Immediate release
2 July 2003
Profits jump 22*% at International Greetings
Products in shops for The Hulk launch
International Greetings plc, the leading designer and manufacturer of
private label greetings products and licensed stationery, today
published its preliminary results for the year ended 31 March 2003.
Highlights
* Turnover up 3% to �113.7m (2002: �110.7 m)
* Pre-tax profits up 22% to �11.1*m (2002: �9.1*m)
* Earnings per share up 21% to 18.8*p (2002: 15.6*p)
* Strong cash generation with net funds at �3.4 million (2002: net
debt �14.9 million)
* Far East product sourcing now accounts for 34% of total purchases
* UK gift wrap division shows significant improvement
* Licensing agreements signed for The Hulk, Harry Potter and for
Shrek2 in Spring 2004
* Final dividend per share of 4.45p (2002: 3.3p) making 5.75p for the
year, up 28% ( 2002: 4.5p)
*Figures exclude amortisation of goodwill of �175,000 (2002: �176,000)
and an exceptional cost of �420,000 in 2002
Commenting on today's results, Nick Fisher, Joint Chief Executive, said:
" These are a great set of figures against a tough trading background.
As we said at the half year stage, we have turned around the UK gift
wrap division. Our focus on margins and operational efficiency has
brought, and will continue to deliver, impressive results. This is
reflected in margin improvement and cash generation"
"We are well prepared for the future. Our financial strength means that
we can acquire businesses if we see an attractive opportunity; we have
further efficiency opportunities to exploit; and we have strong
established relationships with a high quality customer base. The
proposed 28% increase in full year dividend reflects the confidence in
our achievements and in the outlook for the future"
ENDS
For further information:
International Greetings plc 01707 630 630
Nick Fisher, Joint Chief Executive
Edelman Financial 020 7344 1200
Michael Henman/James Horsman
Arbuthnot Securities
Graeme Cull 020 7002 4600
Chairman's Statement
International Greetings is a business with a clear vision. It is a
focused business that delivers shareholder value through the world class
design and efficient manufacturing of products that consumers want and
need. It is a business with a proud track record of delivery, and I am
delighted to report that our results for the year ended 31 March 2003
show a return to the consistent pattern of growth in profitability that
has characterised the company since it was founded in 1979.
Over the past 12 months, profit before tax has risen to �10.9m - a 23%*
increase on last year's figure, with turnover increasing by 3% to
�113.7m. This represents an outstanding performance from our UK
divisions, and in particular from the UK gift wrap division following
changes in both management and processes, with Anders Hedlund resuming
day-to-day operational control. The benefits of these changes to both
operating performance and profitability are now clearly visible in these
full year figures. I also expect additional improvements in the
efficiency of the business to be delivered in the future.
We have a balanced approach to manufacturing and sourcing, and over the
last 12 months have made significant progress in broadening our business
in the Far East and are continuing the selective expansion of our
worldwide sourcing programme. This strategy allows us to add further
value to our products and reduce manufactured costs.
In the USA, where a difficult economic climate resulted in a fall in
operating profits, we are looking to develop new opportunities and
broaden the scope of the business by focusing on the development of
multiple retailers' ranges, more closely aligning the US business to our
UK operation.
The Board has expressed its commitment to the principles of effective
corporate governance outlined in the Stock Exchange Combined Code. While
full compliance with the Code is not required of AIM-listed companies,
we have continued to develop our procedures as the Group has grown, and
have, during the year, established an audit and remuneration committee,
whose membership comprises my fellow non-executive director, Hugh Child,
and myself.
The company's performance this year has demanded a great deal of
everyone who works in the business, and I would like to thank them all
for their contributions.
Strong cash management during the year has resulted in a significant
improvement in the Group's financial position, with net debt last year
of �14.9m being converted to net funds of �3.4m at 31 March 2003. This
puts us in an excellent position to consider taking advantage of the
acquisition opportunities that may become available to us.
In current market conditions, we recognise the importance of a
progressive dividend policy to shareholders. As a result of the growth
in our earnings and the strength of our balance sheet we are
recommending a final dividend of 4.45p. This makes a total for the year
of 5.75p and represents an increase of 28% over last year.
John Elfed Jones CBE DL
Chairman
2 July 2003
*Figure excludes an exceptional cost of �420,000 in 2002
Review of operations
We are a business committed to growth and to delivering value to our
shareholders. It is our mission to be our customers' first choice for
own brand greetings and licensed stationery products and we have a clear
strategy to achieve this goal in each of our markets.
The past year has seen an improvement in performance in many areas of
the Group as we have focused on margins and efficiency, and we are
confident that our approach to the management of the business of
International Greetings will continue to reap rewards.
UK improvement
A key focus for us this past year was ensuring that the Group resumed
its pattern of steady growth that has consistently delivered results for
a quarter of a century.
The improvement in the UK gift wrap business has been achieved as a
result of the changes instigated at the end of 2001. Developments in our
planning and reporting systems in this area have ensured that we have
achieved significant improvements in productivity and efficiency levels,
and this year's figures show the extent to which we have successfully
managed the recovery.
We are also now reaping the benefit of the significant capital
investments made over the past three years in printing and converting
equipment, and in the purchase and consolidation of additional storage
capacity.
Our capital expenditure has now reduced from the higher levels of the
last couple of years, though we continue to invest in innovative ways of
improving efficiency. Investment in equipment at our printing division
in Hatfield has resulted in increased automation and illustrates the
increasing vertical integration of the business. Over the past three
years we have brought in-house a number of processes that were
previously outsourced, saving both time and money, and we will continue
with this approach in the future.
In the UK, there has been a continuing increase in the quality demands
and sales value of products. Consumers are spending more, but are
wanting - and getting - more for their money. This trend is most
pronounced in crackers, but also noticeable in wrap, cards and bows. In
wrap, for example, there is a growing demand for higher quality
materials, and more sophisticated and diverse finishes on products.
US growth potential
The United States is the world's leading market for greetings products.
It is a market in which we have been successfully operating since 1989,
and where our turnover this year represented 24% of the Group total.
In America we have traditionally focused primarily on selling premium
products to independent retail outlets and to small chains. In the past
year, the independent sector has proved to be a difficult environment,
and our operating profits in the US division this year are down to �1.1
million.
We believe that the best growth prospects for the US division over the
next few years lie in the development of the business along similar
lines to those in the UK - delivering high quality design to the mass
market.
We will be approaching this challenge from a position of some strength.
We are acknowledged to have the best range of gift wrap designs in the
US, and supply relationships with some of America's largest retailers.
We have also had an extremely favourable response from US customers to
new product launches from our enlarged Pepperpot stationery range.
Far East operations
Efforts to meet the demand for hand-finished products, from within the
UK, face increasing cost constraints. Hand finishing in China allows us
to add value to products, maintain margins and enhance value for
consumers.
Our direct involvement and manufacturing in the Far East began three
years ago with the opening of an office in Hong Kong to source products.
During that time, purchases from the Far East have increased to 34% of
the Group's total, enabling costs to be reduced while maintaining both
quality and flexibility.
Design and licensing
The creativity of our design and licensing teams is an essential part of
our success and competitive advantage. Around 80% of International
Greetings' design and intellectual property is created and developed in-
house.
We operate in fast moving fashion markets and have proved over many
years that we have the ability to maintain a design edge over our
competition. We have more than 50 design staff, based at the Group head
office in Hatfield, who develop new trends and concepts for each own
brand customer for each season - designs that are tailored to meet their
specific consumer needs, and that will achieve the highest sales rates.
Licensing is an important part of our business, representing around 20%
of Group turnover. We have a portfolio of licences, which serves to
limit our over-reliance on any one property, and also allows us to meet
different retailers' licensing needs. Our portfolio includes perennial
characters such as Barbie, The Simpsons and Winnie the Pooh, together
with properties related to cinema and video releases. During the next 12
months, we will be launching ranges based on the films of The Incredible
Hulk, the third Harry Potter release and Shrek 2.
Acquisitions
As the only UK listed company in our sector, we are seen as the natural
consolidator in a largely fragmented marketplace. Since our foundation
in 1979, International Greetings has acquired small to medium-sized
businesses that enable us to offer related product extensions to our
existing customer base. Our acquisition strategy is based on strict
criteria and we will only consider buying compatible businesses with
which we can merge, or businesses with complementary products that can
benefit from our design skills, licensing relationships and
manufacturing expertise.
We have always considered selective acquisitions to be a part of our
growth strategy. Having considerably improved the Group's financial
position during the year, we are in a strong position to implement this
strategy.
Conclusion
International Greetings has had a successful year, and we will continue
to create value for our shareholders by doing what we do best -
maintaining our design edge, constantly innovating and continuing to
focus on the quality of our products, our service to customers and our
manufacturing efficiency. Our business is resilient, and demand for our
products is reliable, reflecting the stability of our markets. Trading
conditions are tough, but we have a high quality customer base that we
are totally focused on serving, and with whom we have developed strong
relationships over many years. We are confident that further efficiency
improvements and new product development initiatives will drive our
business forward during the next 12 months.
Nick Fisher
Joint Chief Executive
Anders Hedlund
Joint Chief Executive
Financial review
The results for the year reflect the intensive management effort that
has successfully led to recovery from last year's performance in the UK
gift wrap division. The Group's profit before tax in the year to 31
March 2003 was �10.9m, up 23%* from last year.
Reported turnover was up 3% at �113m. At constant exchange rates, the
growth in turnover was 5%. A 10% increase in sales in our core UK
business and a 3% increase (at constant exchange rates) in US turnover
was offset by a reduction in sales of lower margin products to the rest
of the world.
The gross profit margin improved from 29.5% to 31.2%, with the operating
profit margin improving by 0.7%* to 10.2%.
Net interest payable was down significantly at �0.7m, resulting from a
consistently lower level of borrowings throughout the year, as well as
lower interest rates.
Earnings per share and dividend
Basic earnings per share for the year to 31 March 2003 were 18.5p, an
increase of 21%*. The final dividend of 4.45p (2002: 3.3p) makes a total
dividend for the year of 5.75p, 28% over last year.
Notwithstanding this increase in the total dividend, the dividend for
the year is still covered 3.2 times by earnings per share.
Balance sheet and cashflow
The Group's financial position has strengthened considerably during the
year. Shareholders' funds increased by �5m to �37.9m, and net debt of
�14.9m at 31 March 2002 has been converted into net funds of �3.4m at 31
March 2003.
The key factors responsible for this strong cash inflow during the year
are: -
* A reduction in the level of capital expenditure, following the
completion of a number of capital projects in previous years. The net
capital expenditure of �2m was �1.9m below the depreciation charge for
the year.
* The receipt of a Regional Selective Assistance grant of �2.7m,
related primarily to capital expenditure incurred in the previous
financial year.
* A reduction in the level of working capital maintained throughout
the year.
As a result of the above factors, interest cover has improved
considerably during the year, with operating profits covering the net
interest expense 16.8 times, up from 6.4* times last year.
* Figures exclude an exceptional cost of �420,000 in 2002
Treasury operations
The Board continues to assess and manage the risks associated with the
treasury function as the business develops.
The Group's business has a strong seasonal element resulting in large
variations in working capital requirements. As a result, the Board
considers that long term reduction of exposure to fluctuations in
interest rates on working capital is unlikely to be economically viable.
However, where opportunities exist for the short term fixing of elements
of this funding at attractive rates (for example, through the use of
acceptance credits) these options are considered.
The Group also sources an increasing proportion of its purchases
denominated in US$. The Group reduces the effect of exchange rate
fluctuations, where practicable, through a combination of measures
including hedging and forward exchange contracts.
Conclusion
Following a good trading performance and careful management of
resources, the Group's financial position at the end of the year is
exceptionally strong. This puts us in an excellent position to take
advantage of opportunities as they arise, and to continue to grow the
business to maximise earnings and shareholder value.
Mark Collini
Finance Director
*figures exclude an exceptional cost of �420,000 in 2002
Consolidated profit and loss account
for the year ended 31 March 2003
Note 2003 2003 2002 2002
�000 �000 �000 �000
Turnover 2 113,732 110,653
Cost of sales (78,239) (78,008)
______ ______
Gross profit 35,493 32,645
Distribution expenses (11,357) (10,097)
Administrative expenses
- before exceptional (12,515) (11,986)
item
- exceptional item 2 - (420)
______ ______
Total administrative (12,515) (12,406)
expenses
______ ______
Operating profit 2 11,621 10,142
Net interest payable (690) (1,657)
______ ______
Profit on ordinary 2-3 10,931 8,485
activities before
taxation
Tax on profit on ordinary (3,299) (2,516)
activities
______ ______
Profit for the financial 7,632 5,969
year
Dividends - equity 4 (2,385) (1,849)
Retained profit for the 5,247 4,120
financial year
Earnings per share 5
Basic 18.5p 14.6p
Excluding amortisation of
goodwill and exceptional 18.8p 15.6p
item
Diluted 18.3p 14.2p
Consolidated statement of total recognised gains and losses
for the year ended 31 March 2003
2003 2002
�000 �000
Profit for the financial year 7,632 5,969
Currency translation differences arising on
foreign currency net investments (602) -
______ ______
Total recognised gains and losses relating to 7,030 5,969
the financial year
Consolidated balance sheet
at 31 March 2003
Note 2003 2002
�000 �000 �000 �000
Fixed assets
Intangible assets - goodwill 1,071 1,262
Tangible assets 21,721 23,437
______ ______
22,792 24,699
Current assets
Stocks 21,860 25,061
Debtors 9,856 16,355
Cash at bank and in hand 10,547 2
______ ______
42,263 41,418
Creditors: amounts falling (21,438) (28,299)
due within one year
______ ______
Net current assets 20,825 13,119
______ ______
Total assets less current 43,617 37,818
liabilities
Creditors: amounts falling
due after more than one year (2,278) (3,477)
Provisions for liabilities (394) (800)
and charges
Deferred income (3,016) (581)
______ ----
Net assets 37,929 32,960
______ ______
Capital and reserves
Called up share capital 2,077 2,054
Share premium account 1,081 780
Other reserves 1,016 1,618
Profit and loss account 33,755 28,508
______ ______
Equity shareholders' funds 6 37,929 32,960
______ ______
Consolidated cash flow statement
for the year ended 31 March 2003
2003 2002
�000 �000
Net cash inflow from operating 22,510 15,716
activities
Returns on investments and servicing
of finance (707) (1,649)
Taxation (2,980) (2,826)
Capital expenditure 752 (8,242)
Equity dividends paid (1,892) (1,837)
______ ______
Cash inflow before financing 17,683 1,162
Financing (1,553) 1,480
______ ______
Increase in cash 2,642
16,130
Reconciliation of net cash flow to movement
in net funds/(debt) for the year ended 31 March 2003
2003 2002
�000 �000
Increase in cash in the year 16,130 2,642
Cash outflow/(inflow) from debt and
lease financing 1,877 (1,308)
______ ______
Change in net debt resulting from 18,007 1,334
cash flows
Inception of finance leases (695) (258)
Translation differences 1,028 -
______ ______
Movement in net debt in the year 18,340 1,076
Net debt at beginning of year (14,907) (15,983)
______ ______
Net funds/(debt) at end of year 3,433 (14,907)
______ ______
Notes
1 Basis of preparation
The financial information set out above does not constitute the
Company's statutory financial statements for the years ended 31 March
2003 or 2002. Statutory financial statements for 2002 have been
delivered to the registrar of companies, and those for 2003 will be
delivered following the company's annual general meeting. The auditors
have reported on those accounts; their reports were unqualified and did
not contain statements under section 237(2) or (3) of the Companies Act
1985.
2 Segmental analysis
(a) Geographical area of operation
UK USA Group
2003 2002 2003 2002 2003 2002
�000 �000 �000 �000 �000 �000
Turnover 95,260 90,100 18,472 20,553 113,732 110,653
______ ______ ______ ______ ______ ______
Operating profit
before exceptional 10,524 8,265 1,097 2,297 11,621 10,562
item
Exceptional item - (420) - - - (420)
______ ______ ______ ______ ______ ______
Operating profit
after exceptional 10,524 7,845 1,097 2,297 11,621 10,142
item
______ ______ ______ ______ ______ ______
Net interest (690) (1,657)
Profit on ordinary
activities before 10,931 8,485
taxation
Net assets 31,961 26,733 5,968 6,227 37,929 32,960
______ ______ ______ ______ ______ ______
The above results relate entirely to continuing operations.
The exceptional item, included within administrative expenses,
comprises:
2003 2002
�000 �000
Costs arising from the liquidation of the - 420
Company's insurers during the year
______ ______
(b) Geographical analysis of turnover by destination
2003 2002
�000 �000
UK 79,101 71,828
USA 27,180 28,533
Rest of world 7,451 10,292
______ ______
113,732 110,653
______ ______
3 Profit on ordinary activities before taxation
2003 2002
�000 �000
Profit on ordinary activities before taxation is stated
after charging/(crediting)
Auditors' remuneration - audit fees paid to the company's
auditor and 68 70
its associates
- non audit fees paid to the company's auditor and
its associates 68 60
Hire of plant and machinery - rentals payable under 341 325
operating leases
Hire of other assets - operating leases 307 516
Release of deferred grant income (293) (169)
Depreciation-owned 3,821 3,651
-leased 101 174
Amortisation of goodwill 175 176
______ ______
4 Dividends
2003 2002
�000 �000
Interim paid - 1.3p per share (2002: 1.2p) 536 493
Final proposed - 4.45p per share (2002: 3.3p) 1,849 1,356
______
__
2,385 1,849
______ ______
5 Earnings per share
2003 2002
Earnings per share excluding amortisation of goodwill 18.8p 15.6p
and exceptional item
Loss per share on exceptional item - (0.7p)
Amortisation of goodwill (0.3p) (0.3p)
______ ______
Basic earnings per share 18.5p 14.6p
______ ______
Diluted earnings per share 18.3p 14.2p
______ ______
______
The basic earnings per share is based on the earnings of �7,632,000
(2002: �5,969,000) and the weighted average number of ordinary shares in
issue of 41,229,758 (2002: 40,864,758). The calculation of diluted
earnings per share is based on 41,760,588 (2002: 41,907,777) ordinary
shares. The difference of 530,830 (2002: 1,043,019) represents the
dilutive effect of outstanding employee share options which has been
calculated in accordance with FRS 14.
Earnings per share excluding amortisation of goodwill and exceptional
item is based upon the earnings for the year as above after adjusting
for amortisation of goodwill of �175,000 (2002 : �176,000), an
exceptional item of �nil (2002 : �420,000) and the tax relief thereon.
6 Reconciliation of movements in shareholders' funds
2003 2002
�000 �000
Profit for the financial year 7,632 5,969
Dividends (2,385) (1,849)
______ ______
5,247 4,120
Other recognised gains and losses relating to
the year (net) (602) -
New share capital subscribed 324 172
______ ______
Net addition to shareholders' funds 4,969 4,292
Opening shareholders' funds 32,960 28,668
______ ______
Closing shareholders' funds 37,929 32,960
______ ______
7 Directors' approval
This statement was approved by the directors on 2 July 2003.