investor presentation · formerly international greetings plc investor presentation for the year...
TRANSCRIPT
Formerly International Greetings plc
Investor presentation for the year ended 31 March 2016
Presented by
Paul Fineman CEO and
Anthony Lawrinson CFO
June 2016
2
Introduction
designs, innovates, manufactures and sources the following core product categories
Celebrations Stationery & creative play Gifting
3
Welcome to our vision of the future
Benefits to the businessLeverages our global scale
Drive the benefits of scale and breadth
Becomes more cohesive
Communicating the extent of our offering
Broadens growth potential
Enabling available opportunities to be seized
Helps to simplifyCreating an
efficient structure
Benefits to internal and external audiencesTranslates globally
Communicating to our global audience
Captures our ‘Soul’
Illustrating our creativity
Becomes more representative
Demonstrating the breadth of what we do
Becomes more coherent
One Group, one common focus
A business with a unique blend of creativity and reliability, focused on profit growth and designed to succeed.
A design‑focused multi‑category business servicing the world’s best retailers.
IG Design Group UK Limited
IG Design Group plc
IG Design Group Asia LimitedIG Design Group Europe BV
Holland
IG Design Group Americas IncIG Design Group Australia Pty
Poland
Next phase – trading structure
4
Present in over 150,000 retail outlets in more than 80 countries
Over 80 million crackers,
750 million stickers, nearly 850 million metres of giftwrap,
sold in 2016
In excess of 5,400 customers
Balanced business with
£79m of product sold under IG’s generic brands and licensed
brands
No. 3 in the global gift packaging
market worth £10bn at
retail value
Some key facts
5
Group revenue by customer destination
Where we operate
33%USA
34%UK
19%Europe
12%Australia
2%Rest of world
£79.6m £80.0m £43.8m £27.9m £5.6m
6
• Strong offering created for specific customer channels – we provide a good, better, best approach and are proud to serve the best retailers around the globe with a complete end‑to‑end service from design to distribution
• Geographic diversity – with sales to over 80 countries, we combine global scale with local expertise and combat competitive market conditions
• Customer relationships – we have over 5,400 customers, and are proud to have traded with many of them for over 20 years
• Design and innovation – we design with creative flair and imagination, striving to exceed our customers’ expectations
• A broad portfolio of generic, licensed and customer bespoke brands, across design‑led product categories
• Low cost manufacturing and sourcing
• Award winning service – we do whatever it takes to ensure total customer satisfaction
• Compliant with the demanding standards of the world’s leading retailers and licensors, we source and manufacture our products responsibly
A unique blend of creativity and reliability
7
The elephant in the room – Brexit
•Diversified•Global portfolio•New global funding arrangements•Largely low ticket “recession proof” items
•Weaker sterling results in stronger overseas earnings when translated
•One third of product manufactured in local markets•Product sourced from Asia in US dollars potentially
higher cost•Well hedged based on good visibility of customer orders•Mitigation possible through re‑engineering of product
and revised commercial terms
NO MATERIAL CHANGE IN OUTLOOK
8
Results
Design is at the heart of all we do
9
+18%on 2015
Profit before tax, exceptional items and LTIP
(£million)
201520142013 2016
Profit before tax, exceptional items and LTIP charges up 18% to £10.8m
10.8
9.2
7.67.3
+15%on 2015
Underlying diluted earnings per share
(pence)
201520142013 2016
Fully diluted earnings per share before exceptional items and LTIP increased by 15% to 13.2p with 3‑year average growth in EPS
at 19%
13.2
11.5
8.47.8
+16%on 2015
Cash generated from operations
(£million)
201520142013 2016
Cash generated from operations of £20.7m. Cash conversion over 100% of EBITDA
reflecting inventory reduction
20.7
17.9
15.2
7.5
40%reduction on 2015
Net debt improvement
(£million)
201520142013 2016
Debt down £11.9m (40%) to £17.5m. Year end leverage at 1.0 x EBITDA (before
pre‑exceptional items and LTIP charges)
17.5
29.4
36.9
42.1
Financial highlights
10
Operational and commercial highlights
•Record Group sales of £237m includes highest volumes ever of gift packaging and greetings related products sold, including over 60 million gift bags
•Underlying gross margin up 0.8 percentage points (from 17.5% to 18.3%) underpinned by the full year effect of manufacturing efficiencies and product innovation
•Strengthened management team in USA delivers 34% growth in operating profit(a) and completes a major capital investment project in paper converting facilities on time and on budget
•Sales and operational initiatives drive 66% growth in operating profit(a) in Australia
•Non‑UK revenues by customer destination are now 66% of Group sales
• In a year of excellent overall performance, we generated over £20m in operating cash flow allowing acceleration of dividend from 1p to 2.5p
(a) Operating profit growth in local currency before exceptional items, LTIP charges and management charges.
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Year ended Year ended 31 March 31 March 2016 2015 Growth £m £m %
Sales 237.0 229.0 3Gross profit 43.4 40.0 9 18.3% 17.5% Overheads (30.7) (28.8) 6 12.9% 12.6% Other income 0.8 0.7 Operating profit 13.5 11.9 14EBITDA (pre exceptional items and LTIP) 17.4 16.3 7Finance costs (2.7) (2.7) —Profit before tax, exceptional items and LTIP 10.8 9.2 18LTIP (0.9) (0.7)Exceptional items — (1.2) Profit before tax 9.9 7.3 35
£m
Overheads 2014/15 28.8Increased indirect sales costs 1.2Increased admin & management team costs, notably in USA with growth of team 0.7Overheads 2015/16 30.7
Overhead costs
2016 2015 £m £m
Celebrations 184.4 176.4Stationery & Creative Play 38.3 37.2Gifting 14.3 15.4 237.0 229.0
Sales
2016 2015 £m £m
Interest & other borrowing costs 2.1 2.7Derivative mark to market provisions 0.6 — 2.7 2.7
Finance costs
Summary of full year results
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Where we operate
Group revenue by geographic business unit
2015 2016
£35.9m
Europe
£34.1mRevenue
14%
% of Group revenue
IG Design Group UK Limited
IG Design Group plc
IG Design Group Asia LimitedIG Design Group Europe BV
Holland
IG Design Group Americas IncIG Design Group Australia Pty
Poland
Next phase – trading structure
£108.2m
2015 2016
UK & Asia
£109.7mRevenue
46%
% of Group revenue
IG Design Group UK Limited
IG Design Group plc
IG Design Group Asia LimitedIG Design Group Europe BV
Holland
IG Design Group Americas IncIG Design Group Australia Pty
Poland
Next phase – trading structure
2015 2016
£57.9m+12.7% +1.4% +3.3% -4.9% +3.5%
USA
£65.3mRevenue
28%
% of Group revenue
IG Design Group UK Limited
IG Design Group plc
IG Design Group Asia LimitedIG Design Group Europe BV
Holland
IG Design Group Americas IncIG Design Group Australia Pty
Poland
Next phase – trading structure
2015 2016
£27.0m
Australia
£27.9mRevenue
12%
% of Group revenue
IG Design Group UK Limited
IG Design Group plc
IG Design Group Asia LimitedIG Design Group Europe BV
Holland
IG Design Group Americas IncIG Design Group Australia Pty
Poland
Next phase – trading structure
2015 2016
£229.0m
Group
£237.0mRevenue
100%
Group revenue
IG Design Group UK Limited
IG Design Group plc
IG Design Group Asia LimitedIG Design Group Europe BV
Holland
IG Design Group Americas IncIG Design Group Australia Pty
Poland
Next phase – trading structure
13
Diluted EPS (Pre‑exceptionals and LTIP) Tax rates
•Average growth of 19% over this 3‑year period
• Diluted EPS post LTIP and exceptional items up 29% to 12.0p with 3 year average growth at 27%
•Unrecognised tax assets (tax value) circa £2m• ‘Expected’ rate will increase as US profits grow,
with ‘underlying’ rate trending towards this in the coming years
•Tax assets in the UK & USA will mitigate cash tax in near term
Earnings
“Expected” rate 27%
“Underlying” rate 22.5%
36.9%
14.8%
2012/13 UK2014/15 USA USA2013/14 Asia*2015/16Continental
Europe* Australia
13.2
7.7%
8.4
12
10
8
6
4
2
0
40
35
30
25
20
15
10
5
0
7.8
20.0
%
Earnings per share and tax
23.9
35.1
24.2
30.0
* Blended average rate.
EPS
(pen
ce)
11.5
14
Strong cash flow conversion
2016 2015 £m £m
EBITDA before LTIP costs 17.2 16.3(Increase)/decrease in debtors 1.0 (1.3)Decrease in stock 1.2 3.2Increase in creditors, provisions and accruals 1.5 0.7Exceptional items (0.2) (1.1)Cash generated from operations 20.7 17.8Net capital expenditure (3.2) (2.1)Business acquired (Enper Giftwrap) — (1.6)Tax paid (1.8) (1.3)Interest paid (2.0) (2.8)Dividends paid to non‑controlling interest — (0.8)Equity dividend paid (1.0) —Other movements (including FX) (0.8) (1.7)Movement in net debt 11.9 7.5Opening net debt (29.4) (36.9)Closing net debt (17.5) (29.4)
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Balance sheet
Freehold property
Fixed assets of £30.2m include freehold land and buildings with a net book value of £9.9m. This includes the following site that may become available for sale in the future:
IG UK NBV Est. market value £m
Hirwaun 1.5 3.7 – 3.9
IG UK has granted a 5‑year call option to a power company to purchase part of the Hirwaun site for £2.4m in consideration for premiums totalling £0.5m. The Aberbargoed site was sold at the very end of the financial year releasing £1.4m in cash net of costs, just over book value.
Gross stock
2016 2015 Difference Reduction/(increase) £m £m £m
UK & Asia 23.5 26.1 2.6
USA 11.8 9.5 (2.3)
Europe 9.0 9.2 0.2
Australia 6.3 6.3 —
50.6 51.1 0.5
Translation effect (1.1)
50.6 50.0
Provision (4.6) (3.8)
46.0 46.2
Provision as a percentage of total gross stock 9.1% 7.6%
As at As at 31 March 31 March 2016 2015 £m £m
Intangibles 32.2 31.7Fixed assets 30.2 29.9Stock 46.0 46.2Trade and other receivables 21.4 22.3Net debt (17.5) (29.4)Trade and other payables (40.6) (37.1)Deferred income and provisions (2.3) (2.9)Taxation 2.0 1.9Net assets 71.4 62.6Attributable to shareholders 68.0 59.7
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New global funding arrangements
Average leverage Year end leverage
Target 2.5x EBITDA by 18/19
Target 2.0x achieved 31/3/15
Lender Due Facility Margin Covenant
HSBC Corporate revolving credit facility & overdraft 2019 £18m 0.95% Leverage covenant Working capital revolving credit facility Annual £39m 1.40% Stock and unfunded debtors HP agreement 2021 £2m 4.75% Fixed rate UK/Europe Receivables financing 2019 £50m 1.10% Receivables USA Receivables financing 2019 £50m 1.10% Receivables Asia Receivables financing 2019 £12m 1.30% ReceivablesWestpac Annual $10m 2.52%
2012 20122014 20142013 20132015 20152016 2016
4.0
3.2
4.44.54.7
1.8
1.0
2.4
2.82.8
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Outperformance remains our goalO
ur le
vers
Considered investment opportunities
Underlying 20% of sales or higher
Gross margin
Focus USA and Australia
7% of sales or higher
PBIT
Targets set in all businesses
Improving the ROCE in each of our businesses
Return on capital employed
Our
obj
ectiv
es
Through organic growth and acquisitions
Double digit CAGR for underlying EPS
Currently 3.2x
Average leverage < 2.5x by 18/19
15/16 2.5p (5.3x covered)
Trend upwards no less than 3x covered
Underlying EPS growth Average leverage Dividend policy
18
Looking forward
19
Strategy
To be the world’s largest and most efficient designer and manufacturer in our core category of gift packaging
To become an increasingly important and successful supplier of design‑led stationery, creative play, giftware and related products in the markets in which we operate
To nurture deep and mutually valuable relationships with our customers and suppliers across our core and associated product categories, growing our worldwide presence together
To take every opportunity to share knowledge and exploit synergies across our business units, to leverage this efficient cost base and store of excellence through local entrepreneurial management teams focused on customer service, innovation and relevant product
To improve our margins and the cash profile of our profitability by:•providing differentiated product offerings across the value, mass and upscale markets•balancing our business across geographies, seasons, brands and higher‑margin product categories
To give our people the knowledge they need, the tools and inspiration to create value for the Group and help pursue their careers and goals
Strategic themes
1 Achieve market leading position in gift packaging
2 Focus on stationery and creative play
3 Nurturing valuable relationships
4 Leveraging Group expertise
5 Balancing our business
6 Giving our people the knowledge they need
20
Growth
Organic growth Inorganic growth
ProductsNew products to existing customers ie partyware, stickers
ChannelsIncrease number of channels for existing products through retail and online opportunities ie regional drugstores and
grocery stores in the US
Product and categoriesNew categories suited to broad design capability meeting changing trends and tastes ie design themed Gifting, retail
collateral – eg bags for retail consumption – ie not for re‑sale
M&A• Entering new closely related categories• Adding recognised brands to our group
• Leveraging scale• Consolidating the market place
Partnership and joint venture channelsAn alternative and flexible way to fast tracking progress to
niche channels and categories
Underpinned by innovationNew and patented formats ie bags with integrated tissue
Underpinned by synergies and an entrepreneurial approach
Taking the right steps to growth
21
LEvERAGING sCALE ANd IP
Underpinning growth
• Operational synergies resulting from inter‑changeable Group‑wide wrap manufacturing facility.
• Overall purchasing requirements, working with preferred supply partners.
• Purchasing of raw materials – worldwide benchmarking and sourcing with increased standardisation driven through common manufacturing platform.
• Solutions to optimise cost and service provided to global retailers such as Ikea, Costco, Carrefour, Walmart, Tesco etc.
• Bespoke, licensed and generic approach to provide customers with a ‘one stop shop’ solution.
• Payback from high speed, highly efficient paper conversion facilities.
• Further automation – cost reducing and volume enhancing.
• Benefits, learnings and subsequent development of operational experience of new state‑of‑the‑art printing facilities.
Global capability Technology advancements
Operational scale Automation
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5 More than ever we are “designed to succeed”
4 Focused on profit growth underpinned by a unique blend of creativity and reliability
1 Foundations in place to support growth
2 Plentiful growth opportunities, organic or M&A/JV/partnerships
3 Flexible and competitive global funding in place gives us options to support the future vision
Outlook for Design Group