pensions
As detailed in note 7, the Group sponsors a defined benefit
pension scheme closed to new members and future accrual. Period-end
recognition of the liabilities under this scheme requires a number
of significant actuarial assumptions to be made, including
inflation rate, discount rate and mortality rates. Small changes in
assumptions can have a significant impact on the amounts recorded
in other comprehensive income and on the pension liabilities in the
balance sheet.
1 Segmental reporting
The chief operating decision maker has been identified as the
Board of Directors and the segmental analysis is presented based on
the Group's internal reporting to the Board.
At 31 December 2022, the Group has two operating segments, North
America and UK & Ireland. The costs of the Head Office are
reported separately to the Board, but this is not an operating
segment.
2022 2021
Revenue $'000 $'000
--------------------- ---------- --------
North America 1,120,517 773,710
UK & Ireland 19,769 13,612
--------------------- ---------- --------
Total Group revenue 1,140,286 787,322
--------------------- ---------- --------
2022 2021
Profit $'000 $'000
--------------------------------------------------- -------- --------
North America 107,965 36,006
UK & Ireland (54) (1,464)
--------------------------------------------------- -------- --------
Operating profit from Direct Marketing operations 107,911 34,542
Head Office costs (5,009) (3,896)
--------------------------------------------------- -------- --------
Operating profit 102,902 30,646
Net finance income/(cost) 804 (417)
Profit before tax 103,706 30,229
--------------------------------------------------- -------- --------
2 Taxation
2022 2021
$'000 $'000
Current tax
UK tax - current 1,191 -
Overseas tax - current 23,970 5,910
Overseas tax - prior periods 24 15
--------------------------------------------------- -------- -------
Total current tax 25,185 5,925
--------------------------------------------------- -------- -------
Deferred tax
Origination and reversal of temporary differences (1,537) 1,718
Adjustment in respect of prior periods (85) -
Total deferred tax (1,622) 1,718
Taxation 23,563 7,643
--------------------------------------------------- -------- -------
The tax for the period is different to the standard rate of
corporation tax in the respective countries of operation.
The differences are explained below:
2022 2021
$'000 $'000
---------------------------------------------------------- -------- -------
Profit before tax 103,706 30,229
Profit before tax for each country of operation
multiplied by rate of corporation tax applicable
in the respective countries 25,440 7,087
Effects of:
Adjustments in respect of prior periods (61) 15
Expenses not deductible for tax purposes and non-taxable
income (16) 4
Other differences (417) 62
UK tax losses utilised in the period (196) (274)
UK losses (recognised)/de-recognised for deferred
tax (1,187) 749
Taxation 23,563 7,643
---------------------------------------------------------- -------- -------
'Other differences' includes adjustments in respect of share
options, US leases and a US Federal tax credit of $472k for the
investment in a solar array at the Oshkosh distribution centre.
'UK losses (recognised)/de-recognised for deferred tax' relates
to changes to the deferred tax asset in respect of brought forward
UK tax losses which are forecast to be utilised against UK taxable
profits over the next three years.
Management does not consider that there are any material
uncertain tax positions.
Income tax credited/(debited) to other comprehensive income is
as follows:
2022 2021
$'000 $'000
------------------------------------------------------ -------- --------
Current tax relating to post-employment obligations 1,191 -
Deferred tax relating to post-employment obligations (344) (213)
Deferred tax relating to UK tax losses 876 (1,198)
Effect of change in UK tax rate 33 -
1,756 (1,411)
------------------------------------------------------ -------- --------
Income tax credited/(debited) to equity is as follows:
2022 2021
$'000 $'000
---------------------------------------- -------- -------
Deferred tax relating to UK tax losses 148 (228)
Deferred tax relating to share options 52 5
-------- -------
200 (223)
---------------------------------------- -------- -------
3 Earnings per share
Basic and diluted
The basic and diluted earnings per share are calculated based on
the following data:
2022 2021
$'000 $'000
------------------ -------- -------
Profit after tax 80,143 22,586
------------------ -------- -------
2022 2021
Number Number
'000 '000
------------------------------------------- -------- --------
Basic weighted average number of shares 28,064 28,072
Adjustment for employee share options 61 68
------------------------------------------- -------- --------
Diluted weighted average number of shares 28,125 28,140
------------------------------------------- -------- --------
2022 2021
Cents Cents
------------------------------------------- -------- --------
Basic earnings per share 285.57 80.46
------------------------------------------- -------- --------
Diluted earnings per share 284.95 80.26
------------------------------------------- -------- --------
The basic weighted average number of shares excludes shares held
in the 4imprint Group plc employee benefit trust. The effect of
this is to reduce the average number by 21,632 (2021: 13,888).
The basic earnings per share is calculated based on the profit
for the financial period divided by the basic weighted average
number of shares.
For diluted earnings per share, the basic weighted average
number of ordinary shares in issue is adjusted to assume conversion
of all potential dilutive ordinary shares. The potential dilutive
ordinary shares relate to those share options granted to employees
where the exercise price is less than the average market price of
the Company's ordinary shares and which are likely to vest at the
balance sheet date.
4 Dividends
2022 2021
Equity dividends - ordinary shares $'000 $'000
------------------------------------- -------- -------
Interim paid: 40.00c (2021: 15.00c) 10,587 4,134
Final paid: 30.00c (2021: 00.00c) 8,135 -
------------------------------------- -------- -------
18,722 4,134
------------------------------------- -------- -------
The Directors are proposing a final regular dividend in respect
of the period ended 31 December 2022 of 120.00c per share, as
well as a special dividend of 200.00c per share. Subject to Shareholder
approval at the AGM, these dividends are payable on 1 June 2023
to Shareholders registered on 5 May 2023. These financial statements
do not reflect these proposed dividends.
5 Business combinations
Acquisition of screen-printing business
On 25 April 2022, the Group acquired the trade and assets of Fox
Graphics Ltd, a private company based in Oshkosh, Wisconsin, that
specialises in screen-printing services. The acquired
screen-printing operations will enable the Group to bring this
capability in-house. With future investment the objective is to
secure the capacity to meet the anticipated growth in demand for
the apparel category.
The acquisition constitutes a business combination as defined in
IFRS 3, as the three elements of a business (input, process,
output) have been identified as having been acquired. Accordingly,
the acquisition has been accounted for using the acquisition
method.
The fair values of the identifiable assets acquired and
liabilities assumed as at the date of acquisition were:
Fair value recognised
on acquisition
$'000
--------------------------------------------- ----------------------
Assets
Property, plant and equipment 686
Computer hardware 4
Right-of-use assets 111
801
--------------------------------------------- ----------------------
Liabilities
Lease liabilities (111)
(111)
--------------------------------------------- ----------------------
Total identifiable net assets at fair value 690
--------------------------------------------- ----------------------
Goodwill arising on acquisition 1,010
--------------------------------------------- ----------------------
Purchase consideration transferred 1,700
--------------------------------------------- ----------------------
Analysis of cash flows on acquisition:
Cash paid 1,700
--------------------------------------------- ----------------------
Net cash flow on acquisition 1,700
--------------------------------------------- ----------------------
In addition to the purchase consideration transferred, a
potential further $560,000 is payable in annual instalments over
the five-year period following closing, subject to certain
conditions being satisfied, including the continued employment of
the selling shareholder with the Group. These contingent payments
constitute remuneration for future services and will be expensed to
profit and loss as services are rendered; $67,000 has been
recognised in operating expenses in the income statement and in
trade and other payables in the balance sheet.
Reconciliation of the carrying amount of goodwill at the
beginning and end of the reporting period is presented below:
Goodwill
$'000
------------------------------------------------- ---------
Cost
At 2 January 2022 -
Acquisition of screen-printing trade and assets 1,010
------------------------------------------------- ---------
At 31 December 2022 1,010
------------------------------------------------- ---------
The Group did not acquire any receivables as part of the
business combination.
The acquired business generated revenues and net income of
approximately $2.0m and $0.4m respectively for the twelve months
ended 31 December 2021. The Group was the principal customer of the
acquired business, contributing approximately $1.7m of the total
$2.0m of revenue and approximately $0.3m of the total $0.4m net
income.
The impact on the Group's financial statements, both from the
date of acquisition and as if the acquisition had taken place at
the beginning of the period, are not material as demonstrated by
the full year results of Fox Graphics Ltd noted above. As most of
the revenue of the acquired business was contributed by the Group,
these transactions will be eliminated upon consolidation from the
date of acquisition as intra-group trading and thus only external
sales will impact Group revenue (based on 2021 results, this would
be expected to add circa $0.3m to revenue for a full year). The
Group will benefit from lower product costs associated with
integrating the production operations of Fox Graphics Ltd; based on
2021 results and without any new investment by the Group, the
acquisition would be expected to add circa $0.4m to the Group's
profit before tax for a full year.
The goodwill recognised is primarily attributable to the
specialised operational knowledge acquired and benefits of bringing
the activities of the screen-printing business in-house to secure
capacity and support the growing demand for decorated garments from
our customers. The total amount of goodwill that is expected to be
deductible for tax purposes is $1,010,000.
As required by IAS 36 'Impairment of Assets', goodwill is
required to be tested for impairment annually. The screen-printing
operations contribute to the cash flows of the US CGU and therefore
the goodwill arising on acquisition has been tested in conjunction
with the other assets of that CGU. The recoverable amount of the US
CGU exceeds the carrying amount of the assets and thus no
impairment of the goodwill balance is required.
Total acquisition-related transaction costs of $17,000 have been
included in operating expenses in the income statement and are part
of operating cash flows in the cash flow statement.
6 Leases
The Group leases premises in Oshkosh and Appleton, Wisconsin.
The lease for office premises in Oshkosh, that was renewed in 2020,
has a five-year term with a five-year extension option. New leases
entered during the period as part of the strategic decision to
bring screen-printing capability in-house are as follows:
-- A seventeen-month sublease on premises in Oshkosh entered as
part of the acquisition of the trade and assets of Fox Graphics Ltd
(see note 5) resulted in additions to the lease liability and
right-of-use asset of $111k respectively.
-- A new ten-year lease on premises in Appleton was subsequently
entered into to facilitate the expansion of the screen-printing
operations, adding $2,775k to lease liabilities and right-of use
assets respectively. The interest rate inherent in the lease could
not be ascertained; therefore, estimates have been used based upon
incremental costs of borrowing for a similar term and asset,
obtained from the Group's US bankers. A change of plus or minus
1.0% in the interest rate would result in a decrease/increase in
the lease liability at the year-end of $0.1m respectively.
In addition, there are various items of leasehold land and
buildings (office facilities in London) and machinery on short-term
leases, and some office equipment with low value. The Group applies
the IFRS 16 exemptions for short-term and low value leases. No
leases contain variable payment terms.
2022 2021
Lease liabilities $'000 $'000
--------------------------- -------- -------
Due within one year 1,435 1,150
Due in two to three years 2,955 2,407
Due in four to five years 3,449 2,733
Due in over five years 5,911 5,799
--------------------------- -------- -------
The movement in lease liabilities in the period is shown
below:
2022 2021
$'000 $'000
----------------------------------------------- -------- --------
At start of period 12,089 13,206
Additions 2,886 -
Interest charge 398 377
Lease interest payments - operating cash flow (398) (377)
Lease capital payments - financing cash flow (1,225) (1,117)
At end of period 13,750 12,089
----------------------------------------------- -------- --------
7 Employee pension schemes
The Group operates defined contribution plans for its UK and US
employees. The regular contributions are charged to the income
statement as they are incurred. The charges recognised in the
income statement are:
2022 2021
$'000 $'000
----------------------------------------- --- -------- -------
Defined contribution plans - employers'
contributions 2,533 2,117
---------------------------------------------- -------- -------
The Group also sponsors a UK defined benefit pension scheme
which is closed to new members and future accrual.
The amounts recognised in the income statement are as
follows:
2022 2021
$'000 $'000
----------------------------------------- -------- -------
Administration costs paid by the scheme 521 340
Pension finance (income)/charge (67) 15
Total defined benefit pension charge 454 355
----------------------------------------- -------- -------
The amounts recognised in the balance sheet comprise:
2022 2021
$'000 $'000
------------------------------------------- --------- ---------
Present value of funded obligations (20,290) (37,826)
Fair value of scheme assets 21,524 39,800
------------------------------------------- --------- ---------
Net asset recognised on the balance sheet 1,234 1,974
------------------------------------------- --------- ---------
The principal assumptions applied by the actuaries, as
determined by the Directors, at each period-end were:
2022 2021
% %
----------------------------------------- ----- -----
Rate of increase in pensions in payment 3.08 3.25
Rate of increase in deferred pensions 2.66 2.75
Discount rate 4.82 1.80
Inflation assumption - RPI 3.16 3.35
- CPI 2.66 2.75
----------------------------------------- ----- -----
The mortality assumptions adopted at 31 December 2022 reflect
the most recent version of the tables used in the September 2019
triennial valuation. The assumptions imply the following life
expectancies at age 65:
2022 2021
Years Years
-------------------------- ------ ------
Male currently aged 45 22.3 22.3
Female currently aged 45 24.2 24.2
Male currently aged 65 21.3 21.3
Female currently aged 65 23.1 23.0
-------------------------- ------ ------
8 Cash generated from operations
2022 2021
$'000 $'000
--------------------------------------------------- --------- ---------
Profit before tax 103,706 30,229
Adjustments for:
Depreciation of property, plant and equipment 3,594 3,237
Amortisation of intangible assets 424 437
Amortisation of right-of-use assets 1,508 1,340
Loss on disposal of property, plant and equipment 84 -
Share option charges 815 602
Net finance (income)/cost (804) 417
Defined benefit pension administration charge 521 340
Contributions to defined benefit pension scheme (4,367) (4,589)
Changes in working capital:
Decrease/(increase) in inventories 2,469 (9,288)
Increase in trade and other receivables (24,164) (26,831)
Increase in trade and other payables 13,254 22,363
Cash generated from operations 97,040 18,257
--------------------------------------------------- --------- ---------
Statement of Directors' responsibilities
Each of the Directors confirm, to the best of their
knowledge:
-- The financial statements within the full Annual Report and
Accounts from which the financial information within this Final
Results Announcement has been extracted, have been prepared in
accordance with UK-adopted International Accounting Standards, give
a true and fair view of the assets, liabilities, financial position
and profit of the Company and undertakings included in the
consolidation taken as a whole.
-- The Chief Executive's Review and Financial Review, and
Principal Risks & Uncertainties include a fair review of the
development and performance of the business and the position of the
Company and undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties that it faces.
Alternative performance measures
An Alternative Performance Measure (APM) is a financial measure
of historical or future financial performance, financial position,
or cash flows, other than a financial measure defined or specified
within IFRS.
The Group uses APMs to supplement standard IFRS measures to
provide users with information on underlying trends and additional
financial measures, which the Group considers will aid the users'
understanding of the business.
Definitions
Underlying operating profit is profit before exceptional items.
Exceptional items are defined below. These items may be volatile in
magnitude and distort the underlying performance measures of the
ongoing business. A reconciliation of underlying operating profit
to operating profit is shown in note 1 when applicable.
Underlying operating margin % is underlying operating profit
divided by total revenue.
Exceptional items are income or costs that are both material and
non-recurring.
Underlying profit before tax is defined as profit before tax
excluding exceptional items. When applicable, a reconciliation of
profit before tax to underlying profit before tax is shown in note
3.
Underlying profit after tax is defined as profit after tax
before exceptional items, net of any related tax charges. When
applicable, a reconciliation of profit before tax to underlying
profit after tax is shown in note 3.
Underlying earnings per share is defined as underlying profit
after tax divided by the weighted average number of shares in issue
during the financial year. When applicable, the calculation of
underlying EPS is shown in note 3.
Revenue per marketing dollar is the total revenue of the Group
divided by the total marketing expense of the Group. This provides
a measure of the productivity of the marketing expenditure, which
is a cornerstone of the Group's organic revenue growth
strategy.
Free cash flow is defined as the movement in cash and cash
equivalents and other financial assets - bank deposits, before
distributions to Shareholders but including exchange gains/(losses)
on cash and cash equivalents. It is a measure of cash available for
allocation in line with the Group's capital allocation policy:
2022 2021
$m $m
---------------------------------------------------- ------- -------
Net movement in cash and cash equivalents 11.46 1.87
Add back: Increase in current asset investments
- bank deposits 35.00 -
Add back: Exchange loss on increase in current
asset investments - bank deposits (0.09) -
Add back: Dividends paid to Shareholders 18.72 4.13
Less: Exchange losses on cash and cash equivalents (1.21) (0.05)
Free cash flow 63.88 5.95
---------------------------------------------------- ------- -------
Cash conversion is defined as the percentage of underlying
operating cash flow to underlying operating profit and is provided
as a measure of the efficiency of the Group's business model to
generate cash.
Return on average capital employed is defined as underlying
profit before tax divided by the simple average of opening and
closing non-current assets, excluding deferred tax, plus net
current assets and non-current lease liabilities. This is given to
show a relative measure of the Group's efficient use of its capital
resources.
Capital expenditure is defined as purchases of property, plant
and equipment and intangible assets net of proceeds from the sale
of property, plant and equipment. These numbers are extracted from
the cash flows from investing activities shown in the Group cash
flow statement.
2022 2021
$m $m
----------------------------------------------------- ------- -------
Purchase of property, plant and equipment (7.72) (3.09)
Purchases of intangible assets (0.34) (0.38)
Proceeds from sale of property, plant and equipment 0.05 -
Capital expenditure (8.01) (3.47)
----------------------------------------------------- ------- -------
Underlying operating cash flow is defined as cash generated from
operations, before pension contributions, less capital expenditure.
This reflects the cash flow directly from the ongoing business
operations. This is reconciled to IFRS measures as follows:
2022 2021
$m $m
--------------------------------------------------------- ------- -------
Cash generated from operations 97.04 18.25
Add back: Contributions to defined benefit pension
scheme 4.37 4.59
Less: Loss on disposal of property, plant and equipment (0.08) -
Less: Purchases of property, plant and equipment
and intangible assets (8.06) (3.47)
Add: Proceeds from sale of property, plant and
equipment 0.05 -
--------------------------------------------------------- ------- -------
Underlying operating cash flow 93.32 19.37
--------------------------------------------------------- ------- -------
Cash and bank deposits is defined as cash and cash equivalents
and other financial assets - bank deposits. This measure is used by
the Board to understand the true cash position of the Group when
determining the potential uses of cash under the balance sheet
funding and capital allocation policies. This is reconciled to IFRS
measures as follows:
2022 2021
$m $m
---------------------------------------- ------ ------
Cash and cash equivalents 51.84 41.59
Other financial assets - bank deposits 34.91 -
---------------------------------------- ------ ------
Cash and bank deposits 86.75 41.59
---------------------------------------- ------ ------
Appendix 1
STRATEGIC RISKS
Macroeconomic conditions
Risk and description
The Group conducts most of its operations in North America and
would be affected by a downturn in general economic conditions
in this region or negative effects from tension in international
trade. In previous economic downturns the promotional products
market has typically softened broadly in line with the general
economy.
Strategic relevance Mitigation Direction
------------------------------------------------------------- -----------------------------------------------------------
* Customer acquisition and retention could fall, * Management monitors economic and market conditions to * Whilst concerns remain with respect to potential new
impacting revenue in current and future periods. ensure that appropriate and timely adjustments are COVID-19 virus variants, the risk of a negative
made to marketing and other budgets. effect on demand for our products arising from the
pandemic is considered to have receded.
* The growth and profitability levels called for in the
Group's strategic plan may not be achieved. * The customer proposition in terms of promotions,
price, value, and product range can be adjusted to * A challenging macroeconomic and geopolitical
resonate with customer requirements and budgets in environment continues to cause uncertainty in our
* Cash generation could be reduced broadly changing economic climates. North American and UK markets, posing downside risks
corresponding to a reduction in profitability. to general economic conditions and growth.
* The Group's balance sheet funding policy provides
operational and financial flexibility to facilitate * Persistent inflationary pressures could drive up
continued investment in the business through product, transportation and labour costs.
different economic cycles.
Unchanged
------------------------------------------------------------- -----------------------------------------------------------
Markets & competition
Risk and description
The promotional products markets in which the business operates
are intensely competitive. New or disruptive business models
looking to break down our industry's prevailing distributor/supplier
structure may become a threat. Buying groups and online marketplaces
may allow smaller competitors access to improved pricing and
services from suppliers. Private equity interest in the promotional
products industry has increased in recent years, offering potential
funding for existing competitors or new entrants.
Strategic relevance Mitigation Direction
----------------------------------------------------------------------------- ------------------------------------------------------------
* Aggressive competitive activity or a disruptive new * Service level, price and satisfaction guarantees are * The competitive landscape to date has been relatively
model could result in pressure on prices, margin an integral part of the customer proposition. consistent on the distributor side in our main
erosion and loss of market share, impacting the Negative or changing customer feedback is markets.
Group's financial results. investigated and addressed rapidly. Customers are
surveyed regularly to monitor changing customer
interests and perceptions.
* The Group's strategy based on achieving organic Unchanged
revenue growth in fragmented markets may need to be
reassessed. * Merchandising and supply chain teams have extensive
experience in rapidly adapting the product range to
meet evolving consumer demand.
* Customer acquisition and retention could fall,
impacting revenue in current and future periods.
* Our aim is to position the business at the forefront
of innovation in the industry, driven by an
open-minded culture that is customer-focused,
embraces collaborative supplier relationships, and
has an appetite for technology.
* Management closely monitors competitive activity in
the marketplace including periodic market research
studies.
----------------------------------------------------------------------------- ------------------------------------------------------------
Effectiveness of key marketing techniques and brand development
Risk and description
The success of the business relies on its ability to attract
new and retain existing customers through a variety of marketing
techniques. These methods may become less effective as follows:
* TV/Video/Brand: Fluctuations in available inventory
may cause the price of this technique to increase
beyond our acceptable thresholds. The evolving nature
of how consumers access this type of content could
change our ability to effectively access our
audience.
* Online: Search engines are an important source for
channelling customer activity to 4imprint's websites.
The efficiency of search engine marketing could be
adversely affected if the search engines were to
modify their algorithms or otherwise make substantial
changes to their practices.
* Offline: The flow of print catalogues and sample
packages would be disrupted by the incapacity of the
US Postal Service to make deliveries, for example due
to natural disasters or labour activism. Pandemic
conditions that lead to increased levels of people
working from remote locations may diminish the
effectiveness of this technique.
The evolving landscape around consumer data privacy preferences
and data privacy legislation potentially affects all marketing
techniques if it compromises our ability to access and analyse
customer information or results in any adverse impacts to our
brand image and reputation.
Strategic relevance Mitigation Direction
------------------------------------------------------------- -----------------------------------------------------------
* If sustained over anything more than a short time * TV/Video/Brand: Given that this is the newest element * Marketing diversification continues via the
period, an externally driven decrease in the of our marketing portfolio, our utilisation of this successful integration of a brand component to the
effectiveness of key marketing techniques would cause technique is still at a relatively early stage of its marketing portfolio.
damage to the customer file as customer acquisition development, allowing for a high degree of
and retention fall. This would affect order flow and flexibility.
revenue in the short-term and the productivity of the * The trend towards 'work-from-home', accelerated by
customer file over a longer period, impacting growth the COVID-19 pandemic, has negatively impacted
prospects in future years. * Online: Management stays very close to new response rates for print catalogues. This has
developments and emerging platforms in the online resulted in a successful redeployment of
space. Efforts are focused on anticipating changes offline/print budget towards further investment in
* Restrictive data privacy legislation or changes in and ensuring compliance with both the requirements of brand and online marketing.
consumer demands around data privacy could decrease providers and applicable laws.
the yield on our marketing activities and might
increase compliance costs and the possibility of * The business has significantly reduced the amount of
lawsuits. * Offline: Developments in the US Postal Service are data it shares, increasingly relying on first party
closely monitored through industry associations and data.
lobbying groups. Alternative parcel carriers are
continuously evaluated.
Unchanged
* Data privacy requirements and consumer data
preferences are monitored closely and assessed.
------------------------------------------------------------- -----------------------------------------------------------
OPERATIONAL RISKS
Business facility disruption
Risk and description
The 4imprint business model means that operations are concentrated
in centralised office, distribution and production facilities.
The performance of the business could be adversely affected if
activities at one of these facilities were to be disrupted, for
example, by pandemic, fire, flood, loss of power or internet/telecommunication
failure.
Strategic relevance Mitigation Direction
------------------------------------------------------------- ------------------------------------------------------------
* The inability to service customer orders over any * Back-up and business continuity infrastructure is in * Whilst concerns remain with respect to potential new
extended period would result in significant revenue place to ensure the risk of customer service COVID-19 virus variants, the risk of potential
loss, deterioration of customer acquisition and disruption is minimised. shutdown of one or all of our facilities from a
retention metrics and diminished return on marketing return to 'lockdown' type restrictions is considered
investment. to have receded.
* Websites are cloud-based, and data is backed up
continuously to off-site servers.
* A significant portion of our apparel orders are
embroidered in-house at our distribution centre, Decreased
therefore disruption at this facility would impact * Relationships are maintained with third party
our ability to fulfil these orders. embroidery contractors to provide an element of
back-up in the event of facility unavailability.
* The Group's reputation for excellent service and
reliability may be damaged. * Our recently acquired screen-printing operations have
been located separately to our existing distribution
centre to diversify the risk of disruption to our
facilities.
* A significant proportion of our office and customer
service staff can work from home, mitigating some
risk should offices become unavailable.
------------------------------------------------------------- ------------------------------------------------------------
Domestic supply and delivery
Risk and description
As a consequence of the Group's 'drop-ship' distribution model,
trading operations could be interrupted if: (i) the activities
of a key supplier were disrupted and it was not possible to source
an alternative supplier in the short-term; (ii) a key supplier's
own supply chain is compromised by 'force majeure' events in
the country of original product manufacture, for example natural
disasters, social/political unrest or pandemic; or (iii) the
primary parcel delivery partner used by the business suffered
significantly degraded service levels. As the Group continues
to grow, the volume of orders placed with individual suppliers
becomes significant.
Strategic relevance Mitigation Direction
------------------------------------------------------------- ------------------------------------------------------------
* Inability to fulfil customer orders would lead to * A rigorous selection process is in place for key * The significant growth in demand experienced during
lost revenue and a negative impact on customer suppliers, with evaluation and monitoring of quality, the year has led to increased volumes being placed
acquisition and retention statistics. production capability and capacity, ethical standards with certain individual suppliers. This has led to an
, increase in the inherent risk of supplier
financial stability and business continuity planning. concentration, although the Group continues to manage
* The Group's reputation for excellent service and this risk through relationships with alternative
reliability may be damaged, leading to potential suppliers.
erosion of the value built up in the 4imprint brand. * Very close relationships are maintained with key
suppliers, including a detailed shared knowledge of
the supply end of the value chain, allowing swift * The disruption to global and local supply chains,
understanding of and appropriate reaction to events. initially caused by the impact of the pandemic,
continues to persist. The lessening impact from
COVID-19 on the Group's ability to fulfil customer
* Wherever possible, relationships are maintained with orders on a timely basis has been offset with ongoing
suitable alternative suppliers for each product challenges in the recruitment of staff by both the
category. Group and our supply partners, the risk of strikes at
our parcel delivery partners, and elevated order
levels experienced during the period.
* Secondary relationships are in place with alternative
parcel carriers.
* Whilst the residual risk continues to remain elevated
,
it is considered to have stabilised in comparison to
the prior year.
Unchanged
------------------------------------------------------------- ------------------------------------------------------------
Failure or interruption of information technology systems and
infrastructure
Risk and description
The business is highly dependent on the efficient functioning
of its IT infrastructure. An interruption or degradation of services
at any 4imprint operational facility would affect critical order
processing systems and thereby compromise the ability of the
business to deliver on its customer service proposition.
Strategic relevance Mitigation Direction
------------------------------------------------------------- ------------------------------------------------------------
* In the short-term, orders would be lost and deliv * There is continuous investment in both the IT team * The IT platform is mature, and performance has been
ery supporting the business and the hardware and software efficient and resilient, including through the
deadlines missed, decreasing the efficiency of system requirements for a stable and secure operating COVID-19 pandemic and more recently with higher
marketing investment and impacting customer platform. levels of staff working from home.
acquisition and retention.
* Back-up and recovery processes are in place, * The rollout of our home working computer solution is
* Revenue and profitability are directly related to including immediate replication of data to an now complete, enabling the vast majority of our
order flow and would be adversely affected as a alternative site, to minimise the impact of office-based team members to work from home.
consequence of a major IT failure. information technology interruption.
* Depending on the severity of the incident, * Cloud-based hosting for eCommerce and elements of Unchanged
longer-term reputational damage could result. back-office functionality.
* IT Infrastructure in place to support working from
home for our office-based team members.
------------------------------------------------------------- ------------------------------------------------------------
REPUTATIONAL RISKS
Cyber threats
Risk and description
Malware, ransomware and other malicious cyber threats can lead
to system failure and/or unauthorised access to and misappropriation
of customer data, potentially leading to reputational damage
and loss of customer confidence. This is a rapidly changing environment,
with new threats emerging on an almost daily basis.
Strategic relevance Mitigation Direction
------------------------------------------------------------- ------------------------------------------------------
* Revenue and profitability are directly related to * The business employs experienced IT staff whose focus * The expected frequency, sophistication and publ
order flow and would be adversely affected as a is to identify and mitigate IT security icity
consequence of system compromise. vulnerabilities. around cyber crime continues to increase. Accor
dingly,
a high residual risk assessment continues to be
* A significant security breach could lead to * Investment in software and other resources in this maintained.
litigation and losses, with a costly rectification area continues to be a high priority.
process. In addition, it might be damaging to the
Group's reputation and brand.
* Technical and physical controls are in place to Unchanged
mitigate unauthorised access to customer data and
* An event of this nature might result in significant there is an ongoing investment process to maintain
expense, impacting the Group's ability to meet its and enhance the integrity and efficiency of the IT
strategic objectives. infrastructure and its security.
* Due to the ever-evolving nature of the threat,
emerging cyber risks are addressed by the IT security
team on a case-by-case basis.
* Third party cyber security consultants are employed
as and when appropriate.
------------------------------------------------------------- ------------------------------------------------------
Supply chain compliance & ethics
Risk and description
Our business model relies on direct (tier 1) and indirect (tier
2 & 3) relationships with suppliers located both within our primary
markets and at overseas locations. 4imprint has for many years
had very high ethical expectations for supply chain compliance,
but there is always a risk that our wider supply chain partners
may, from time to time, not comply with our standards or applicable
local laws.
Strategic relevance Mitigation Direction
------------------------------------------------------------- -----------------------------------------------------------
* Significant or continuing non-compliance with such * Key tier 1 suppliers must commit to cascading our * Our supplier compliance programme is well
standards and laws could result in serious damage to ethical sourcing expectations down to their tier 2 established.
our reputation and brand image. and tier 3 supply chain partners.
* Whilst visits to, and audits of, both domestic and
* This could have an adverse effect on our ability to * Specifically, we require our suppliers to comply with overseas suppliers have increased since the start of
acquire and retain customers and therefore our our supplier compliance documentation, including the the COVID-19 pandemic, challenges in visiting certai
longer-term revenue prospects and financial '4imprint Supply Chain Code of Conduct' and the n
condition. '4imprint Factory & Product Compliance Expectations' locations continue to persist.
document.
* We are active in promoting audit coverage of our Unchanged
supply chain at many levels, and in ensuring that
product safety and testing protocols are adequate and
up to date.
------------------------------------------------------------- -----------------------------------------------------------
Legal, regulatory and compliance
Risk and description
We are subject to, and must comply with, extensive laws and regulations,
particularly in our primary US market. An example is data privacy
legislation.
Strategic relevance Mitigation Direction
--------------------------------------------------------- ---------------------------------------------------
* If we or our employees, suppliers and other partners * Consultation with subject matter experts, speciali * Obligations continue to be complied with and
fail to comply with any of these laws or regulations, st monitored.
such failure could subject us to fines, sanctions or external legal advisers and Government agencies as
other penalties that could negatively affect our appropriate.
brand, reputation and financial condition.
Unchanged
* US General Counsel recruited during 2022.
--------------------------------------------------------- ---------------------------------------------------
ENVIRONMENTAL RISKS
Climate change
Risk and description
Climate change potentially affects our operations, facilities,
supply chain, team members, communities and our customers in
a variety of ways. As such, it presents a multitude of risks
to the business and threatens our ability to achieve our strategic
objectives.
Strategic relevance Mitigation Direction
----------------------------------------------------------- ----------------------------------------------------------
* Extreme weather-related events that impact our * The flexible nature of our 'drop-ship' model allows * There remains a global sense of urgency in relation
customers and/or our suppliers can have 'episodic' for relatively rapid adjustment to episodes of to climate change. As such, the risks in this area
negative impact on revenue, customer acquisition an extreme weather. The business has very low customer remain elevated, albeit they are considered stable
d concentration which helps mitigate an element of the over the period.
retention, and they can also cause increases to our risk as well.
product and distribution costs. Some of our supplie
rs
are located in geographic areas that are subject to * The business became 'carbon neutral' in 2021 in Unchanged
increased risk of these events. respect of Scopes 1 and 2 and meaningful elements of
Scope 3, a year earlier than originally targeted.
* Further, if the business is not seen to be taking
deliberate and tangible actions to reduce its GHG * Our solar array project at the Oshkosh distribution
emissions, the Group's reputation and brand may be centre became fully operational during 2022,
damaged. significantly increasing the portion of the Group's
power requirements generated from renewable sources.
* Management is actively monitoring and measuring
progress towards further environmental goals, most
notably further GHG reductions in Scopes 1 and 2 and
meaningful elements of Scope 3.
----------------------------------------------------------- ----------------------------------------------------------
Products and market trends
Risk and description
The transition to a low carbon economy may lead to changing product
trends or consumer preferences that render certain products undesirable
or obsolete whilst increasing demand for others.
Strategic relevance Mitigation Direction
------------------------------------------------------------- ----------------------------------------------------------
* Failure to anticipate accurately, and respond to, * Our merchandising teams actively collaborate with our * The transition to a low carbon economy is driving
trends and shifts in consumer preferences by suppliers to continuously curate our range of changes in consumer preferences towards sustainable
adjusting the mix of existing product offers may lead products to adapt to and meet the needs and tastes of products.
to lower demand for our products, impacting our our customers.
market position and ability to generate revenue
growth. * However, the fact that most of the products in our
* Our Better Choices (TM) initiative has been launched broad range are also sold unbranded in the retail
to highlight promotional products that have setting, and with the launch of our Better Choices
sustainable attributes, giving our customers the (TM) initiative, the pace of the transition towards
ability to research product attributes and supplier sustainable choices is likely to remain quite
standards and certifications related to manageable.
sustainability, environmental impact, workplace
culture and more.
Decreased
------------------------------------------------------------- ----------------------------------------------------------
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END
FR USUWROVUOAAR
(END) Dow Jones Newswires
March 15, 2023 03:00 ET (07:00 GMT)
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