Full Year Results

RNS Number : 2243U

IG Design Group PLC

28 July 2020

EMBARGOED UNTIL 7.00 AM, 28 JULY 2020

IG Design Group PLC

(the "Company", the "Group" or "Design Group")

Results for the year ended 31 March 2020 and Q1 Trading Update

STRONG 2020 REVENUE GROWTH - ROBUST START TO 2021

IG Design Group plc, one of the world's leading designers, innovators and manufacturers of Gift Packaging, Celebrations, Craft & Creative Play, Stationery, Gifting and related product categories announces its results for the year ended 31 March 2020 and its Q1 2021 trading update.

Financial Highlights for the year ended 31 March 2020

Financial Highlights	2020	2019
Revenue	£494.2m	£448.4m
Adjusted*
- Profit Before Tax	£29.1m	£30.3m
- Diluted Earnings per Share	26.9p	29.1p
Reported
- Profit Before Tax	£0.3m	£17.3m
- Diluted Earnings per Share	16.9p	15.9p
Year End Net Cash	£42.3m	£17.1m
Full Year Dividend	8.75p	8.50p
Average Leverage	0.9x	1.3x

*Adjusted Results are before transaction, integration/restructuring, Covid-19 and US tariffs costs, LTIP and acquisition amortisation charges, collectively called Adjusting Items - for further detail see Alternative Performance Measures reconciliation within the Detailed Financial Review

· We ended our 2020 financial year with revenue up 10% year-on-year at £494.2 million and adjusted profit before tax of £29.1 million (2019: £30.3 million) - the Directors believe that Covid-19 impacted Adjusted profit before tax by £3.8 million

· The Board is recommending a final dividend of 5.75 pence which delivers a full year dividend of 8.75 pence and maintains the Group's progressive dividend policy

Operational Highlights

· Our focus on 'Working with the winners' continues to deliver organic revenue growth in key markets through our attention to 'Design and Innovation' including sustainable product ranges in the UK and Creative Play and Seasonal Events products in the US

· We ended the year with our manufacturing facilities in the US fully integrated into Memphis, including the successful commissioning of our new printing press despite the operational challenges resulting from the integration and also from the US trade dispute with China

· Transformational acquisition of CSS Industries, Inc. ('CSS') in the US completed in March 2020 with integration and synergies delivering ahead of plan - $5 million of annualised savings to date with more to come in 2021

· The Group responded quickly to the Covid-19 crisis rapidly implementing its response plan and despite the initial challenges we are now fully operational

Q1 2021 Trading Update

· The 2021 financial year has started strongly against our Covid-19 forecasts across all regions. Reported revenues are higher than the prior year benefitting from CSS which was acquired in March 2020. Like-for-like revenues (excluding CSS) were ahead of management's Covid-19 adjusted expectations but were down 27.7% year-on-year reflecting the impact of Covid-19 on the business. CSS revenues are 11.7% down year-on- year but ahead of our updated forecasts benefiting from strong demand for Craft product during lockdown. Despite the lower like for like revenues group Adjusted profit before tax benefitted from sales margin mix, effective cost management in the period together with the CSS results which overall delivered a Group outcome in line with the prior year and significantly better than our Covid-19 plan

· A focus on cash management in the first quarter has delivered a Net Cash position at 30 June 2020 which is significantly ahead of management's Covid-19 expectations and $63 million better than prior year, supported by the incremental equity raise in January 2020 as part of the CSS acquisition

· A strong pipeline of orders in excess of $500 million is ahead of prior year and substantially underpins the Covid-19 adjusted outlook for the year

· Revenue will remain ahead of 2020 as a result of the full year effect of the CSS acquisition, however, there will be a reduction in Group revenue from our pre Covid-19 expectations for 2021

· Following our Q1 performance the directors are increasingly optimistic about the outlook for the full year and also 2022

Paul Fineman, CEO, commented:

" The resilience, adaptability and enterprising nature of our business has been fully tested during the year by the global pandemic and unprecedented trade tariffs. Notwithstanding this, we have delivered good revenue growth and reduced average leverage, below 1x.

Despite these challenges it has also been a year of exciting opportunities, including our largest ever acquisition, which provides significant scope for future expansion as well as considerable integration and synergy benefits.

More than ever before, our customers value the portfolio of expertise, products, brands and services that we provide. Our commitment to providing quality and value, innovation and compliance as well as our ever- improving sustainability credentials, have further enhanced our relationships with many of the world's most successful retailers.

Whilst the period ahead remains uncertain our orderbook exceeds $500 million and we are confident in not only our resilience, but our ability to return to significant growth. By 'Working with the winners' - customers, suppliers, product categories and brands - our team is well placed to continue to deliver value to shareholders into the future."

IG Design Group is hosting a webinar for analysts at 09:30 BST today. If you would like to register please contact designgroup@almapr.co.uk .

The Company is also hosting a webinar for retail investors on Friday 31 July at 12:30pm BST. If you would like to attend please register here https://bit.ly/piw_webinar .

A video overview of the results from the CEO, Paul Fineman, and CFO, Giles Willits, is available to watch here: https://bit.ly/IGR_FY20_overview

For further information:

IG Design Group plc	01525 887310
Paul Fineman, Chief Executive
Giles Willits, Chief Financial Officer

Canaccord Genuity Limited	020 7523 8000
Bobbie Hilliam, NOMAD Alex Aylen, Sales

Alma PR
Rebecca Sanders-Hewett	020 3405 0205
Susie Hudson Sam Modlin	designgroup@almapr.co.uk

OVERVIEW

This has been an extraordinary year for Design Group with our significant successes in the period impacted by truly unprecedented macro level economic, social and operational challenges. In May 2019, trade discussions between the US and Chinese governments worsened resulting in the imposition of the largest ever wide-ranging set of trade tariffs across a substantial proportion of our US business' product ranges which significantly impacted on the execution of the planned integration of our US manufacturing facilities into Memphis. Despite this, the Group continued to focus on its strategy and in January 2020 announced it had agreed to acquire CSS Industries, Inc. ('CSS') in the US, alongside a £120 million share placing. Just after completing this transaction in March 2020, the world experienced the rapid spread of Covid-19 which had an unprecedented impact on our business and our teams.

COVID-19

The impact of Covid-19 on the world, our trading partners and the business has been significant and is envisaged to impact the Group in some capacity for some time to come. We have taken swift and decisive actions to ensure the business comes through the pandemic in robust shape and ready to take on the many opportunities we continue to see for the Group going forward.

Most importantly, the Board would like to extend our gratitude to every individual in the Design Group teams around the world. Our businesses have had to react dynamically as events have unfolded and our teams have ensured the business remains in good health while at the same time maintaining the safety of all of our employees. Specifically, during the crisis our teams have acted responsibly and professionally to deal with the impact the virus is having on the Group.

Our reaction to Covid-19

The impact on the Group of Covid-19 started in January 2020 when it became clear that our factory and many of our suppliers and distributors in China were going to be closed from February 2020 as a result of lockdown in regions of China. We quickly focused on working with customers and suppliers to ensure as best possible the continuation of supply, however, in March 2020 with the global 'lockdown' in full swing our response intensified with a focus on three main areas:

- Our employees and operations

- Our customers and suppliers

- Our financial strength

Employees and Operations - O ur main priority remains the health and wellbeing of our teams around the world. We continue to closely follow government working protocols regarding self-isolation, social distancing and personal hygiene in order that everyone remains safe and well. The vast majority of our office-based teams continue to work remotely while our warehouse and manufacturing teams have adapted to ensure that they abide by all the required procedures.

Customers and Suppliers - As a business that serves over 210,000 stores for over 11,000 customers in over 80 countries worldwide we have sought to strengthen our relationship with all our trading partners and have successfully dealt with a mix of situations including customers who remained open throughout the lockdown period to those that closed their doors completely. We have maintained our service to those who remained open, working to adapt to the new requirements while maintaining an efficient supply chain and developing new designs and products for the various 2020 seasonal and everyday programmes.

Financial Strength - The Covid-19 crisis hit at a time when the Group had its highest ever net cash balance of over £42 million and having just completed the CSS acquisition, we also had secured extended banking facilities of over £200 million. Furthermore, this crisis hit ahead of the peak working capital period and as such we were able to adjust our plans to ensure our seasonal working capital cycle matches our updated customer orders and therefore our seasonal working capital cycle will be lower than in previous years, despite the addition of CSS.

Our financial priority in March was to produce a set of Covid-19 scenarios which focused on updated sales expectations. In developing these plans each business unit has taken a view on a range of outcomes for 2021 based on the impact of Covid-19 in each region. This includes working with customers to understand their expectations, and importantly includes confirming orders where possible for the crucial Christmas 2020 trading period. In addition, we have focused on implementing strong cost management across the Group. These actions across the Group included freezing all annual salary reviews, stopping all new hires, waiving all existing bonus schemes, reducing all discretionary spend and ultimately reducing the size of our teams. We accelerated the process of integrating CSS into our existing US business to ensure we maximised the synergy opportunities as quickly as possible. Finally, we implemented additional cash management actions which aimed to conserve cash through robust working capital plans and a reduction in our capital investment programme.

Our financial scenarios reflect a material reduction in expected revenue but importantly continue to deliver a profitable business that has significant cash headroom and is also positioned to 'bounce-back' when we return to a more normal trading environment.

Q1 TRADING UPDATE & FULL YEAR OUTLOOK

The 2021 financial year has started strongly against our Covid-19 forecasts across all regions. Reported revenues are higher than the prior year benefitting from CSS which was acquired in March 2020. Like-for-like revenues (excluding CSS) were ahead of management's Covid-19 adjusted expectations but were down 27.7% year-on-year reflecting the impact of Covid-19 on the business. CSS revenues are 11.7% down year-on-year but ahead of our updated forecasts benefitting from strong demand for Craft product during lockdown. Despite the lower like-for-like revenues Group Adjusted profit before tax benefitted from sales margin mix, effective cost management in the period, together with the CSS results which overall delivered a Group outcome in line with the prior year and significantly better than our Covid-19 plan. A focus on cash management in the first quarter has delivered a net cash position at 30 June 2020 which is significantly ahead of management's Covid-19 expectations and $63 million better than prior year, supported by the incremental equity raise in January and February 2020 as part of the CSS acquisition. As a result, at the end of the first quarter to 30 June 2020 the Group has significantly improved its headroom in its banking facilities and covenants.

The CSS integration is well underway. We have fully integrated the management teams and already delivered $5 million of synergy savings with more to come in the year.

Looking ahead, with the world set to ease the Covid-19 lockdown and hoping to avoid a major second wave, we still face a number of uncertainties including how quickly more normal levels of working will return and how healthy the global economy will be going forward. Assessing the potential range of outcomes, the Directors believe that although revenues will remain ahead of 2020 as a result of the full year effect of the CSS acquisition, there will be a reduction in Group revenue from our pre Covid-19 expectations for 2021. This assumes no significant Covid-19 second wave.

Following our Q1 performance the Directors are increasingly optimistic about the outlook for the full year. We enter our peak trading period from July through to November with an orderbook that substantially covers our Covid-19 adjusted revenue forecasts and is ahead of last year. However, we remain cautious, recognising there remain increased uncertainties this year in relation to the potential for a second Covid-19 wave and the economic outlook post the virus. As such the Board continues to focus on managing the business within its banking facilities with the priority being on maintaining significant covenant headroom across all our potential scenarios.

Furthermore, assuming a return to more normal sales volumes by the end of 2021 and based on the anticipated delivery of synergies following the CSS acquisition and opportunities for further margin improvement and cost management, the Board would expect significant year-on-year growth in both revenues and earnings in 2022.

SUMMARY 2020 FINANCIAL RESULTS

During the year Group Revenue increased by 10% to £494.2 million (2019: £448.4 million) including the effect of nearly one month of sales from CSS, with Adjusted profit before tax broadly flat year-on-year at £29.1 million (2019: £30.3 million). When comparing our financial results with the prior year it is important to note the impact in 2020 of the adoption of IFRS16 which reduced Adjustedprofit before tax by £0.7 million on a like-for-like basis compared to the prior year. Adjusted diluted earnings per share was 26.9 pence (2019: 29.1 pence) which reduced, despite flat profit levels because of the higher diluted share number following the share raise in the final quarter of the financial year.

We finished the year with a positive net cash balance of £42.3 million (2019: £17.1 million) supported by the share placings as part of the CSS acquisition. Average leverage for the year was 0.9 times (2019: 1.3 times) and once again is a reflection of our focus on cash management during the 2020 year. Furthermore, following the CSS acquisition on 3 March 2020 and the associated increase in our banking facilities we have access to over £200 million of debt facilities with significant headroom.

The Group finished the year with a profit before tax of £0.3 million (2019: £17.3 million). As can be expected in a year with the degree of challenges that we have faced and during a period of such significant strategic development, the Group has incurred increased disruption, which is reflected in the increased size and numbers of Adjusting items which together total £28.8 million (2019: £13.0 million). The main Adjusting items relate to the Covid-19 impact, the acquisition of CSS, the impact of US tariffs with China and the costs associated with the significant restructure of the US business during the year. Diluted earnings per share is 16.9 pence (2019: 15.9 pence) reflecting the benefit of CSS tax credits relating to changes in the US tax rules that were enacted following acquisition. See the detailed financial review for more information.

In March 2020, Covid-19 resulted in unshipped customer orders following lockdown and lost production activity which reduced our ability to absorb overheads into inventory. The Directors estimate that the Group was unable to book sales in the year of £6.9 million which together with increased costs resulting from lower overhead inventory absorption hit our Adjusted profit before tax by an estimated £3.8 million.

The Board is recommending a final dividend of 5.75 pence reflecting the strong financial position of the Group after its 2020 year and its Q1 2021 trading. This delivers a full year dividend of 8.75 pence and maintains the Group's progressive dividend policy.

OUR STRATEGY

Despite the challenges of Covid-19 our business continues to be successful in driving long term growth as a result of our focus on our three key strategic drivers, which underpin the Group's goals, these are:

Working with the winners

We are focused on increasing our revenue and profitability through growth in both existing and new channels and markets by ensuring we maintain excellent relationships with our key customers, as well as developing relationships with new customers. We want to be part of our customers' success stories. As the retail market evolves and progresses, we work closely with our key customers with the aim of being their partner of choice going forward. Our top 10 customers now account for 52% of our global revenues (2019: 48%).

In order to do this, we need to have the capability to manufacture and/or source a broad range of products, leveraging from improved sourcing processes as our business grows. Many of our customers work across multiple territories and have global ambitions. As such, our geographic and channel diversity in key markets is essential to help support our customers as they grow. Our businesses are experts in their territories and categories and we ensure that we know what works well for our customers in each of those markets.

To continue our growth trajectory with our customers, we follow key market trends including the increase in consumer demand for mainstream mass and discount retailers, as well as specialist 'experiential' retailers and e-commerce opportunities.

Our focus on working with the winners helps ensure we are benefitting as our customers continue to grow. But it also requires us to decide who we will not work with and this has been especially important during a year that has witnessed challenging retail markets, with a number of high profile retailers facing financial troubles.

The CSS acquisition has resulted in a strengthening of our relationship with Walmart, the largest retailer in the world and they now account for approximately 22% (2019: 18%) of the Group's revenue.

Design & innovation

Our customers look to us to be at the forefront of product design and innovation. This means we look to develop the best designs for innovative and quality products, while maintaining a focus on value and consumer appeal.

The Group has succeeded in growing revenues through developing new and adjacent category products as well as increasing revenues in existing product areas. The addition of CSS product categories has strengthened the Group's ability to offer a complete 'one-stop-shop' to customers including products not previously forming part of the Group's portfolio such as Craft and specialist packaging for the floral industry. We also continue to diversify our product range by focusing on occasions other than Christmas and following the acquisition of CSS, we expect our Everyday and Minor Seasons business to account for c. 51% of global sales.

Technological development is a key part of this strategy and this extends to adapting to changes in consumer habits and being dynamic in providing new channels to purchase our products.

Coupled with innovation in product design, we have also increased our focus on developing more sustainable products and improved sourcing, manufacturing and distribution to reduce our global carbon footprint. We believe this focus is not only the right strategy to help the environment but can also be a source of competitive advantage. Recent successes include developing a recyclable cracker range for customers in the UK, removing plastic from a selection of product packaging, removing non-recyclable glitter from a number of wrap, bag and card ranges and reducing the size of wrap cores to further rationalise shipping volumes and cost. We are committed to continuously increasing our attention to the environmental impact of the Group and have established an Environmental Taskforce that is working with third party specialist organisations. We wish to ensure that we can be regarded by our customers as leaders in bringing improved sustainable product solutions to all product categories in the Group's portfolio.

Efficiency & scale

As we grow we remain intent on driving up operating margins through investment in processes and people as well as by unlocking synergies following acquisitions, using our global reach and capabilities to leverage Group economies of scale.

The year has seen significant capital investment across the Group totalling £11.1 million (2019: £7.9 million). Key areas included investment in a new printing press in the US, further bag making equipment in the UK to support the growth of our 'not ‑ for ‑ resale ' business, and an automated wrap solution for our business in the Netherlands. As ever, we look for projects with compelling payback that help increase our capacity, improve our efficiency and deliver a better service.

In addition, we are building the capabilities of the team around the Group. In the US following the acquisition of CSS we integrated and strengthened the senior management team introducing new roles including a US Executive Chairman and a Chief Operating Officer. These new positions help extend the strength of the capability of our teams, bringing new skills that will ensure we are properly resourced to deliver our strategy.

Furthermore, the acquisition of CSS will have a transformational impact on the scale of the Group. CSS is one of the leading suppliers of Craft products in the US, with long standing relationships with major US retailers. Following the acquisition in March 2020, the Group has proceeded quickly with the integration and we are already seeing the benefits from the synergies and the increased scale of the overall business.

Shareholder Commitments

Our key strategic priorities all focus on our three commitments to shareholders which are:

· double-digit growth in Adjusted diluted earnings per share on a 3 year CAGR basis - over the past three years we have averaged growth of 13%, which is lower than hoped due to the impact of Covid-19

· maintaining Average leverage between 1.0 times and 2.0 times - this year saw leverage move below 1.0 times

· targeting dividend cover of 2.5 times Adjusted diluted earnings per share - in 2020 our dividend cover was 3.1 times and we envisage achieving 2.5 times by 2024

REGIONAL HIGHLIGHTS

Overall, the Group has seen growth in both Revenue and Adjusted operating profit which increased to £33.4 million (2019: £32.6 million).

			Segmental revenue			Adjusted operating profit			Adjusted operating margin
% Group revenue			2020	2019	% growth	2020	2019	% growth	2020	2019

56%	Americas	$m	355.9	289.9	23%	20.1	20.0	1%	5.6%	6.9%
24%	UK	£m	117.5	127.1	(8%)	6.9	8.1	(15%)	5.9%	6.4%
14%	Europe	€m	78.3	73.0	7%	11.6	10.0	16%	14.8%	13.7%
7%	Australia	AU$m	60.1	70.3	(15%)	5.5	7.7	(29%)	9.2%	11.0%
(1%)	Elims / Central costs	£m	(6.6)	(5.5)	20%	(3.2)	(4.1)	(22%)

100%	Total	£m	494.2	448.4	10%	33.4	32.6	2%	6.8%	7.3%

Americas

2020 was a transformational year for the Americas business with revenues representing 56% of Group revenues, but following the acquisition of CSS the US will account, on a proforma basis, for over 70% of Group revenues.

The last 24 months have seen a significant change for our US business. Following the acquisition of Impact Innovations, Inc. ('Impact') in August 2018 we doubled the size of our US operations and during the 2020 financial year we continued the significant consolidation and restructure of our printing, production and distribution facilities in Memphis. In January 2020 we announced the acquisition of CSS, a deal which again doubled the size of the US Group. All this while the US and China were engaged in a trade dispute that brought significant disruption in the form of tariffs and knock-on operational challenges. Despite these challenges Revenue grew significantly, up 23% year-on-year to $355.9 million (2019: $289.9 million), which included $19.9 million of revenues from CSS for the last month of the financial year following completion of the deal on 3 March 2020.

Adjusted operating profit at $20.1 million was in line with the prior year (2019: $20.0 million) and included $4.3 million contribution from CSS. Adjusted operating margin declined to 5.6% from 6.9% in 2019 reflecting in part a full year of costs in 2020 from the Impact acquisition as compared to the prior year and also the impact of Covid-19.

Organic revenue growth was primarily fuelled by a 7% growth in our Celebrations category and 26% growth in our sale of Craft & creative play products. Furthermore, during the year we developed new programmes in our gift and décor product ranges which are to be rolled out in 2021.

The integration of the Impact business saw a period of significant change for the Americas group during 2020, specifically the moving of our converting business from Midway, Georgia to bring it under the same roof as the printing operations in Memphis, Tennessee. We moved the machinery in January 2019 and spent the first quarter of the 2020 financial year effecting the integration ahead of the peak manufacturing cycle during May through to October. Unfortunately, while this integration was underway the US government announced the significant extension of tariffs in relation to products sourced from China. The impact of this was that our customers delayed decisions in signing off product designs and final orders resulting in production in Memphis being 'bottle-necked' into a narrower time period than initially planned. As a consequence, the integration did not go as smoothly as expected. The Group has identified Adjusting items of $7.1 million in relation to the integration, including outsourcing and overtime costs and additional customer charges. As we look forward to the current financial year the Memphis facility is operating to plan and has already successfully fully commissioned its new state-of-the-art printing press, ensuring the Americas group delivers on the final phase of the Impact integration and synergies realisation.

As stated above, the evolution of the US tariffs with China (s301 tariffs) to 25% in just a few months and, without advance warning, becoming applicable to more of our product categories, resulted in margin challenges for customer and supplier contracts received prior to the imposition of tariffs. As such, it was not possible to mitigate the incremental cost impact which would normally be the case as part of the normal annual pricing discussions. The Group has therefore identified the tariff costs as an Adjusting item of $4.4 million. Going into 2021 the Group have had time to work with our customers and suppliers to mitigate the impact of tariffs through a mix of reshoring production, product design and finding alternative supply solutions. Importantly, by satisfying customer requirements, we have further consolidated our position as a key supplier thereby providing incremental opportunities for the future.

In March 2020, the Group acquired CSS. This acquisition significantly enhances the product portfolio of the Americas group bringing a wide range of complimentary products as well as a new product category for the Group; Craft (which we have combined our existing Creative play category). The acquisition doubles the size of the Americas group and brings with it many benefits, including providing customers with a substantially enhanced 'one-stop-shop' through their leading presence within the US craft market. The acquisition also:

· reinforces the Group's position as the global industry leader in gift packaging;

· rapidly scales the Group's 'Everyday' product category, online revenues and presence within the floral decorative packaging industry; and

· substantially increases the manufacturing and distribution capability of the Group.

Furthermore, it is anticipated that operational and financial synergies of a minimum of £10 million per annum by 2024 are achievable following the acquisition. Since the acquisition completed in March 2020 we strengthened and integrated our US senior management team and they are working alongside our third party project management office to oversee the integration of the business and the delivery of the synergy plans. In the first month following acquisition over $5.0 million of annual savings were achieved through a mix of headcount and public company listing cost reductions. We have included within 2020 Adjusting items $3.0 million relating to the severance costs associated with the headcount reductions. The progress in terms of delivering the synergy plans to date is ahead of schedule.

The UK business accounts for nearly one quarter of the Group's business and as anticipated Revenues for the UK business were down on the prior year at £117.5 million (2019: £127.1 million). Adjustedoperating profit at £6.9 million was lower than in 2019 as a result of the impact of Covid-19.

Further unification of our UK businesses continued in 2020 with a move of our Trade business under one roof into our Newport Pagnell site during the year. This, together with other required reorganisation, has resulted in £0.4 million of Adjusting items in the year.

We have continued to invest in our 'not-for-resale' bag activities with a second production line going live during the year. We are encouraged by increased demand for these sustainable products, albeit demand is anticipated to be reduced going forward as a result of Covid-19. As such, we have impaired the residual value of the two machines by £0.4 million in light of reduced future cashflows in the coming years and taken the cost of this impairment through Adjusting items in the year.

Following the exit of the UK from the European Union on 31 January 2020, the group has seen minimal impact to date on the business. We remain prepared for Brexit in whatever form it will take and continue to monitor the situation as negotiations in relation to the final exit deal are concluded.

Europe

Europe had another excellent year with Revenues of €78.3 million, 7% up on the prior year (2019: €73.0 million) and Adjustedoperating profit growing by 16% to €11.6 million compared to €10.0 million in 2019. Adjusted operating margin grew year-on-year to 14.8% (2019: 13.7%).

The European business continues to benefit from its excellent trading relationships with key leading and growing retailers across Europe - as they grow, our business grows with them.

Given the efficiencies that the business in Europe have derived from their state-of-the-art printing press that came online in 2019, they were able to support the Americas business in the latter part of the year, printing and shipping gift-wrap product. The Group will continue to maximise cross-Group opportunities over the coming years.

In 2020, our European manufacturing facility also upgraded its converting lines to deliver an automated end-to-end production line taking the product from conversion all the way to packing. This facility came online at the end of the financial year and we are anticipating efficiency benefits from this production process fully in 2021.

Australia

Our performance in Australia has been in line with expectations and as previously communicated. Revenues declined 15% year-on-year to AU$60.1 million compared to AU$70.3 million in 2019. Adjustedoperating profit was AU$5.5 million (2019: AU$7.7 million) with Adjusted operating margin falling to 9.2% from 11.0% in 2019.

The decline in Revenues and Adjusted operating profit is a result of lost business with certain national retailers during the year and the active decision by the Australia team to not continue to do business with some customers whose recent performance has been volatile.

OUR PRODUCTS AND BRANDS

Amongst the factors creating our Group's success is our well diversified, yet complimentary product portfolio, underpinning our 'Working with the winners' strategy. Our range of products enables us to provide a compelling portfolio of products and services making us an attractive 'Supplier of choice' for our retail partners.


Revenue by product category	2020		2019
Celebrations	75%	£371.7m	77%	£345.5m
Craft & creative play	7%	£30.2m	4%	£16.3m
Stationery	4%	£21.3m	4%	£20.7m
Gifting	11%	£54.7m	11%	£46.1m
'Not-for-resale' consumables	3%	£16.3m	4%	£19.9m
Total		£494.2m		£448.4m

Our product offering was further enhanced this year as a result of the acquisition of CSS, enabling us to introduce a new Craft product category throughout the Group. This includes needlecraft and sewing products and a particularly strong position in the sewing patterns market. CSS is a market leader in the US craft market as well as being active in complementary Design Group categories. Design Group can further leverage this whilst strengthening our 'one-stop-shop' offering. Following the establishment of the Craft category, the Group has re-evaluated our product offering as follows:

· Celebrations including gift packaging, greeting cards, crackers and partyware

· Craft & creative play is the new category this year and includes creative play products, sewing patterns, general and kids craft products, and buttons

· Gifting includes our design-led giftware products and photo frames

· Stationery includes home, school and office stationery items

· 'Not-for-resale' consumables include branded store bags, point of purchase products and also floral packaging which is a new product line acquired with CSS

Our design teams pride themselves on creating innovative designs which are both appealing and affordable to our customers and in turn, their customers. This core strength is a key focus for the Group as we believe it underpins our success.

Our focus on product diversification and continued development of attractive and innovative products has driven growth in the sales of the Group, across all consumer categories.

By virtue of our focus on design and innovation, this year the UK team have launched an 'Eco Nature Range' which includes gift packaging, crackers, stationery and giftware that is proudly 100% designed and manufactured in the UK. This sustainable range supports a circular economy using only recycled materials and resulting in a fully recyclable product range.

Our teams in America have also been demonstrating cutting edge innovation in response to the global pandemic by using our skills and materials to produce face masks within our New York facilities, mask components from Design Group materials (such as ribbon) and face shields in our factory that produces point of purchase products. By deploying existing expertise to create new product ranges in short time scales, we are proud to be contributing to communities in the face of the Covid-19 crisis.

The Group's 'in-house' manufacturing facilities in the UK, US and the Netherlands, enable us to have locally produced product in each of these regions, supporting local economies and reducing adverse effects on the environment. Overall, 35% of the Group's revenue was manufactured in-house, up from 30% last year. Outsourced products are provided by a broad base of carefully selected and compliant suppliers with the Group being one of the world's largest buyers across the categories that we sell.

In the last year, we estimate that more than 700 million items and over 75,000 SKUs, have been delivered to our customers.

DETAILED FINANCIAL REVIEW

The Group financial performance in 2020 has been impacted by a number of factors which together have had a material impact on the full year results of the Group. These factors are Adjusting items and IFRS 16 accounting standard adoption.

As part of the presentation of the results each of these factors is highlighted to provide a detailed explanation of its impact on the performance of the business year-on-year. The summary Income Statement detailed below details the Adjusting items:

	2020			2019
	Reported	Adjusting Items	Adjusted	Reported	Adjusting Items	Adjusted
	£m	£m	£m	£m	£m	£m
Revenue	494.2	-	494.2	448.4	-	448.4
Gross profit	75.1	15.8	90.9	82.9	1.7	84.6
Overheads	(70.5)	13.0	(57.5)	(63.1)	11.1	(52.0)
Operating profit	4.6	28.8	33.4	19.8	12.8	32.6
Finance charge	(4.3)	-	(4.3)	(2.5)	0.2	(2.3)
Profit before tax	0.3	28.8	29.1	17.3	13.0	30.3
Tax	14.5	(20.4)	(5.9)	(4.0)	(3.1)	(7.1)
Profit after tax	14.8	8.4	23.2	13.3	9.9	23.2

Revenue for the year of £494.2 million grew 10% over the previous year (2019: £448.4 million) of which 7% relates to organic growth, with the balance relating to CSS post acquisition sales. At like-for-like foreign exchange rates revenue grew 9%. Adjusted operating profit increased by 2.4% to £33.4 million (2019: £32.6 million) and 3.3% at like ‑ for ‑ like exchange rates. Adjusted operating margin remained largely flat at 6.8% (2019: 7.3%). Gross margin fell in the year, largely as a result of customer and product mix to 18.4% (2019: 18.9%). Adjusted overheads as a percentage of revenue remained constant at 11.6% year-on-year. Overall Adjusted profit before tax was broadly flat at £29.1 million (2019: £30.3 million) after taking into account the impact of IFRS16 which reduced 2020 profit by £0.7 million and despite the impact of Covid-19.

The Group finished the year with a profit before tax of £0.3 million (2019: £17.3 million). As can be expected in a year with the degree of challenges that we have faced and during a period of such significant strategic development, the Group has incurred increased disruption, which is reflected in the increased size and numbers of Adjusting items which together total £28.8 million (2019: £13.0 million). Further details of the Adjusting items are detailed below. Adjusted profit after tax was £23.2 million (2019: £23.2 million) with profit after tax for the year at £14.8 million (2019: £13.3 million).

Impact of Covid-19

In March 2020, Covid-19 resulted in unshipped customer orders as a result of the lockdown of our facilities across the Group and lost production activity which reduced our ability to absorb overheads into inventory. The Directors estimate that the Group was unable to book sales in the year of £6.9 million which together with increased costs resulting from lower overhead inventory absorption hit our Adjusted profit before tax by an estimated £3.8 million.

Finance expenses

Finance costs of £4.3 million are higher compared to the prior year of £2.3 million (excluding adjusting finance charges). This primarily reflects the impact of IFRS 16 which added £1.6 million to the full year charge. In addition, arrangement fees of £0.3 million were incurred in 2020 relating to the additional facility taken on for the purposes of the enlarged Group facilities as part of the CSS acquisition. Adjusting for these factors, the charge would have been £2.4 million which is in line with prior year. Adjusted interest cover after stripping out IFRS 16 was 12.0 times in 2020 compared to 14.1 times in the prior year.

Adjusting items

The Group has incurred Adjusting items in the year to 31 March 2020 totalling £28.8 million (2019: £13.0 million).

Adjusting items	2020	2019
Losses/(gains) and transaction costs relating to acquisitions and disposals of businesses	£3.3m	£2.4m
Acquisition integration and restructuring costs	£9.4m	£6.0m
Impairment of assets	£9.5m	-
Covid-19 costs	£0.5m	-
US tariffs	£3.5m	-
Amortisation of acquired intangibles	£2.8m	£1.6m
LTIP (credit)/charges	(£0.2m)	£3.0m
Total	£28.8m	£13.0m

Adjusting items are material items of unusual or non-recurring nature which represent gains or losses which are separately presented by virtue of the nature, size and/or incidence. These items are as follows:

Losses/(gains) and transaction costs relating to acquisitions and disposals of businesses - £3.3 million

These costs were offset by a profit of £1.5 million relating to the disposal of our Shaoxing factory facilities in China which was completed on 24 February 2020. This facility which was acquired as part of the Impact transaction completed in August 2018 and the disposal formed part of the planned integration programme.

Acquisition integration and restructuring costs - £9.4 million

For the years ended 31 March 2020 and 31 March 2019 the acquisition integration and restructuring costs relate to the ongoing UK unification initiative (£0.4 million), the integration of manufacturing facilities in the US, following the acquisition of Impact, which lead to the combination of printing and converting processes into one site in Memphis (£5.5 million), transition and retention costs (£1.1 million) and costs relating to the CSS integration (£2.4 million).

The costs associated with the Memphis project were calculated by evaluating the expense associated with the operating challenges in the manufacturing environment created as a result of the integration alongside the delays to productions plans as a result of the rapid development of US tariffs with China and customers delaying sign off on artwork and packaging. All these costs arise directly as a result of integrating processes for the first time during the peak period. The costs include expenditure for one time outsourcing to meet production demands, additional warehousing to store inventory due to tariff driven delayed production and shipping and the subsequent knock-on customer related penalties.

The CSS integration and restructuring costs were incurred following the acquisition of CSS and primarily relate to severance costs of redundant roles in the legacy CSS business.

Covid-19 related costs, including impairment of assets of £10.0 million

As part of the review of the impact of Covid-19 we have undertaken a detailed review of the potential impact on assets within the business alongside incremental costs we have incurred as a result of the virus. The review of receivables, fixed assets and inventories identified the need for higher than usual provisions/impairments at the year end as a result of the virus.

£9.5 million of provisions/impairments were identified and are split as follows; £5.9 million of additional inventory provisions recognising the lower than expected sales activity in 2021, £3.1 million in relation to receivables as at 31 March 2020 to reflect increased credit risk amongst our customer base resulting from Covid-19 and £0.5 million in relation to inventory asset and fixed asset impairment.

In addition, £0.5 million of incremental costs have been identified relating primarily to direct labour costs that are considered abnormal following the forced closures of manufacturing facilities across the Group. Certain of these costs will also continue into 2021.

US tariffs - £3.5 million

US tariff costs incurred in the year had a significant impact on our business. The rapid evolution of tariffs became applicable to more of our product categories with no advance warning. The timing of the introduction of tariffs meant a majority of our purchase orders had already been agreed with customers and suppliers effectively creating a situation where the US business was locked into commitments that could not be renegotiated. This impact is not repeated going forward as the business is able to mitigate the effect of tariffs in future years as part of the negotiation of contracts with customers and suppliers.

LTIP credit - £0.2 million

As part of our senior management remuneration, the Group operate a Long Term Incentive Plan ('LTIP') in the form of options for ordinary shares of the Group. In accordance with accounting principles, despite this plan not being a cash cost to the business, a share ‑ based payments charge is taken to the income statement. We consider that these charges and the associated social security charges do not form part of the underlying operational costs and therefore include these as Adjusting items. In the year ended 31 March 2020 there was an IFRS 2 credit due to the lowered expectations in respect of future schemes vesting.

Amortisation of acquired intangibles - £2.8 million

The Group has trade names and brands acquired as part of the acquisition of The Lang Companies, Inc., Impact Innovations, Inc., CSS Industries, Inc. and Biscay Pty Greetings Ltd which are amortised over their estimated useful lives. Amortisation of £2.8 million has been incurred in the year ended 31 March 2020.

Taxation

The Group aims to manage its tax affairs in an open and transparent manner, including being fully compliant with all applicable rules and regulations in tax jurisdictions in which it operates. We have not entered into any tax avoidance or otherwise aggressive tax planning schemes and the Group continues to operate its tax affairs in this manner.

The tax credit for the year ended 31 March 2020 is £14.5 million compared to £4.0 million charge in the prior year. The significant year-on-year change is driven by the US Coronavirus Aid, Relief, and Economic Security (CARES) Act which came into effect on 25 March 2020 which, as part of the stimulus package, extended the time period for which Net Operating Losses (NOLs) could be carried back against profits in US businesses. As part of the acquisition of CSS, the Group inherited substantial NOLs in the CSS Group which were then able to be carried back against historical profits. This has resulted in the recognition of a $17 million future cash inflow as a result of the NOL carry back claims currently being filed. We expect these to be paid during 2021.

The effective tax rate on Adjusted profit before tax is 20.1% (2019: 23.4%). The reduction is a reflection of the UK tax rate remaining at 19% rather than reducing to 17% as previously enacted which has resulted in deferred tax assets being revalued at the higher rate, the recognition of overseas tax losses in China and Asia along with the release of an uncertain tax position in relation to our European business following the adoption of IFRIC 23.

Overall tax paid in comparison to the prior year increased to £4.7 million (2019: £3.7 million) largely as a result of the growth in the Group.

Earnings per share

Adjusted earnings per share are 26.9p (2019: 29.1p) reducing year-on-year by 8% as a result of the flat profit levels over a higher diluted share number following the share raise in early 2020 and the impact of Covid-19. Diluted earnings per share are 16.9p (2019: 15.9p). The reconciliation between Reported and Adjusted earnings per share can be seen below:

Earnings per share	2020	2019
Earnings attributable to equity holders of the Company	£14.1m	£11.9m
Adjustments
Adjusting items (net of non-controlling interest effect)	£28.6m	£12.9m
Tax charge/(relief) on adjustments (net of non-controlling interest effect)	(£6.5m)	(£3.0m)
Adjusting item - tax credit (US loss carryback)	(£13.8m)	-
Adjusted earnings	£22.3m	£21.8m
Weighted average number of shares
Basic weighted average number of shares outstanding	82.6m	73.6m
Dilutive effect of employee share option plans	0.5m	1.3m
Diluted weighted average ordinary shares	83.1m	74.9m

Basic earnings per share	17.0p	16.2p
Impact of Adjusting items	10.0p	13.4p
Basic adjusted earnings per share	27.0p	29.6p
Diluted earnings per share	16.9p	15.9p
Diluted adjusted earnings per share	26.9p	29.1p

Dividend

The Board are recommending a final dividend of 5.75 pence reflecting the strong financial position of the Group after its 2020 year and its first quarter trading in 2021. This delivers a full year dividend of 8.75 pence and maintains the Group's progressive dividend policy.

Return on capital employed

Improving the Return on capital employed continues to be a key target for each of the business units. Overall, the Group saw the Return on capital employed reduce year-on-year to 21.6% in 2020 from 24.3% in 2019 which reflects the higher level of capital employed following the acquisition of CSS.

Cash flow and net cash

The Group finished the year end with a significantly higher cash balance compared to 31 March 2019, of £42.3 million (2019: £17.1 million) showing cash improvement of £25.2 million. This was primarily a result of the incremental fundraise in the last quarter of the financial year which supported the acquisition of CSS. Cash conversion was 84.4% (2019: 130.5%) with Adjusted cash generated from operations of £40.6 million (2019: £50.5 million) down year-on-year reflecting working capital movements. Adjusting items reduced cash generated from operations by a further £13.1 million to £27.5 million (2019: £44.8 million).

Cashflow	2020	2019
Adjusted EBITDA	£48.1m	£38.7m
Movements in working capital	(£7.5m)	£11.8m
Adjusted cash generated from operations	£40.6m	£50.5m
Adjusting items	(£13.1m)	(£5.7m)
Cash generated from operations	£27.5m	£44.8m
Capital expenditure (net of disposals of property, plant and equipment)	(£10.7m)	(£2.6m)
Business acquired (including cash on acquisition)	(£87.7m)	(£65.6m)
Tax paid	(£4.7m)	(£3.7m)
Interest paid (including Adjusting items)	(£4.0m)	(£2.1m)
Payments of lease liabilities	(£6.6m)	-
Dividends paid (including those paid to non controlling interests)	(£7.1m)	(£5.7m)
Proceeds from issue of share capital	£116.9m	£48.3m
FX and other	£1.6m	(£0.7m)
Movement in net cash	£25.2m	£12.7m
Opening net cash	£17.1m	£4.4m
Closing net cash	£42.3m	£17.1m

Working capital

The net working capital outflow in the year of £7.5 million (2019: inflow of £11.8 million) has been impacted by the timing of the acquisition of CSS in March 2020 in a similar manner to the effect the Impact acquisition had in the prior year. In 2020 post acquisition working capital movements in relation to CSS resulted in a £7.5 million cash inflow, while in 2019 the Impact post acquisition working capital cash inflow was £24.6 million. Stripping out the effect of the acquisitions on working capital movements there was an underlying outflow of £15 million in 2020 (compared to £12.8 million in 2019) primarily reflecting the need for additional working capital to support the growth of the core businesses.

In the current Covid-19 environment the Group continues to actively track debtors and credit risk profiles of all of our customers to ensure we try to mitigate as far as possible any additional exposure to credit risk. Doubtful debt write off in the year was less than 0.2% of revenue (2019: 0.1%), a continued testament to our proactive approach to dealing with credit risk.

Capital expenditure

During the year we invested £11.1 million (2019: £7.9 million). The key projects included, a new, state-of-the-art printing press in the US, the automated converting line project in the Netherlands, the second bag line in the UK and ongoing costs in relation to a new ERP system in the Americas operations.

CSS acquisition and associated share capital issue

In March 2020 the Group acquired 100% of the equity of CSS Industries, Inc. The deal completed for a total consideration of $122.8 million including the repayment of the CSS debt at the date of acquisition. The consideration represented $9.40 per share for CSS shareholders.

The acquisition was funded through the proceeds of an equity share placing which took place over two tranches in January and February 2020, in total raising £116.9 million of net proceeds. Full details of the assets acquired including inventory and brands can be found in note 28 to the consolidated financial statements.

Average leverage and banking facilities

Average leverage down to 0.9 times (2019: 1.3 times)

Our business is seasonal in nature requiring the build of inventory and receivables ahead of the peak Christmas trading period. As a result, despite starting and ending the financial year with net cash we trade for a period of our financial year with a net debt position. As such, Average leverage is the key measure the Group adopts in relation to cash and working capital management. We seek to maintain our average leverage position in the range between 1.0 times and 2.0 times over the long term. Average leverage for the year to 31 March 2020 was 0.9 times, down from 1.3 times in the prior year. This reflects an improvement in the Adjusted EBITDA compared to the prior year but also a year-on-year reduction in the average bank debt from £48.8 million in 2019 to £34.6 million in 2020.

Our measure of Average leverage excludes the impact of IFRS 16 and therefore we exclude lease liabilities from our measurement of debt and also reduce Adjusted EBITDA for lease payments. This mirrors the approach taken by the banks in measuring leverage for the purposes of the banking facilities and therefore is considered the most relevant measure for management to adopt.

Banking facilities renewed and extended during the year

On 5 June 2019, the Group entered into a new three year Group facility with a club of five banks chosen to reflect and support the geographical spread of the Group. The banks within the club are HSBC, NatWest, BNP Paribas, Sun Trust and PNC. On 17 January 2020, the facility was increased to support the acquisition and working capital requirements of CSS which completed in March 2020.

The facilities, which run to May 2022, comprises:

- a revolving credit facility ('RCF A') of $95.0 million;

- a further flexible revolving credit facility ('RCF B') with availability varying from month to month of up to £130.0 million. This RCF is flexed to meet our working capital requirements during those months when inventory is being built within our annual business cycle and is £nil when not required, minimising carry costs; and

- an invoice financing arrangement in Hong Kong maximum limit $18.0 million but dependent on level of eligible receivables

In total, the accessible facilities at approximately £212.0 million are more than sufficient to cover our peak requirements. Being partially framed in US dollars the facilities also provide a hedge against currency movements. The facilities, which do not amortise with time, include an additional uncommitted amount to help finance potential acquisitions.

Invoice financing arrangements are secured over the trade receivables that they are drawn on. The RCF facilities are secured with a fixed and floating charge over all other assets of the Group.

There are financial covenants (measured on pre IFRS16 accounting definitions), tested quarterly, attached to the existing facilities as follows:

1. interest cover, being the ratio of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) as defined by the banking facility to interest on a rolling twelve month basis; and

2. leverage, being the ratio of debt to adjusted EBITDA as defined by the banking facility on a rolling twelve-month basis.

There is a further covenant tested monthly in respect of the working capital RCF by which available asset cover must not fall below agreed levels relative to amounts drawn.

We also have access to supplier financing arrangements from certain customers which we utilise at certain times of the year.

Foreign exchange exposure management

Our foreign exchange ('FX') exposure is split into two areas:

Translational FX exposure - this exposure is the result of the requirement for the Group to report its results in one currency. This necessitates the translation of our regional business units local currency financial results into the Group's adopted reported currency. The overall impact on revenue and profits from currency movements in 2020 when compared to 2019 is not significant. Revenue in 2019 would have been £4.9 million higher if translated at 2020 FX rates, with 2019 Adjusted profit before tax £0.3 million higher.

Following the CSS acquisition in March 2020 and the significant increased concentration of the Group revenues and earnings to the US dollar it was announced as part of the acquisition that the Group would be switching the Group's reporting currency from sterling to US dollars. This will significantly reduce the potential exposure of the Group to translational currency movements going forward.

Transactional FX exposure - this FX exposure is managed carefully by the Group as it can result in additional cash outflows if not managed appropriately. In response to this risk the Group adopt an active hedging policy to ensure further foreign exchange movements remain mitigated as far as possible. In addition, a reasonable proportion of this hedging is achieved through natural hedges whereby our purchases and sales in US dollars are offset. The balance of our hedging is achieved through forward exchange contracts and similar derivatives.

New accounting standards

IFRS 16 'Leases' is effective for accounting periods beginning on or after 1 January 2019 and as such the Group have adopted the standard in the year to 31 March 2020. The Group have used the modified retrospective approach resulting in a gross right-of-use asset as at 31 March 2020 of £66.7 million and a corresponding lease liability as at the same date of £76.9 million therefore reducing net current assets by £10.2 million. This includes the right-of-use assets and lease liabilities in relation to CSS which were £31.8 million and £37.0 million respectively on acquisition. The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases or low-value assets and will continue to expense the lease payments associated with these leases on a straight-line basis over the term of the lease. The effect of IFRS 16 on our key metrics can be seen below;

Impact of IFRS 16 on Key Metrics	2020
	Pre IFRS 16	IFRS 16 impact	Adjusted
Adjusted EBITDA	£40.2m	£7.9m	£48.1m
Depreciation (including software amortisation)	(£7.7m)	(£7.0m)	(£14.7m)
Adjusted operating profit	£32.5m	£0.9m	£33.4m
Finance expenses	(£2.7m)	(£1.6m)	(£4.3m)
Adjusted profit before tax	£29.8m	(£0.7m)	£29.1m
Adjusted diluted earnings per share	27.6p	(0.7p)	26.9p

Financial position and going concern basis

The Group's net assets increased by £127.5 million to £303.1 million at 31 March 2020 (2019: £175.6 million) primarily reflecting the acquisition of CSS within the 2020 financial year.

In light of the ongoing Covid-19 pandemic, the Directors have paid particularly close attention to their assessment of going concern in preparation of these financial statements. The Group is well capitalised at the year end with a net cash position of £42.3 million (£67.1 million of cash and £24.8 million of bank overdraft excluding loan arrangement fees). The Group is currently ahead of forecasts which were reviewed in detail during the year end process in light of Covid-19 and the likely change in consumer behaviours that could drive our customers to change their spending with us. These forecasts which have been produced and reviewed in detail by the Board, and take into account the significant seasonal working capital cycle of the business, have been sensitised to reflect severe but plausible adverse downturns in the current assumptions including the potential for a second wave of the pandemic later in the year. Management has also produced a maximum stress forecast which has been deliberately engineered to challenge the Group's liquidity position and covenant performance (as detailed above in the banking facilities section) during the forecast period. These forecasts and additional analysis demonstrated that the Group has sufficient excess headroom for the Group to meet its obligations as they fall due for a forecast period of more than twelve months beyond the date of signing these accounts. As such, the Directors do not see any practical regulatory or legal restrictions which would limit their ability to fund the different regions of the business as required to the extent of the Group's available resources.

Accordingly, the Directors have continued to adopt the going concern basis of accounting in preparing the financial statements.

Alternative performance measures

This review includes alternative performance measures ('APMs') that are presented in addition to the standard IFRS metrics. The Directors believe that these APMs provide important additional information regarding the adjusted performance of the business including trends, performance and position of the Group. APMs are used to enhance the comparability of information between reporting periods and segmental business units by adjusting for exceptional or uncontrollable factors which affect IFRS measures, to aid the understanding of the Group's performance. Consequently, APMs are used by the Directors and management for strategic and performance analysis, planning, reporting and reward setting. APMs reflect the results of the business excluding Adjusting items, which are items that are material and of an unusual or non-recurring nature.

The APMs and the definitions used are listed below:

· Adjusted EBITDA - EBITDA before Adjusting items

· Adjusted operating profit - Profit before finance charges, tax and Adjusting items

· Adjusted profit before tax - Profit before tax and Adjusting items

· Adjusted profit after tax - Profit after tax before Adjusting items and associated tax effect

· Adjusted earnings per share - Fully diluted earnings per share before Adjusting items and associated tax effect

In addition, the Group uses APMs in order to calculate other key performance metrics including:

· Average leverage - Average bank debt (being average debt measured before lease liabilities) divided by Adjusted EBITDA reduced for lease payments

· Cash conversion - Adjusted cash generated from operations divided by Adjusted EBITDA.

· Adjusted operating margin - Adjusted operating profit divided by revenue

· Return on capital employed - Adjusted operating profit divided by monthly average net capital employed (excluding cash and intangibles)

· Adjusted interest cover - Finance charges divided by Adjusted profit before tax (excluding IFRS 16)

Adjusting items

Further details of the items categorised as Adjusting items are disclosed in more detail in note 3.

A full reconciliation between our adjusted and reported results is provided below:

APM Reconciliation	2020	2019
Adjusted EBITDA	£48.1m	£38.7m
Adjusting items	(£25.7m)	(£11.3m)
EBITDA	£22.4m	£27.4m

Adjusted operating profit	£33.4m	£32.6m
Adjusting items	(£28.8m)	(£12.9m)
Reported operating profit	£4.6m	£19.7m

Adjusted profit before tax	£29.1m	£30.3m
Adjusting items	(£28.8m)	(£13.0m)
Reported profit before tax	£0.3m	£17.3m

Adjusted profit after tax	£23.2m	£23.2m
Adjusting items	(£8.4m)	(£9.9m)
Reported profit after tax	£14.8m	£13.3m

Adjusted earnings per share	26.9p	29.1p
Adjusting items	(10.0p)	(13.2p)
Reported diluted earnings per share	16.9p	15.9p

CONSOLIDATED INCOME STATEMENT

YEAR ENDED 31 MARCH 2020


		2020	2019
	Note	£000	£000
Revenue	2	494,234	448,362
Cost of sales		(419,131)	(365,533)
Gross profit		75,103	82,829
Selling expenses		(26,523)	(23,095)
Administration expenses		(46,409)	(40,590)
Other operating income	5	735	620
Profit/(loss) on disposal of property, plant and equipment		188	(6)
Profit on disposal of subsidiary	28	1,486	-
Operating profit	3	4,580	19,758
Finance expenses	6	(4,317)	(2,476)
Profit before tax		263	17,282
Income tax credit/(charge)	7	14,547	(4,031)
Profit for the year		14,810	13,251
Attributable to:
Owners of the Parent Company		14,060	11,925
Non-controlling interests		750	1,326

Earnings per ordinary share


	Note	2020	2019
Basic	21	17.0p	16.2p
Diluted	21	16.9p	15.9p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 MARCH 2020


	2020	2019
	£000	£000
Profit for the year	14,810	13,251
Other comprehensive income:
Exchange difference on translation of foreign operations (net of tax)	5,450	240
Recycling translation reserves on disposal of subsidiary	34	-
Transfer to profit and loss on maturing cash flow hedges (net of tax)	(377)	(232)
Net unrealised gain on cash flow hedges (net of tax)	517	377
Other comprehensive income for the year, net of tax items which may be reclassified to profit and loss in subsequent periods	5,624	385
Total comprehensive income for the year, net of tax	20,434	13,636
Attributable to:
Owners of the Parent Company	19,976	12,372
Non-controlling interests	458	1,264
	20,434	13,636

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 MARCH 2020


	Attributable to the owners of the Parent Company
		Share
		premium
		and capital						Non-
	Share	redemption	Merger	Hedging	Translation	Retained	Shareholders'	controlling
	capital	reserve	reserve	reserve	reserve	earnings	equity	interests	Total
	£000	£000	£000	£000	£000	£000	£000	£000	£000
At 1 April 2018	3,194	9,815	17,164	(27)	1,305	65,404	96,855	3,661	100,516
Profit for the year	-	-	-	-	-	11,925	11,925	1,326	13,251
Other comprehensive income	-	-	-	145	302	-	447	(62)	385
Total comprehensive income for the year	-	-	-	145	302	11,925	12,372	1,264	13,636
Transactions with owners in their capacity as owners
Equity-settled share-based payments (note 23)	-	-	-	-	-	2,333	2,333	-	2,333
Tax on equity-settled share-based payments (note 11)	-	-	-	-	-	764	764	-	764
Recognition of non-controlling interests (note 27)	-	-	-	-	-	-	-	311	311
Disposal of non-controlling interests (note 28)	-	-	-	-	-	-	-	(110)	(110)
Shares issued (restated) (note 20)	641	47,830	15,235	-	-	-	63,706	-	63,706
Options exercised (note 20)	83	18	-	-	-	(72)	29	-	29
Equity dividends paid (note 22)	-	-	-	-	-	(4,553)	(4,553)	(1,075)	(5,628)
At 31 March 2019 (restated)	3,918	57,663	32,399	118	1,607	75,801	171,506	4,051	175,557
Impact of adopting IFRS 16 (note 10)	-	-	-	-	-	(1,867)	(1,867)	(440)	(2,307)
Restated equity at 1 April 2019	3,918	57,663	32,399	118	1,607	73,934	169,639	3,611	173,250
Profit for the year	-	-	-	-	-	14,060	14,060	750	14,810
Other comprehensive income	-	-	-	140	5,776	-	5,916	(292)	5,624
Total comprehensive income for the year	-	-	-	140	5,776	14,060	19,976	458	20,434
Transactions with owners in their capacity as owners
Equity-settled share-based payments (note 23)	-	-	-	-	-	(231)	(231)	-	(231)
Tax on equity-settled share-based payments (note 11)	-	-	-	-	-	171	171	-	171
Derecognition of non-controlling interests (note 27)	-	-	-	-	-	-	-	(325)	(325)
Shares issued (note 20)	864	116,060	-	-	-	-	116,924	-	116,924
Options exercised (note 20)	36	-	-	-	-	(36)	-	-	-
Equity dividends paid (note 22)	-	-	-	-	-	(7,104)	(7,104)	-	(7,104)
At 31 March 2020	4,818	173,723	32,399	258	7,383	80,794	299,375	3,744	303,119

Merger reserve

The merger reserve comprises premium on shares issued in relation to business combinations.

Capital redemption reserve

The capital redemption reserve comprises amounts transferred from retained earnings in relation to the redemption of preference shares. For ease of presentation, the amount of £1.34 million relating to the capital redemption reserve has been included within the column of share premium and capital redemption reserve in the balances at both the beginning and end of each year, with no movements during the year.

Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that qualify for hedge accounting and have not yet matured.

Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

Shareholders' equity

Shareholders' equity represents total equity attributable to owners of the Parent Company.

CONSOLIDATED BALANCE SHEET

AS AT 31 MARCH 2020


		2020	Restated^(a) 2019	Restated^(a) 2018
	Note	£000	£000	£000
Non-current assets
Property, plant and equipment	8	74,695	39,835	35,499
Intangible assets	9	113,309	85,002	36,547
Right-of-use assets	10	66,728	-	-
Long-term assets	13	5,019	-	-
Deferred tax assets	11	14,624	3,610	2,663
Total non-current assets		274,375	128,447	74,709
Current assets
Inventory	12	114,445	69,571	49,311
Trade and other receivables	13	88,748	49,724	42,386
Income tax receivable		14,820	-	-
Derivative financial assets	24	332	129	113
Cash and cash equivalents	14	67,098	85,315	42,196
Total current assets		285,443	204,739	134,006
Total assets	2	559,818	333,186	208,715
Equity
Share capital	20	4,818	3,918	3,194
Share premium		172,383	56,323	8,475
Capital redemption reserve		1,340	1,340	1,340
Merger reserve		32,399	32,399	17,164
Hedging reserve		258	118	(27)
Translation reserve		7,383	1,607	1,305
Retained earnings		80,794	75,801	65,404
Equity attributable to owners of the Parent Company		299,375	171,506	96,855
Non-controlling interests		3,744	4,051	3,661
Total equity		303,119	175,557	100,516
Non-current liabilities
Loans and borrowings	15	(177)	1,421	3,781
Lease liabilities	10	63,241	-	-
Deferred income	16	452	751	998
Provisions	17	4,163	2,671	894
Other financial liabilities	18	5,471	1,817	1,440
Deferred tax liabilities	11	1,059	692	373
Total non-current liabilities		74,209	7,352	7,486
Current liabilities
Bank overdraft	14	25,004	65,857	33,165
Loans and borrowings	15	(2)	953	894
Lease liabilities	10	13,705	-	-
Deferred income	16	131	99	99
Provisions	17	2,191	1,090	429
Income tax payable		4,399	4,771	3,364
Trade and other payables	19	98,357	58,563	38,757
Other financial liabilities	18	38,705	18,944	24,005
Total current liabilities		182,490	150,277	100,713
Total liabilities	2	256,699	157,629	108,199
Total equity and liabilities		559,818	333,186	208,715

(a) The balance sheet for the year ended 31 March 2018 and 2019 have been restated to present cash balances and overdraft financial liabilities gross, along with customer program provisions within trade and other payables (previously netted within trade and other receivables). See Note 1 for more information.

CONSOLIDATED CASH FLOW STATEMENT

YEAR ENDED 31 MARCH 2020


			Restated^(a)
		2020	2019
	Note	£000	£000
Cash flows from operating activities
Profit for the year		14,810	13,251
Adjustments for:
Depreciation and impairment	8	6,994	5,328
Depreciation of right-of-use assets	10	7,014	-
Amortisation of intangible assets	9	3,796	2,309
Finance expenses	6	4,317	2,476
Income tax (credit)/charge	7	(14,547)	4,031
Profit on disposal of subsidiary	28	(1,486)	-
Profit on disposal of property, plant and equipment		(188)	(6)
Loss on disposal of intangible fixed assets		1	331
Equity-settled share-based payments	23	(202)	3,005
Operating profit after adjustments for non-cash items		20,509	30,725
Change in trade and other receivables		629	25,616
Change in inventory		705	6,508
Change in trade and other payables, provisions and deferred income		5,913	(18,086)
Cash generated from operations		27,756	44,763
Tax paid		(4,749)	(3,694)
Interest and similar charges paid		(3,996)	(2,053)
Net cash inflow from operating activities		19,011	39,016
Cash flow from investing activities
Proceeds from sale of property, plant and equipment		595	5,312
Acquisition of businesses (net of cash acquired)	28	(87,696)	(65,601)
Acquisition of intangible assets	9	(2,997)	(2,190)
Acquisition of property, plant and equipment	8	(8,133)	(5,699)
Net cash outflow from investing activities		(98,231)	(68,178)
Cash flows from financing activities
Proceeds from issue of share capital	20	116,924	48,348
Repayment of secured borrowings	14	(1,505)	(2,350)
Net movement in previous credit facilities		37,976	-
Repayment of previous credit facilities		(37,976)	-
Payment of lease liabilities		(6,622)	-
Loan arrangement fees	14	(1,234)	(30)
Equity dividends paid	22	(7,104)	(4,553)
Dividends paid to non-controlling interests		-	(1,075)
Net cash inflow from financing activities		100,459	40,340
Net increase in cash and cash equivalents		21,239	11,178
Cash and cash equivalents at beginning of the year	14	19,458	9,031
Effect of exchange rate fluctuations on cash held		1,397	(751)
Cash and cash equivalents at end of the year	14	42,094	19,458

(a) The cash flow for the year ended 31 March 2019 has been restated to in line with the restatements made within the balance sheet as described above See Note 1 for more information.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2020

1 Accounting policies

a. Basis of Preparation

The Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB), and interpretations issued by the IFRS Interpretations Committee and with the Companies Act 2006, as applicable to companies reporting under IFRS. The Financial Statements have also been prepared in accordance with IFRSs adopted by the European Union. The Company has elected to prepare its individual company financial statements in accordance with Financial Reporting Standard 102 ('FRS 102').

The financial statements are prepared under the historical cost convention except for derivatives which are stated at fair value and retirement benefit obligations which are valued in accordance with IAS 19 Employee Benefits.

The preparation of financial statements that conform with adopted IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates.

For the purposes of these financial statements 'Design Group' or 'the Group' means IG Design Group plc ('the Company') and its subsidiaries. The Company's ordinary shares are listed on the Alternative Investment Market ('AIM').

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and future periods if relevant.

The accounting policies used in the preparation of these financial statements are detailed below. These policies have been consistently applied to all periods presented.

In the preparation of these financial statements, comparative amounts have been restated to reflect the following:

· the shares issued in the year ended 31 March 2019 as consideration for the acquisition of Impact qualified for merger relief in accordance with the Companies Act 2006 (Section 612). Accordingly, for the year ended 31 March 2019, the Group have restated £15.2 million from the share premium reserve to the merger reserve. This has no overall impact on the total equity and reserves for the Group;

·the provisional Impact Innovations Inc. ("Impact") acquisition accounting (note 28) has been reviewed and hindsight adjustments made to goodwill (£2.0 million increase), intangibles (£0.7 million decrease) and provisions (£1.3 million increase). These have been adjusted in the comparative balance sheet;

trade and other receivable balances have historically included amounts provided against customer programmes including sell-through programmes presenting trade receivables on a net basis in the Group's consolidated balance sheet. These have been updated to restate the prior year balance sheet to present these balances on a gross basis within Trade and other payables. Trade and other receivables have been restated from £45.5 million to £49.7 million as at 31 March 2019. The corresponding adjustment has also been made in trade and other payables.

· cash balances and overdraft financial liabilities have been historically incorrectly offset within the Group's financial statements and presented on a net basis within the Group's consolidated balance sheet. This has been updated to restate the prior year balance sheet to present the respective balances on a gross basis. Cash and cash equivalents have been restated from £19.5 million to £85.3 million as at 31 March 2019. Additional detail within the balance sheet shows the bank overdraft amounts as at 31 March 2019 (£65.9 million); and

· previously, segmental assets and liabilities were incorrectly presented within the segmental information note (note 2). In order to correct this, the respective segmental assets and liabilities have been updated to reflect reallocations from the UK segment to the central and eliminations segment, and similarly, from the Australia segment to the US segment to reflect the correct allocation of assets and liabilities between the Group segments. In addition, segments have been restated to appropriately reflect investments held by each segment as well as the gross up of cash balances detailed above.

The restated segment assets as at 31 March 2019 are as follows:

	Original	Restated
	balance	balance
Segment	£000	£000
UK	188,766	100,079
Europe	19,240	36,738
USA	36,306	117,144
Australia	13,776	17,198
Central & eliminations	3,610	62,027
Total	261,698	333,186

The restated segment liabilities as at 31 March 2019 are as follows:

	Original	Restated
	balance	balance
Segment	£000	£000
UK	(28,295)	(34,366)
Europe	(10,457)	(20,136)
USA	(35,931)	(88,382)
Australia	(7,396)	(8,284)
Central & eliminations	(4,062)	(6,461)
Total	(86,141)	(157,629)

In addition, a number of disclosure notes have been re-presented to reflect corrected presentation and categorisation. These include:

·Operating lease minimum payments as disclosed in note 3 were disclosed in the prior year incorrectly. The prior year disclosure has been updated for the purposes of these financial statements.

· In the previous financial statements asset, which had been acquired following the acquisition of The Lang Companies Inc. had been disposed of using the historic cost and accumulated depreciation rather than the revised cost and accumulated depreciation post-acquisition. As such, the brought forward cost and accumulated depreciation have been restated to reflect the corrected position. The net book value of these assets remains unchanged.

· In the year, software previously categorised as fixtures and fittings have been reclassified to intangibles.

· The categorisation of deferred tax balances has been re-presented for the purposes of brought forward balances in these financial statements. The overall net deferred tax balances presented in the balance sheet are not impacted by this re-presentation.

· From this financial year, the Group have adjusted their assumptions as to the shares that are to be included in the calculation of the weighted average number of shares for diluted and basic earnings per share purposes. As such the numbers detailed in respect of 2019 have been re-presented using the same methodology in order to provide appropriate comparatives.

Going Concern

Note 24 to the financial statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities and exposures to credit, market and liquidity risk. Cash balances and borrowings are detailed in notes 14 and 15.

On 5 June 2019, to meet the funding requirements of the Group, the business refinanced with a banking group comprising HSBC, NatWest, BNP Paribas, Sun Trust and PNC Bank as part of a three year deal. This facility was then subsequently amended and extended on 17 January 2020 with the same banking group to accommodate the acquisition of CSS Industries Inc. The facilities run to May 2022 and comprise of a revolving credit facility ('RCF') of $95.0 million , a further flexible RCF of up to £130.0 million flexible to meet the Group's working capital requirements during peak manufacturing, and a maximum limit of $18.0 million invoice financing arrangement in Hong Kong. We also have access to supplier financing arrangements from certain customers which we utilise at certain times of the year. These arrangements are subject to the continuing support of the customers banking partners and therefore could be withdrawn at short notice.

The Directors have prepared detailed plans and forecasts for a period of at least twelve months from the date of signing these financial statements. The plans reflect the seasonal operating cycle of the business and assume continuity of supply chain. They also benefit from the diverse geographic spread of the Group and the high proportion of revenues generated from retailers who have remained open during the Covid-19 crisis. The base case forecasts broadly assumes a first quarter of general lockdown in all territories with a recovery over the remainder of the year but to a generally recessionary environment. As noted in the trading update for quarter one, business has exceeded the base forecast in the first quarter. The forecasts show the Group have more than sufficient liquidity. In light of the ongoing Covid-19 pandemic, these forecasts have been sensitised to reflect severe but plausible adverse downturns in the current assumptions including the potential for a second wave of the pandemic later in the year have been sensitised for reflect adverse downturns in the current assumptions alongside the potential for a second wave of the pandemic later in the year. Management has also produced a maximum stress forecast which has been deliberately engineered to challenge the Group's liquidity and leverage covenant positions during the forecast period. Further analysis has been prepared in relation to the mitigating actions open to the Group in the event of a scenario which is worse than the sensitivities already modelled. These mitigating actions include short term sales action, cutting discretionary spend further, headcount reductions and reduction in investment such as capex.

These forecasts and additional analysis including mitigating actions demonstrated that the Group has sufficient excess headroom for the Group to meet its obligations as they fall due for a forecast period of more than twelve months beyond the date of signing these accounts.

Based on these models, and taking into consideration the risks detailed in note 24, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, and accordingly have adopted the going concern basis in preparing the consolidated financial statements. This disclosure has been prepared in accordance with the Financial Reporting Council's UK Corporate Governance Code.

Changes in accounting policies

In the current financial year, the Group adopted the following pronouncements:

IFRS 16 Leases

The Group has adopted IFRS 16 Leases from 1 April 2019. The Group has decided to adopt the modified retrospective approach on transition. Under this approach, comparative information is not restated and the impact of adopting IFRS 16 is presented as an opening retained earnings adjustment as at 1 April 2019. The net impact on retained earnings on 1 April 2019 was a decrease of £2.3 million.

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 April 2019.

Under the modified retrospective approach right‑of‑use assets are measured at either:

· their carrying amount as if IFRS 16 had been applied since the lease commencement date, discounted by the lessee's incremental borrowing rate as at 1 April 2019. The Group has applied this methodology to 51 of its leases where sufficient historical information has been available to facilitate this; or

· an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments. This has been applied to a small number of property leases where it was not possible to ascertain sufficient historical data to enable a retrospective calculation. This method has also been applied to the majority of the Group's non-property leases, comprising of motor vehicles, equipment, plant and machinery.

i) Practical expedients applied

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

· the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;

· reliance on previous assessments on whether leases are onerous - there were no onerous contracts as at 1 April 2019;

· the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and

· the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, the Group relied on its assessment made when applying IAS 17 and IFRIC 4 Determining Whether an Arrangement Contains a Lease.

ii) The Group's leasing activities and how these are accounted for

The Group leases various offices, warehouses, equipment and motor vehicles. Rental contracts are typically made for fixed periods of one to 20 years but may have extension options as described below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

Until 31 March 2019, leases of property, plant and equipment were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to the income statement on a straight-line basis over the period of the lease.

From 1 April 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

· fixed payments (including in-substance fixed payments), less any lease incentives receivable;

· variable lease payments that are based on an index or a rate;

· amounts expected to be payable by the lessee under residual value guarantees;

· the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and

· payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. The weighted average incremental borrowing rate applied by the Group upon transition was 3.9%. Incremental borrowing rates applied to individual leases ranged between 1.3% and 5.3%.

Right-of-use assets are measured at cost comprising the following:

· the amount of the initial measurement of lease liability;

· any lease payments made at or before the commencement date less any lease incentives received;

· any initial direct costs; and

· restoration costs.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the income statement. Short-term leases are leases with a lease term of twelve months or less. The Group has certain assets which may include variable lease payments based on usage, although this is a small proportion of the Group's assets. The variable lease payments are not material for the Group.

iii) Extension and termination options

Extension and termination options are included in a number of property and equipment leases across the Group.

These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.

Impact on the financial statements

The impact of the change in accounting policy on the balance sheet (increase/(decrease)) as at 1 April 2019 is as follows:


			£m
	Right-of-use assets		35.5
	Deferred tax assets		0.8
	Lease liabilities		(40.1)
	Other liabilities		1.5
	Net impact on equity		(2.3)

b. Basis of Consolidation

Other standards and interpretations

The Group also adopted the following new pronouncements during 2019, which did not have any material impact on the Group's financial statement:

· Amendments to IAS 19 Plan Amendment, Curtailment or Settlement specify that in the event of a plan amendment, curtailment or settlement during a reporting period, an entity is required to use updated information to determine current service cost and net interest for the period following such an event.

· IFRIC 23 Uncertainty over Income Tax Treatments addresses how to reflect uncertainty in accounting for income taxes, providing guidance on considering uncertain tax treatments separately or together, examination by tax authorities, the appropriate method to reflect uncertainty and accounting for changes in facts and circumstances.

· Amendments to IFRS 3 revising the definition of a business.

(i) Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of subsidiaries are included in the financial statements from the date that control commences until the date that control ceases.

(ii) Transactions eliminated on consolidation

Intragroup balances and any unrealised gains and losses or income and expense arising from intragroup transactions are eliminated in preparing the consolidated financial statements.

(iii) Business Combinations

Business combinations are accounted for using the acquisition method as at the date on which control is transferred to the Group.

For acquisitions on or after 1 January 2010, the Group measures goodwill at the acquisition date as:

· the fair value of the consideration transferred; plus

· the recognised amount of any non‑controlling interests in the acquiree; plus

· if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less

· the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the result is negative, a 'bargain purchase' gain is recognised immediately in the income statement.

Provisional fair values allocated at a reporting date are finalised within twelve months of the acquisition date.

c. Foreign Currency

Items included in the financial statements of the Group's subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates ('functional currency'). The consolidated financial statements are prepared in pounds sterling (functional currency of the parent company).

(i) Foreign currency transactions

Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into sterling at the exchange rate prevailing at that date and recognised in the income statement unless hedge accounting criteria apply (see policy for financial instruments).

(ii) Financial statements of foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into sterling at the exchange rate prevailing at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates prevailing at the dates of the transactions.

The Company intends to change the presentation currency of the Group from pound sterling to US dollars effective 1 April 2020. Following the acquisition of CSS Industries Inc., a significant majority of the Group earnings is now denominated in US dollars. Management believes that the presentation currency change will give investors and other stakeholders a clearer understanding of the Design Group's financial performance over time. In addition, the change will reduce the volatility of the Group's earnings due to foreign exchange movements, in relation to the translation of foreign currency balances.

(iii) Net investment in foreign operations

Exchange differences on retranslation at the closing rate of the opening balances of overseas entities are taken to other comprehensive income, as are exchange differences arising on related foreign currency borrowings and derivatives designated as qualifying hedges, to the extent that they are effective. They are released into the income statement upon disposal or loss of control and on maturity or disposal of the hedge respectively. Exchange differences arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income in the translation reserve. The cumulative translation differences previously recognised in other comprehensive income (or where the foreign operation is part of a subsidiary, the parent's interest in the cumulative translation differences) are released into the income statement upon disposal of the foreign operation or on loss of control of the subsidiary that includes the foreign operation. Other exchange differences are taken to the income statement.

d. Financial Instruments

Interest bearing loans and borrowings and other financial liabilities (excluding derivatives) are held at amortised cost, unless they are included in a hedge accounting relationship.

Derivatives are measured initially at fair value. Subsequent measurement in the financial statements depends on the classification of the derivative as follows:

(i) Fair value hedges

Where a derivative is used to hedge the foreign exchange exposure of a monetary asset or liability, any gain or loss on the derivative is recognised in the income statement.

(ii) Cash flow hedges

Where a derivative is designated as a hedging instrument in a cash flow hedge, the change in fair value is recognised in other comprehensive income to the extent that it is effective and any ineffective portion is recognised in the income statement. Where the underlying transaction results in a financial asset, accumulated gains and losses are recognised in the income statement in the same period as the hedged item affects profit or loss. Where the hedged item results in a non-financial asset the accumulated gains and losses previously recognised in other comprehensive income are included in the initial carrying value of the asset.

(iii) Unhedged derivatives

Unhedged derivatives are charged/credited to the income statement.

e. Cash and cash equivalents

Cash and cash equivalents comprise cash balances. Bank overdrafts repayable on demand and form an integral part of the Group's cash management and are included as part of cash and cash equivalents in the statement of cash flows.

f. Loans and borrowings

Loans and borrowings are initially measured at cost (which is equal to fair value at inception) and are subsequently measured at amortised cost using the effective interest method.

g. Trade and other receivables

Trade receivables are initially recognised at fair value and subsequently measured at amortised cost, which is generally equivalent to recognition at nominal value less impairment loss calculated using the expected loss model.

The Group applies a simplified model to recognise lifetime expected credit losses for its trade receivables and other receivables, including those due in greater than 12 months, by making an accounting policy election. For any receivables not expected to be paid, an expected credit loss of 100% is recognised at the point this expectation arises. For all other receivables, the expected loss is calculated based on reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment and including forward‑looking information.

h. Trade and other payables

Trade payables are non-interest bearing and are recognised initially at fair value and subsequently at amortised cost.

i. Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Where parts of an item of property, plant and equipment or other assets have different useful lives, they are accounted for as separate items. The carrying values of property, plant and equipment and other assets are periodically reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable.

Property, plant and equipment are depreciated over their estimated remaining useful lives on a straight line basis using the following estimated useful lives:

Land and buildings -- Freehold land Not depreciated

Land and buildings -- Buildings 25-30 years or life of lease

Plant and equipment 4 -25 years

Fixtures and fittings 3-5 years

Motor vehicles 4 years

The assets' useful lives and residual values are reviewed, and adjusted if appropriate, at each balance sheet date. Included within plant and equipment are assets with a range of depreciation rates. These rates are tailored to the nature of the assets to reflect their estimated useful lives.

j. Lease liabilities and lease right-of-use assets

Rentals associated with leases that are of low-value or less than 12 months in length are expensed to the income statement on a straight line basis. The associated lease incentives are amortised in the income statement over the life of the lease.

Leases greater than 12 months in length, and those not of low-value, are recognised as a lease right-of-use asset with the associated future lease payment terms recognised as a lease liability. The right-of-use assets and the associated lease liabilities are recognised by unwinding the future lease payments at the rate implicit to the lease or, if the rate implicit to the lease cannot be readily determined, at the relevant incremental borrowing rate.

The lease right-of-use assets are amortised over their useful economic lives or the lease term, whichever is shorter. The lease liabilities are derecognised by applying the future lease payments.

On acquisition, right-of-use assets and lease liabilities are recognised in accordance with IFRS 16. The acquired lease liability is measured as if the lease contract was a new lease at the acquisition date. The right-of-use asset is measured at an amount equal to the recognised lease liability. The right-of-use asset is adjusted to reflect any favourable or unfavourable terms of the lease relative to market terms.

k. Intangible assets

(i) Goodwill

Goodwill is stated at cost less any impairment losses.

Acquisitions are accounted for using the purchase method. For acquisitions that have occurred since 1 January 2004, goodwill represents the difference between the fair value of the assets given in consideration and the fair value of identifiable assets, liabilities and contingent liabilities of the acquiree. For acquisitions made before 1 January 2004, goodwill is included on the basis of its deemed cost, which represents the amount previously recorded under UK GAAP.

The Group has expensed costs attributable to acquisitions in the income statement. Given their one-off nature, these costs are generally presented within adjusting items.

(ii) Acquired intangible assets

An intangible asset acquired in a business combination is recognised at fair value to the extent it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. Intangible assets principally relate to customer relationships, which are valued using discounted cash flows based on historical customer attrition rates, and trade names / brand, which is valued using an income approach. The cost of intangible assets is amortised through the income statement on a straight line basis over their estimated useful economic life and as these are assets directly attributed to the acquisition of a business, the amortisation costs are also presented within adjusting items.

(iii) Other intangible assets

Other intangible assets which are not acquired through a business combination ("non-acquired intangible assets") are recognised at cost to the extent it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably, and amortised on a straight line basis over their estimated useful economic life.

Intangibles are amortised over their estimated remaining useful lives on a straight line basis as follows:

Goodwill Not amortised

Customer relationships 3-15 years

Trade names / brands 3-5 years

Other intangibles -- software 3-5 years

Customer relationships are wide ranging in useful economic lives predominantly due to the long relationships with Walmart acquired as part of the acquisition of Impact Innovations, Inc.

l. Impairment

All assets are reviewed regularly to determine whether there is any indication of impairment. Goodwill is tested for impairment annually.

An impairment loss is recognised whenever the carrying amount of a non-financial asset or the cash generating unit to which it belongs exceeds its recoverable amount, being the greater of value in use and fair value less costs to sell, and is recognised in the income statement. Value in use is estimated based on future cash flows discounted using a pre-tax discount rate based upon the Group's weighted average cost of capital.

Financial assets were assessed for impairment using the expected credit loss model which requires expected credit losses and changes to expected credit losses at each reporting date to reflect changes in credit risk since initial recognition.

m. Inventories

Inventories are valued at the lower of cost (on a weighted average basis) and net realisable value. For work-in-progress and finished goods, cost includes an appropriate proportion of labour cost and overheads based on normal operating capacity.

n. Income tax

Income tax in the income statement comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised in equity or other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year using the applicable tax rates enacted or substantively enacted at the balance sheet date and any adjustment to tax payable in prior years. Deferred tax is provided, using the balance sheet liability method, on temporary differences arising between the tax bases and the carrying amounts of assets and liabilities in the financial statements. The following temporary differences are not provided for: initial recognition of goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit or loss other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will not reverse in the foreseeable future. Deferred tax is determined using tax rates that are expected to apply when the related deferred tax asset or liability is settled, using the applicable tax rates enacted or substantively enacted at the balance sheet dates.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profit will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefits will be realised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against liabilities and when they relate to income taxes levied by the same tax authority and the Group intends to settle its current tax assets and liabilities on a net basis.

o. Revenue

Revenue from the sale of goods is recognised in the income statement net of expected discounts, rebates, refunds, credits, price concessions or other similar items, when the associated performance obligation has been satisfied, and control of the goods has been transferred to the customer.

The Group recognise revenue on sales of Celebration, Craft & creative play, Stationery, Gifting and 'Not-for-resale' consumable products across four geographical segments. Typically the products that we supply form the only performance obligations within a customer agreement, and although the Group can provide ancillary services such as merchandising, these are not separately identifiable obligations on the basis of materiality. Each customer arrangement/contract is assessed to identify the performance obligations being provided to the customer. Where distinct performance obligations are deemed to exist, an element of revenue is apportioned to that obligation.

Revenue from these sales is recognised based on the price specified in the contract, net of any estimated volume discounts, rebates and sell-through provisions. Accumulated experience is used to estimate and provide for these discounts, using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. A refund liability (included in trade and other payables) is recognised for these items payable to customers in relation to sales made until the end of the reporting period. No significant element of financing is deemed present as the sales are made with credit terms of 30 - 60 days, which is consistent with market practice.

A significant part of the Group's businesses sell goods on an 'free-on-board' ('FOB') basis, where the Group as the seller makes its goods ready for collection at its premises on an agreed upon sales date and the buyer incurs all transportation and handling costs and bears the risks for bringing the goods to their chosen destination. Revenue is recognised on collection by the customer.

Where the Group operates non FOB terms with customers, revenue is recognised when the control of the goods has been transferred to the customer. These terms include consignment stock agreements, where revenue is recognised upon the customer removing goods from consignment stock.

p. Finance income and expense

Finance income and expense is recognised in the income statement as it accrues. Finance expenses comprise interest payable, finance charges on finance leases, amortisation of capitalised fees, and unwinding of discounts on provisions. Net movements in the fair value of derivatives which have not been designated as an effective hedge, and any ineffective portion of fair value movement on derivatives designated as a hedge are also included within finance income or expense.

q. Supplier Financing

The Group are party to supplier financing arrangements with one of our key customers. This arrangement is considered non-recourse factoring and on receipt of payment from the banks the associated trade receivable is derecognised in accordance with IFRS 9.

r. Segment reporting

A segment is identified on the basis of internal reports that are regularly reviewed by the Board in order to allocate resources to the segment and assess its performance.

s. Pensions

(i) Defined contribution schemes

Obligations for contributions to defined contribution pension schemes are expensed to the income statement as incurred.

(ii) Defined benefit schemes

Two pension schemes one of which is in the Netherlands and the other in the UK are defined benefit schemes.

The Netherlands subsidiary operates an industrial defined benefit fund, based on average wages, that has an agreed maximum contribution. The pension fund is a multi‑employer fund and there is no contractual or constructive obligation for charging the net defined benefit cost of the plan to participating entities other than an agreed maximum contribution for the period, that is shared between employer (4/7) and employees (3/7).

The Dutch Government is not planning to make employers fund any deficits in industrial pension funds; accordingly the Group treats the scheme as a defined contribution scheme for disclosure purposes. The Group recognises a cost equal to its contributions payable for the period.

Following the acquisition of CSS Industries Inc., on 3 March 2020, the Group also administers a defined benefit scheme in the UK.

The net obligation for this scheme is calculated by estimating the amount of the future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of the scheme assets is deducted. The calculation is performed by a qualified independent actuary.

t. Share-based payments

The cost of equity-settled transactions with employees is measured by reference to the fair value of the options at the date on which they are granted. The fair value is determined by using an appropriate pricing model. The fair value cost is then recognised over the vesting period, ending on the date on which the relevant employees become fully entitled to the award. The quantum of awards expected to vest and the relevant cost charged is reviewed annually such that at each balance sheet date the cumulative expense is the relevant share of the expected total cost, pro-rated across the vesting period.

No expense is recognised for awards that are not expected to ultimately vest, for example due to an employee leaving or business performance targets not being met. The annual expense for equity settled transactions is recognised in the income statement with a corresponding entry in equity.

Employer's social security charges are accrued, where applicable, at a rate which management expects to be the prevailing rate when share‑based incentives are exercised and is based on the latest market value of options expected to vest or having already vested.

u. Investment in own shares

The shares held in the Group's Employee Benefit Trust for the purpose of fulfilling obligations in respect of share option plans are treated as belonging to the Company and are deducted from its retained earnings. The cost of shares held directly (treasury shares) are also deducted from retained earnings.

v. Provisions

A provision is recognised when there is a probable legal or constructive obligation as a result of a past event and a reliable estimate can be made of the outflow of resources that will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre‑tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as borrowing costs.

w. Government grants

Government grants are recognised when it is reasonable to expect that the grants will be received and that all related conditions will be met, usually on submission of a valid claim for payment. Government grants in respect of capital expenditure are included within the carrying amount of the related property, plant and equipment, and are released to the income statement on a straight line basis over the expected useful lives of the relevant assets. Grants of a revenue nature are credited to the income statement so as to match them with the expenditure to which they relate.

x. Dividends

Dividends are recognised as a liability in the period in which they are approved by the shareholders of the Company (final dividend) or paid (interim dividend).

y. Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective asset. Costs directly attributable to the arrangement of new borrowing facilities are included within the fair value of proceeds received and amortised over the life of the relevant facilities. Other borrowing costs which can include costs associated with the extension of existing facilities are expensed in the period they occur.

Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

z. Use of non-GAAP measures

These financial statements include alternative performance measures ('APMs') that are presented in addition to the standard GAAP metrics. The Directors believe that these APMs provide important additional information regarding the underlying performance of the business including trends, performance and position of the Group. APMs are used to enhance the comparability of information between reporting periods and segmental business units by adjusting for factors which affect IFRS measures, to aid the understanding of the Group's performance. Consequently, APMs are used by the Directors and management for strategic and performance analysis, planning, reporting and reward setting. The APMs are adjusted EBITDA, adjusted operating profit, adjusted profit before tax, adjusted profit after tax and adjusted earnings per share.

The adjusting items are items that are material and in the judgement of the directors, of an unusual or non-recurring nature. These items are adjusted to present the performance of the business in a consistent manner and in line with how the business is managed and measured on a day-to-day basis. They are gains or costs associated with events that are not considered to form part of the core operations, or are considered to be a 'non-recurring' event (although they may span several accounting periods).

Further detail of adjusting items can be seen in note 3 to the financial statements.

aa. Like-for-like comparators

Figures quoted at like-for-like exchange rates are calculated by retranslating the previous year's figures at the current year's exchange rates.

Critical accounting judgements and estimates

The following provides information on those policies that management considers critical because of the level of judgement and estimation required which often involves assumptions regarding future events which can vary from what is anticipated. The Directors believe that the financial statements reflect appropriate judgements and estimates and provide a true and fair view of the Group's performance and financial position.

Accounting estimates

(i) Business combinations and intangible assets

IFRS 3 requires the identification of acquired intangible assets as part of a business combination. The methods used to value such intangible assets require the use of estimates and judgements such as customer attrition, cash flow generation from the existing relationships with customers and returns on other assets. Future results are impacted by the amortisation periods adopted and changes to the estimated useful lives would result in different effects on the income statement and balance sheet.

Goodwill is not amortised but is tested annually for impairment, along with the finite-lived intangible assets and other assets of the Group's cash generating units. Tests for impairment are based on discounted cash flows and assumptions (including discount rates, timing and growth prospects) which are inherently subjective. An estimate is also required in identifying the events which indicate potential impairment, and in assessing fair value of individual assets when allocating an impairment loss in a cash-generating unit or groups of cash-generating units. The Group performs various sensitivity analyses in respect of the tests for impairment, as detailed in note 9.

The useful lives of the Group's finite-lived intangible assets are reviewed following the tests for impairment annually.

Judgement and estimates may also be required in determining the fair value of other assets acquired and liabilities (including contingent liabilities) assumed.

(ii) Taxation

There are many transactions and calculations for which the ultimate tax determination is uncertain. Estimates are required in determining the Group's tax assets and liabilities. Deferred tax assets have been recognised to the extent they are recoverable based on profit projections for future years. Income tax liabilities for anticipated issues have been recognised based on estimates of whether additional tax will be due. Notwithstanding the above, the Group believes that it will recover tax assets and has adequate provision to cover all risks across all business operations. See note 11 for more details.

(iii) Leases and lease right-of-use assets

A key judgement on adoption of IFRS 16 is determining the incremental borrowing rates to be applied as at 1 April 2019. Management considers all factors that incorporate the three key elements: risk-free rate, credit spread and an adjustment to asset class. Another key judgement in determining the right-of-use asset and lease liability is establishing whether it is reasonably certain that an option to extend the lease will be exercised. Distinguishing whether a lease will be extended or otherwise will have a material impact on the value of the right-of-use assets and lease liabilities recognised on the balance sheet, but may not have a material impact on the income statement.

The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.

(iv) Provision for slow moving inventory

The Group has guidelines for providing for inventory which may be sold below cost due to its age or condition. Directors assess the inventory at each location and in some cases decide that there are specific reasons to provide more than the guideline levels, or less if there are specific action plans in place which mean the guideline provision level is not required. Determining the level of inventory provision requires an estimation of likely future realisable value of the inventory in various time frames and comparing with the cost of holding stock for those time frames. Regular monitoring of stock levels, the ageing of stock and the level of the provision is carried out by the Directors.

In addition, in light of Covid-19, further assessment of the recoverability of inventory has been undertaken as at 31 March 2020.

(v) Provision for receivables

The Group has guidelines for providing for receivables and at the end of a financial reporting period receivables are assessed for impairment using the expected credit loss model which requires expected credit losses and changes to expected credit losses to reflect changes in credit risk since initial recognition. Determining the level of expected credit loss requires an estimation based on a number of factors including historical payment patterns with the Group, alongside external credit risk ratings and general macroeconomic factors.

In addition, in light of Covid-19, further assessment of the recoverability of receivables has been undertaken as at 31 March 2020.

(vi) Pension benefits

The present value of the defined benefit pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions including the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. The Group determines the appropriate discount rate at the end of each year. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in note 23.

Accounting judgements

(i) Adjusting items

Judgement is required to determine whether items should be included within adjusting items by virtue of their size or incidence.

Specific judgements have been made in the estimates associated with adjusting items and further details of the items categorised as adjusting items and how estimates have been made are disclosed in note 3.

2 Segmental information

The Group has one material business activity being the design, manufacture and distribution of Celebration, Craft & creative play, Stationery, Gifting and 'Not-for-resale' consumable products.

For management purposes the Group is organised into four geographic business units.

The results in this note are allocated based on the region in which the businesses are located; this reflects the Group's management and internal reporting structure. The Group has a China factory and Asian procurement operations which are overseen by our UK operational management team and we therefore continue to include UK owned and managed Asian operations within the internal reporting of the UK operations, comprising one operating segment.

Since the acquisition of Impact Innovations, Inc. the Group had a second China factory (wholly owned and disposed of in the year) and Asian procurement which form part of the USA's operations and therefore is included in the overall USA segment.

The acquisition of CSS Industries Inc. has seen additional entities in various locations around the world including Asia, Australia, UK, India and Mexico. Management review the results for CSS as one consolidated unit and this forms part of the USA segment for the purpose of segmental reporting.

Inter‑segment pricing is determined on an arm's length basis. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Financial performance of each segment is measured on adjusted operating profit before management recharges. Interest and tax are managed on a Group basis and not split between reportable segments. However, the related financial liability and cash has been allocated out into the reportable segments as this is how they are managed by the Group.

Segment assets are all non-current and current assets, excluding deferred tax and income tax, which are shown in the eliminations column. Inter-segment receivables and payables are not included within segmental assets and liabilities as they eliminate on consolidation.


										Central &
			UK^(a)	Europe		USA^(b)		Australia		eliminations		Group
			£000	£000		£000		£000		£000		£000
Year ended 31 March 2020
Revenue		- external	113,748	65,797		282,352		32,337		-		494,234
		- inter segment	3,775	2,825		-		-		(6,600)		-
Total segment revenue			117,523	68,622		282,352		32,337		(6,600)		494,234
Segment result before adjusting items and management recharge			6,886	10,147		16,604		2,964		(3,177)		33,424
Adjusting items (note 3)													(28,844)
Operating profit													4,580
Finance expenses													(4,317)
Income tax													14,547
Profit for the year ended 31 March 2020													14,810
Balances at 31 March 2020
Segment assets			107,463		44,715		341,653		17,479		48,508		559,818
Segment liabilities			(43,246)		(23,397)		(160,959)		(10,300)		(18,797)		(256,699)
Capital expenditure additions
	- property, plant and equipment		2,430		2,953		2,607		140		3		8,133
	- property, plant and equipment on acquisition of business		-		-		31,695		-		-		31,695
	- intangible assets		116		54		2,741		19		67		2,997
	- intangible assets on acquisition of business		-		-		4,656		-		-		4,656
Depreciation			2,739		976		2,391		538		2		6,646
Impairment			348		-		-		-		-		348
Depreciation - right-of-use assets			2,059		770		3,332		798		55		7,014
Amortisation			36		29		3,421		310		-		3,796

(a) Including Asian manufacturing and sourcing.

(b) Including overseas entities for the USA operating segment


							Central &
			UK^(a)	Europe	USA^(a)	Australia	eliminations	Group
			£000	£000	£000	£000	£000	£000
Year ended 31 March 2019
Revenue		- external	123,006	63,188	223,101	39,067	-	448,362
		- inter segment	4,112	1,377	-	-	(5,489)	-
Total segment revenue			127,118	64,565	223,101	39,067	(5,489)	448,362
Segment result before adjusting items and management recharges			8,073	8,871	15,522	4,278	(4,098)	32,646
Adjusting items (note 3)								(12,888)
Operating profit								19,758
Finance expenses								(2,318)
Finance expense treated as an adjusting item (note 3)								(158)
Income tax								(4,031)
Profit for year ended 31 March 2019								13,251
Balances at 31 March 2019
Segment assets (restated)^(b)			100,079	36,738	117,144	17,198	62,027	333,186
Segment liabilities (restated) ^(b)			(34,366)	(20,136)	(88,382)	(8,284)	(6,461)	(157,629)
Capital expenditure additions
	- property, plant and equipment		2,635	901	1,780	383	-	5,699
	- property, plant and equipment on acquisition of business		-	-	9,313	-	-	9,313
	- intangible assets		285	12	1,893	-	-	2,190
	- intangible assets on acquisition of business (restated) ^(b)		-	-	18,308	-	-	18,308
Depreciation			2,333	920	1,452	623	-	5,328
Amortisation			167	35	1,781	326	-	2,309

(a) Including Asian manufacturing and sourcing.

(b) For more detail please refer to note 1

· The Group has one customer that accounts for 22% of the total Group revenues. In the year ended 31 March 2020 total sales to that customer were £106.6 million (2019: £79.1 million). This customer falls solely within the USA operating segment above. No other single customer accounts for over 10% of total sales.

· The assets and liabilities that have not been allocated to segments consist of deferred tax assets £14.6 million (2019: £3.6 million), income tax receivable £14.8 million (2019: £nil), income tax payable of £4.4 million (2019: £4.8 million) and deferred tax liability £1.1 million (2019: £692,000).

Geographical information

The Group's information about its segmental assets (non-current assets excluding deferred tax assets and other long-term assets) and revenue by customer destination are detailed below:


	Non-current assets
	2020	Restated 2019
	£000	£000
UK and Asia	57,923	40,539
USA	166,834	62,871
Europe	21,752	16,350
Australia	8,223	5,077
	254,732	124,837

Revenue by customer destination


	2020	2019	2020	2019
	£000	£000	%	%
UK	84,466	97,260	17	22
USA	289,518	235,092	59	53
Europe	66,651	68,314	13	15
Australia	31,941	37,707	7	8
Rest of the world	21,658	9,989	4	2
	494,234	448,362	100	100

All revenue arose from the sale of goods.

3 Operating expenses and adjusting items

Included in profit are the following charges/(credits):


		2020	Restated 2019
	Note	£000	£000
Depreciation of tangible fixed assets	8	6,646	5,328
Depreciation of right-of-use assets	10	7,014	-
(Profit)/Loss on sales of property, plant and equipment and intangible assets		(188)	325
Release of deferred grant income	5	(299)	(247)
Amortisation of intangible assets - software	9	990	700
Operating lease payment - minimum lease payment (restated)^(a)		-	6,291
Sub-lease rental income	5	(281)	(583)
Write down of inventories to net realisable value (underlying)	12	5,247	4,173
Reversal of previous write downs on inventory	12	(3,885)	(478)
Loss on foreign exchange		835	814
Adjusting items		28,844	12,888

(a) For more detail please refer to note 1


Operating profit analysed as:
Adjusted operating profit	33,424	32,646
Adjusting items	(28,844)	(12,888)
Operating profit	4,580	19,758

Adjusting items

Year ended 31 March 2020	Cost of sales	Selling expenses	Admin expenses	Profit on sale of business	Other finance expenses	Total
	£000	£000	£000	£000	£000	£000
Losses/(Gains) and transaction costs relating to acquisitions and disposals of businesses¹	25	-	4,712	(1,486)	--	3,251
Acquisition integration and restructuring costs²	5,462	-	3,931	-	-	9,393
Impairment of assets³	6,468	3,056	-	-	-	9,524
Covid-19 costs⁴	265	--	235	-	-	500
US tariffs⁵	3,572	-	-	-	-	3,572
Amortisation of acquired intangibles ⁶	-	-	2,806	-	-	2,806
LTIP credits⁷	-	-	(202)	-	-	(202)
Adjusting items	15,792	3,056	11,482	(1,486)	-	28,844

Year ended 31 March 2019	Cost of sales	Selling expenses	Admin expenses	Profit on sale of business	Other finance expenses	Total
	£000	£000	£000	£000	£000	£000
Losses/(Gains) and transaction costs relating to acquisitions and disposals of businesses¹	-	-	2,254	-	158	2,412
Acquisition integration and restructuring costs²	1,748	222	4,050	-	-	6,020
Impairment of assets³	-	-	-	-	-	-
Covid-19 costs⁴	-	-	-	-	-	-
US tariffs⁵	-	-	-	-	-	-
Amortisation of acquired intangibles ⁶	-	-	1,609	-	-	1,609
LTIP charges⁷	-	-	3,005	-	-	3,005
Adjusting items	1,748	222	10,918	-	158	13,046

Adjusting items are separately presented by virtue of their nature, size and/or incidence (per each operating segment). These items are material items of an unusual or non-recurring nature which represent gains or losses and are presented to allow for the review of the performance of the business in a consistent manner and in line with how the business is managed and measured on a day-to-day basis and allow the reader to obtain a clearer understanding of the underlying results of the ongoing Group's operations. They are typically gains or costs associated with events that are not considered to form part of the core operations, or are considered to be a 'non-recurring' event (although they may span several accounting periods).

These losses/(gains) relating to the year ended 31 March 2020 are broken down as follows;

¹ Losses/(Gains) and transaction costs relating to acquisitions and disposals of businesses

Costs directly associated with acquisitions, including legal and advisory fees on deals, form part of our reported results on an IFRS basis. These costs however, in the Board's view, form part of the capital transaction, and as they are not attributed to investment value under IFRS 3, they are included as an adjusting item. Similarly, where acquisitions have employee related payments (exclusive of LTIPs) which lock in and incentivise legacy talent, we also include these costs as adjusting items. Furthermore, gains or losses on the disposal of businesses, including any transaction costs associated with the disposal are treated as adjusting items.

During the year ended 31 March 2020 the Group incurred a net cost of £3.3 million in relation to the acquisition and disposal of businesses. The main areas of expenditure relate to £3.9 million of due diligence, legal and adviser fees associated with the acquisition of CSS which was completed on 3 March 2020 as well as two small exploratory projects. In addition, £0.9 million of acquisition related employee payments from the Impact transaction in 2019 which lock in and incentivise legacy talent. These costs were offset by a profit of £1.5 million relating to the disposal which was completed on 24 February 2020 of our Shaoxing factory facilities in China. This facility which was acquired as part of the Impact Innovations transaction completed in August 2018 and the disposal formed part of the planned integration programme.

During the year ended 31 March 2019 the Group incurred £2.4 million in relation to transaction costs. This spend related to due diligence, legal and adviser fees associated with the acquisition of Impact which completed on 31 August 2018 along with acquisition related employee payments from the transaction which lock in and incentivise legacy talent.

² Acquisition integration and restructuring costs

In order to realise synergies from acquisition integration projects are undertaken that aim to deliver future savings and efficiencies for the Group. These are projects outside of the normal operations of the business and typically incur one-time costs to ensure successful implementation. This is particularly relevant during a large scale restructuring of manufacturing facilities that can result in substantial disruption to the normal operational processes. As such the Board consider it appropriate that costs associated with projects of this nature be included as adjusting items. In calculating certain elements of the costs of disruption it is necessary to make judgements and estimates in relation to the impact on efficiency.

For the years ended 31 March 2020 and 31 March 2019 the Acquisition integration and restructuring costs relate to the ongoing UK unification initiative (£0.4 million), the integration of manufacturing facilities in the USA, following the acquisition of Impact, which lead to the combination of printing and converting processes into one site in Memphis (£5.5 million), transition and retention costs (£1.1 million) and costs relating to the CSS integration (£2.4 million).

The costs associated with the Memphis project were calculated by evaluating the true one-time expense associated with the operating challenges in the manufacturing environment created as a result of the integration alongside the delays to productions plans as a result of the rapid development of US tariffs with China (s301 tariffs) and customers delaying sign off on artwork and packaging. All these costs arise directly as a result of integrating processes for the first time during the peak period. The costs include expenditure for one time outsourcing to meet production demands, additional warehousing to store inventory due to tariff driven delayed production and shipping and the subsequent knock-on customer related penalties. As part of the costs there are two significant areas of judgement relating to incremental overtime costs and incremental production inefficiencies associated with the integration. In both cases, prior years have been used to set a baseline for which incremental costs are measured against.

In addition to the above, £2.4m of integration and restructuring costs were incurred following the acquisition of CSS during the year. These costs primarily related to severance costs of redundant roles in the legacy CSS business.

³Impairment of assets

In light of the impact of Covid-19 on the business, a review of inventory, trade receivables and fixed assets at year end has been undertaken. Inventories have been assessed at the year end for the net realisable value and an impairment of £5.9 million has been taken in relation to aged and obsolete inventory as a result of lower sales. Trade receivables have been assessed for their expected credit loss in line with IFRS 9 and an impairment of £3.1 million has been taken. As our customers are mainly retailers, and for those who aren't selling "essential items", many have had to close stores as a result of the various quarantines around the world - this could have a significant impact on some of our customers. Using forward looking information including macro-economic information each Business Unit has assessed any significant increase in credit risk and measuring any losses with regards to our year end debtors. Following an assessment of inventory related assets and certain fixed assets around the Group and the associated cashflows and useful remaining lives, an impairment of £538,000 has been taken.

⁴Covid-19 related costs

The Covid-19 outbreak has developed rapidly in 2020, with measures taken around the world to contain the virus affecting economic activity. The Group has been affected in every territory in which we operate and the impact on the general economic environment and the reduced demand of goods from our customers as well as the closures of our businesses has had a significant impact. Certain costs relating to direct labour costs that are considered incremental following abnormal or forced closures of manufacturing facilities across the Group have been identified that have impacted the financial results of the business during the year, equal to £0.5 million. These costs will continue into FY21.

⁵US tariffs

The US tariff with China (s301 tariff) has resulted in costs incurred in the year which had a significant impact on our business in this financial year. The rapid evolution of tariffs became applicable to more of our product categories with no advance warning. The timing of the introduction of tariffs meant that the majority of our purchase orders had been agreed with customers and suppliers effectively creating a situation where the US business was locked into purchase commitments and sales prices that could not be renegotiated. This one time impact will not be repeated as the business will be able to mitigate the effect of tariffs in future years as part of the negotiation of contracts with customers and suppliers. As such the impact of tariffs in the financial year are treated as an adjusting items.

⁶IFRS 2 (LTIP) (credits)/ costs

As part of our senior management remuneration, the Group operate a Long Term Incentive Plan ('LTIP') in the form of options for ordinary shares of the Group. In accordance with accounting principles, despite this plan not being a cash cost to the business, a share‑based payments charge is taken to the income statement. We consider that these charges and the associated social security charges do not form part of the underlying operational costs and therefore include these as adjusting items.

In the year ended 31 March 2020 there was an IFRS 2 credit due to the lowered expectations in respect of future schemes vesting. Please see note 23 for more detail.

⁷Amortisation of acquired intangibles

Under IFRS, as part of the acquisition of a company, it is necessary to identify intangible assets such as customer relationships and brands which form part of the intangible value of the acquired business but are not part of the acquired balance sheet. These intangible assets are then amortised to the income statement over an appropriately judged period. These are not operational costs relating to the running of the acquired business and are directly related to the accounting for the acquisition. These include trade names and brands acquired as part of the acquisition of The Lang Companies Inc., Impact Innovations Inc. and CSS Industries Inc. in the USA and Biscay Pty Greetings Ltd in Australia. As such we include these as adjusting items.

In addition, in accordance with IFRS 3, on acquisition, businesses need to be fair valued, which can result in an uplift to stock on hand relating to sales orders already attached to the acquired stock. This uplift will distort the margins associated with the stock, and typically unwinds quickly as stock is sold soon after acquisition. The unwind of the stock uplift is included as an adjusting item.

The cash flow effect on adjusting items

There was £12.8 million net outflow on the current year's cash flow (2019: £287,000) which included £708,000 (2019: 473,000) of outflow deferred from last year.

Auditors' remuneration:


	2020	2019
	£000	£000
Amounts receivable by auditor and its associates in respect of:
Audit of these financial statements	715	80
Audit of financial statements of subsidiaries pursuant to legislation
- Overseas subsidiaries	100	326
- UK subsidiaries	70	66
Other audit related services	45	10
Taxation compliance services	220	26
All other taxation advisory services	34	14
Services relating to corporate finance transactions	547	-
Other services	-	10

Note that prior year remuneration related to the Group's previous auditors, KPMG LLP.

4 Staff numbers and costs

The average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows:


	Number of employees
	2020	2019
Selling and administration	700	641
Production and distribution	1,858	1,723
	2,558	2,364

The aggregate payroll costs of these persons were as follows:


		2020	2019
	Note	£000	£000
Wages and salaries		74,092	62,083
Share-based payments - Long Term Incentive Plan	23	(202)	3,005
Social security costs		6,046	4,795
Other pension costs		3,217	3,532
		83,153	73,415

5 Other operating income


	2020	2019
	£000	£000
Grant income received	299	247
Sub-lease rentals credited to the income statement	281	583
Other	155	(210)
	735	620

6 Finance expenses


	2020	2019
	£000	£000
Interest payable on bank loans and overdrafts	1,999	1,754
Other similar charges	297	(74)
Lease liability interest	1,609	-
Unwinding of fair value discounts	69	86
Interest payable under the effective interest method	3,974	1,766
Derivative financial instruments at fair value through the income statement	343	552
	4,317	2,318
Adjusting items	-	158
	4,317	2,476

£580,000 has been reclassified in the prior year from interest payable on bank loans and overdrafts to derivative financial instruments at fair value through the income statement as this is the charge relating to swaps in the year.

7 Taxation

Recognised in the income statement


	2020	2019
	£000	£000
Current tax (credit)/charge
Current year	(11,001)	4,770
Adjustments in respect of previous years	(507)	38
	(11,508)	4,808
Deferred tax (credit)/charge
Origination and reversal of temporary differences	(2,603)	(617)
Adjustments in respect of previous years	(436)	(160)
	(3,039)	(777)
Total tax in income statement	(14,547)	4,031
Total tax (credit)/charge on adjusting items
Total tax on profit before adjusting items	5,852	7,094
Total tax on adjusting items	(6,589)	(3,063)
Adjusting item - tax credit (US tax loss carryback)	(13,810)	-
Total tax in income statement	(14,547)	4,031

Reconciliation of effective tax rate


	2020	2019
	£000	£000
Profit before tax	263	17,282
Profit before tax multiplied by the standard rate of corporation tax rate of 19% in the UK (2019: 19%)	50	3,284
Effects of:
Income not taxable	(339)	(88)
Expenses not deductible for tax purposes	628	208
Movement in unrecognised tax assets	-	296
Effect of tax rate changes	(142)	33
Differences between UK and overseas tax rates	453	1,053
Movement in uncertain tax provision	(457)	(408)
Local tax incentives	-	(100)
Other items	13	(125)
Adjustments in respect of previous periods	(943)	(122)
US tax loss carryback^(a)	(13,810)	-
Total tax in income statement	(14,547)	4,031

(a) Please refer to note 11 for more detail.

8 Property, plant and equipment


	Land and buildings		Plant and	Fixtures and	Motor
	Freehold	Leasehold	equipment	fittings	vehicles	Total
	£000	£000	£000	£000	£000	£000
Cost
Balance at 1 April 2018 (restated)	20,096	9,633	50,073	4,011	1,254	85,067
Additions	1,078	126	3,712	550	233	5,699
Additions on acquisition of business	462	-	8,851	-	-	9,313
Transfers between fixed asset categories	(57)	83	(43)	17	-	-
Transfers to computer software	-	-	(620)	(101)	-	(721)
Disposals	(405)	(8,252)	(352)	(285)	(351)	(9,645)
Effect of movements in foreign exchange	(127)	636	351	40	(8)	892
Balance at 1 April 2019 (restated)	21,047	2,226	61,972	4,232	1,128	90,605
Additions	598	204	6,683	398	250	8,133
Additions on acquisition of business (note 28)	16,840	933	13,510	261	151	31,695
Transfers between fixed asset categories	(1,242)	-	425	416	401	-
Transfers to computer software	-	-	-	2,338	-	2,338
Disposals	-	-	(1,176)	(170)	(125)	(1,471)
Disposal of a business (note 28)	-	-	(389)	-	-	(389)
Effect of movements in foreign exchange	881	130	1,864	51	(32)	2,894
Balance at 31 March 2020	38,124	3,493	82,889	7,526	1,773	133,805
Depreciation and impairment
Balance at 1 April 2018 (restated)	(10,978)	(5,059)	(30,235)	(2,692)	(604)	(49,568)
Depreciation charge for the year	(769)	(414)	(3,478)	(502)	(165)	(5,328)
Transfers between fixed asset categories	6	-	35	(41)	-	-
Transfers to computer software	-	-	170	101	-	271
Disposals	152	3,769	86	248	84	4,339
Effect of movements in foreign exchange	57	(301)	(224)	(22)	6	(484)
Balance at 1 April 2019 (restated)	(11,532)	(2,005)	(33,646)	(2,908)	(679)	(50,770)
Depreciation charge for the year	(929)	(196)	(4,718)	(634)	(169)	(6,646)
Impairment charge for the year	-	-	(348)	-	-	(348)
Transfers between fixed asset categories	540	(13)	(63)	(154)	(310)	-
Transfers to computer software	-	-	-	(1,768)	-	(1,768)
Disposal	-	-	892	69	107	1,068
Disposal of a business (note 28)	-	-	281	-	-	281
Effect of movements in foreign exchange	(125)	(46)	(735)	(33)	12	(927)
Balance at 31 March 2020	(12,046)	(2,260)	(38,337)	(5,428)	(1,039)	(59,110)
Net book value
Balance at 31 March 2020	26,078	1,233	44,552	2,098	734	74,695
At 31 March 2019	9,515	221	28,326	1,324	449	39,835

Depreciation is charged to cost of sales, selling costs or administration costs within the income statement depending on the department to which the assets relate.

There has been a restatement to correct the prior year cost and accumulated depreciation of assets which were acquired in previous acquisitions. The net book values of these assets remain unchanged.

Security

All freehold properties are subject to a fixed charge in support of the banking facility.

9 Intangible assets


		Computer	Trade	Customer	Other
	Goodwill	software	names	relationships	intangibles	Total
	£000	£000	£000	£000	£000	£000
Cost
Balance at 1 April 2018 (restated)	43,368	5,174	473	1,294	133	50,442
Additions	-	2,190	-	-	-	2,190
Additions on acquisition of businesses (restated) (note 28)	30,046	-	1,154	17,154	-	48,354
Transfer from fixed assets	-	721	-	-	-	721
Disposals	(33)	(465)	-	-	-	(498)
Effect of movements in foreign exchange	404	202	20	44	-	670
Balance at 1 April 2019 (restated)	73,785	7,822	1,647	18,492	133	101,879
Additions	-	2,997	-	-	-	2,997
Additions on acquisition of businesses (note 28)	21,957	2,234	2,422	-	-	26,613
Transfer from fixed assets	-	(2,338)	-	-	-	(2,338)
Disposals	-	(249)	-	-	-	(249)
Effect of movements in foreign exchange	2,374	323	134	799	(1)	3,629
Balance at 31 March 2020	98,116	10,789	4,203	19,291	132	132,531
Amortisation and impairment
Balance at 1 April 2018 (restated)	(9,694)	(3,450)	(186)	(457)	(108)	(13,895)
Amortisation charge for the year	-	(700)	(392)	(1,214)	(3)	(2,309)
Transfers from fixed assets	-	(271)	-	-	-	(271)
Disposals	33	134	-	-	-	167
Effect of movements in foreign exchange	(475)	(57)	(11)	(26)	-	(569)
Balance at 1 April 2019 (restated)	(10,136)	(4,344)	(589)	(1,697)	(111)	(16,877)
Amortisation charge for the year	-	(990)	(1,126)	(1,680)	-	(3,796)
Transfers from fixed assets	-	1,768	-	-	-	1,768
Disposals	-	248	-	-	-	248
Effect of movements in foreign exchange	(354)	(95)	(41)	(72)	(3)	(565)
Balance at 31 March 2020	(10,490)	(3,413)	(1,756)	(3,449)	(114)	(19,222)
Net book value
Balance at 31 March 2020	87,626	7,376	2,447	15,842	18	113,309
At 31 March 2019 (restated)	63,649	3,478	1,058	16,795	22	85,002

Computer software relates to purchased software and people costs associated with the implementation of software.

There has been a restatement to correct the prior year cost and accumulated depreciation of assets which were acquired in previous acquisitions and the net book values of these assets remain unchanged. The acquisition accounting for Impact has been reviewed and hindsight adjustments have been made to goodwill and intangibles.

The aggregate carrying amounts of goodwill allocated to each geographical segment are as follows:


	2020	Restated 2019
	£000	£000
UK and Asia	25,600	25,600
Europe	5,378	5,248
USA	54,165	30,046
Australia	2,483	2,755
Total	87,626	63,649

All goodwill balances have arisen as a result of acquisitions and are not internally generated.

Impairment

The Group tests goodwill each year for impairment, or more frequently if there are indications that goodwill might be impaired.

For the purposes of impairment testing, goodwill considered significant in comparison to the Group's total carrying amount of such assets has been allocated to the business unit, or group of business units, that are expected to benefit from the synergies of the combination, which represents the lowest level within the Group at which the goodwill is monitored for internal management purposes, and is referred to below as a cash-generating unit. The recoverable amounts of cash-generating units are determined from the higher of value in use and fair value less costs to sell.

The Group has prepared updated forecasts following the outbreak of the Covid-19 pandemic for each cash generating unit for the following two years and these have been reviewed by the Board. The key assumptions in those forecasts are sales, margins achievable and overhead costs, which are based on past experience and future expectations. The Group then extrapolates cash flows for the following three years to determine discounted cash flows for five years plus a terminal value based on a conservative estimate of market growth of 1.0% (2019: 0.5%).

Generally the Group's post tax weighted average cost of capital ('WACC') is 6.8% prior to any risk factor, and 7.3% post application of a 0.5% risk weighting. This has been compared to other similar companies and is believed to be appropriate.

The cash-generating units used the following pre-tax discount rates which are derived from an estimate of the Group's future WACC adjusted to reflect the market assessment of the risks specific to the current estimated cash flows over the same period.

Pre-tax discount rates used were:


	2020	2019
UK and Asia	8.5%	10.9%
Europe	9.6%	11.7%
USA	9.3%	12.5%
Australia	10.2%	13.4%

All of the cash-generating units' values in use were determined to be higher than fair value less costs to sell, thus this was used as the recoverable amount. In all businesses, the carrying value of the goodwill was supported by the recoverable amount and there are currently no reasonably foreseeable changes to assumptions that would give rise to an impairment of the carrying value.

The Directors do not believe a reasonably possible change to the assumptions would give rise to an impairment. The Directors have considered a 2% movement in the discount rate and a flat budget growth rate assumption in their sensitivity assessment; with these changes in assumptions there is still significant headroom and no indication of impairment.

10 Right-of-use assets and lease liabilities

Right-of-use assets


	Land and	Plant and	Motor	Office
	buildings	machinery	vehicles	equipment	Total
	£000	£000	£000	£000	£000
Net book value at 1 April 2019	33,736	984	488	294	35,502
Additions	5,388	167	117	99	5,771
Additions on acquisition of business	31,014	484	93	167	31,758
Disposals	(17)	-	-	(17)	(34)
Disposal of a business	(461)	-	-	-	(461)
Depreciation charge	(6,209)	(410)	(281)	(114)	(7,014)
Effect of movements in foreign exchange	1,166	29	11	-	1,206
Net book value at 31 March 2020	64,617	1,254	428	429	66,728

Income statement

The income statement shows the following amounts relating to leases:


	2020
	£000
Interest expense (included in finance expenses)	1,609
Depreciation charge	7,014
Expense relating to short-term leases	2,446

Short term lease commitments as at the end of the year for the coming twelve months are £371,000. This is significantly lower than the expenses in the financial year to 31 March 2020 following the cessation of a short term property lease in the USA which will be replaced by a lease with an initial term of six years and an estimated lease liability on commencement of £13.1 million.

Low value lease costs were negligible in the year.

Operating lease (IAS 17) commitments and opening lease liabilities reconciliation


	2020
	£000
Operating lease commitments disclosed as at 31 March 2019 (restated)	41,522

Discounted using the lessee's incremental borrowing rate of at the date of initial application	34,481
Less: contracts to which the short-term leases exemption applies	(235)
Add/(less): adjustments as a result of a different treatment of extension and termination options	5,863
Lease liability recognised as at 1 April 2019	40,109

Of which are:
Current lease liabilities	5,669
Non-current lease liabilities	34,440
Total	40,109

Lease liabilities as at 31 March 2020 are £76.9 million (of which £63.2 million are non-current liabilities and £13.7 million are current liabilities). The significant increase in lease liabilities is as a result of the acquisition of CSS Industries Inc.

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:

	2020	2019
	£000	£000
Less than one year	371	6,866
Between one and five years	-	16,625
More than five years	-	18,031
Total	371	41,522

Segment assets and liabilities

Segment assets and segment liabilities for 31 March 2020 all increased as a result of the change in accounting policy. The segments were affected by the change in policy as follows:


	2020	2020
	Segment	Segment
	assets	liabilities
	£000	£000
UK and Asia	17,006	19,450
Europe	3,700	3,738
USA	41,360	47,808
Australia	4,575	5,868
Central & eliminations	87	82
Total	66,728	76,946

Income from subleasing right-of-use assets

During the year sublease income from right-of-use assets was as follows:


	2020
	£000
Sublease income in the year from subleasing right-of-use assets	281
	2020
	£000
Non-cancellable operating lease rentals are receivable as follows:
Less than one year	310
Between one and five years	327
Total	637

11 Deferred tax assets and liabilities

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:


	Property, plant	Tax losses	Share‑based	Doubtful	Other timing
	and equipment and intangible assets £000	carried forward £000	payments £000	debts £000	differences^(a) £000	Total £000
At 1 April 2019	(4,438)	1,874	1,733	1,430	2,319	2,918
(Charge)/credit to income statement	(173)	1,565	(104)	1,676	75	3,039
(Charge)/credit to equity	6	348	(423)	85	719	735
Acquisitions	5,545	-	-	-	1,328	6,873
At 31 March 2020	940	3,787	1,206	3,191	4,441	13,565
Deferred tax liabilities	(1,246)	-	-	-	(148)	(1,394)
Deferred tax assets	2,186	3,787	1,206	3,191	4,589	14,959
	940	3,787	1,206	3,191	4,441	13,565


	Property, plant	Tax losses	Share-based	Doubtful	Other timing
	and equipment and intangible assets £000	carried forward £000	payments £000	debts £000	differences^(a) £000	Total £000
At 1 April 2018	(1,137)	584	1,943	819	81	2,290
(Charge)/credit to income statement	(2,653)	1,103	1,004	611	712	777
(Charge)/credit to equity	(115)	187	(358)		137	(149)
Reclassification	(533)	-	(856)		1,389	-
At 31 March 2019	(4,438)	1,874	1,733	1,430	2,319	2,918
Deferred tax liabilities (restated)^(b)	(4,443)	-	-		(208)	(4,651)
Deferred tax assets (restated)^(b)	5	1,874	1,733	1,430	2,527	7,569
	(4,438)	1,874	1,733	1,430	2,319	2,918

(a) Other timing differences include a deferred tax closing balance of £1.5 million (2019: £1.3 million) in respect of provision for inventory and £1.2 million (2019: £nil) in respect of leases.

(b) For more details please refer to note 1

Deferred tax is presented net on the balance sheet in so far as a right of offset exists. The net deferred tax asset is £14.6 million (2019: £3.6 million) and the net deferred tax liability is £1.1 million (2019: £692,000). Deferred tax assets and liabilities are treated as non-current as it expected that they will be recovered or settled more than 12 months after the reporting date.

The prior year categorisation of deferred tax balances has been corrected. This has no impact on the total deferred tax balance as presented on the balance sheet.

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was enacted in the US which includes a temporary relaxation of rules limiting net operating loss deductions. As a result, existing net operating losses (NOLs) in CSS are being carried back to claim a refund with a tax value of £13.9 million ($17.3 million) for taxes paid in prior years. Given that these NOLs had limited value at the time of acquisition on 3 March 2020 (primarily as a result of change in ownership rules) and this law was enacted after the acquisition date, the carryback claim results in a significant tax credit in the year. This has been included as an adjusting tax item.

The deferred tax asset in respect of tax losses carried forward at 31 March 2020 of £3.8 million (2019: £1.9 million) comprises UK tax losses of £2.0 million (2019: £991,000) , US tax losses of £1.8 million (2019: £883,000) and Asia tax losses of £109,000 (2019: £nil). The majority of the US tax losses may be carried forward indefinitely. UK and Asia tax losses may be carried forward indefinitely. The deferred tax assets have been recognised where the Board considers there is sufficient evidence that taxable profits will be available against which the tax losses can be utilised. The Board expects that the tax losses will be recoverable against future profits. There are unrecognised deferred tax assets in respect of UK losses of £642,000 (2019: £574,000), £nil (2019: £369,000) in respect of China, and £nil (2019: £235,000) in respect of Asia.

Following the CSS acquisition there are temporary differences of $101.6 million (£81.9 million) and unused tax losses of $9.4 million (£7.6 million) (with no expiry date) on which deferred tax assets have not been provided. This excludes the CSS tax losses that have been carried back as noted above. Deferred tax assets have not been recognised on these primarily as a result of restrictions under the US change in ownership rules.

A deferred tax liability of £80,000 (2019: £237,000) has been recognised based on the tax cost of remitting earnings from China. No other deferred tax liability has been recognised on unremitted earnings of the overseas subsidiaries as if all unremitted earnings were repatriated with immediate effect, no other tax charge would be payable. The standard rate of UK corporation tax will no longer reduce to 17% from 1 April 2020. These proposed changes, which were substantively enacted in September 2016, were changed in March 2020 to maintain the UK corporate tax rate at 19% by a resolution under the Provisional Collection of Taxes Act 1968. This increased rate has been reflected in the calculation of deferred tax at the balance sheet date.

Included within current tax liabilities is £4.8 million (2019: £2.7 million) in respect of uncertain tax positions. This consists of various tax risks of which the majority are individually are not material. As a result of the acquisition of CSS Industries Inc. in March 2020, additional liabilities have been recognised in respect of inherited uncertain tax positions. Of these liabilities, there is one individual liability that is material (£2.5 million). These risks arise because the Group operates in a complex multinational tax environment. The position is reviewed on an ongoing basis and generally these tax positions are released at the end of the relevant territories' statute of limitations.

A total tax credit of £171,000 (2019: £764,000 credit) has been recognised through the statement of changes in equity in respect of share‑based payments (consisting of a deferred tax charge and current tax credit of £146,000 (2019: £358,000) and £317,000 (2019: £1.1 million) respectively). A deferred tax credit of £771,000 has been recognised through the statement of changes in equity on adoption of IFRS 16 Leases. There are no deferred tax balances with respect to cash flow hedges.

12 Inventory


	2020	2019
	£000	£000
Raw materials and consumables	19,886	19,242
Work in progress	20,179	7,818
Finished goods	74,380	42,511
	114,445	69,571

In 2020, materials, consumables, changes in finished goods and work in progress of £361.1 million (2019: £323.5 million) were recognised as an expense during the year and included in cost of sales.

Due to the impact of Covid-19, inventories have been assessed at the 2020 year end and an impairment of £6.2 million has been taken to reduce the value of inventories to net realisable value, this includes £0.2m of impairment of consumables. In addition to this, inventories have been reduced by a further £5.2 million (2019: £4.2 million) as a result of write-down to net realisable value and was recognised as an expense during 2020. This expense has been reduced by the reversal of previous write downs amounting to £3.9 million (2019: £478,000) due to inventory either being used or sold.

13 Long term assets and Trade and other receivables

Long term assets acquired as part of the acquisition of CSS are as follows:


	2020	2019
	£000	£000
Acquisition indemnities	581	-
UK Pension surplus	482	-
Security deposits	877
Insurance related assets	3,079	-
	5,019	-

Acquisition indemnities relate to previous acquisitions made by CSS and indemnities provided by the seller, security deposits relate to leased properties, and insurance related assets including a corporate owned life insurance policy.

Trade and other receivables are as follows:


	2020	2019
	£000	£000
Trade receivables (restated)^(a)	77,716	44,097
Prepayments, other receivables and accrued income (restated)	10,700	4,993
VAT receivable	332	634
	88,748	49,724

(a) For more details please refer to note 1

The Group has receivable financing arrangements in Hong Kong. None of this facility was drawn at 31 March 2020 (2019: £nil).

Please see note 15 for more details of the banking facilities.

There are no trade receivables in the current year (2019: £nil) expected to be recovered in more than twelve months.

The Group's exposure to credit and currency risks and provisions for doubtful debts related to trade and other receivables is disclosed in note 24.

14 Cash and cash equivalents/bank overdrafts


	2020	2019
	£000	£000
Cash and cash equivalents (restated)^(a)	67,098	85,315
Bank Overdrafts (restated) ^(a)	(25,004)	(65,857)
Cash and cash equivalents per cash flow statement	42,094	19,458

(a) For more details please refer to note 1

Net cash


		2020	2019
	Note	£000	£000
Cash and cash equivalents		42,094	19,458
Bank loans and overdrafts	15	(796)	(2,405)
Loan arrangement fees		975	31
Net cash as used in the financial review		42,273	17,084

The Group's exposure to interest rate risk and sensitivity analysis for financial assets and liabilities are disclosed in note 24.

The bank loans and overdrafts are secured by a fixed charge on certain of the Group's land and buildings, a fixed charge on certain of the Group's book debts and a floating charge on certain of the Group's other assets. See note 15 for further details of the Group's loans and overdrafts.

Changes in net cash


		Loan		Other assets
	Loans and	arrangement		Cash/bank
	borrowings	fees	Sub total	overdrafts	Total
	£000	£000	£000	£000	£000
Balance at 1 April 2018	(4,780)	105	(4,675)	9,031	4,356
Cash flows	2,350	30	2,380	11,178	13,558
Other changes
Amortisation of loan arrangement fees	-	(104)	(104)	-	(104)
Effect of movements in foreign exchange	25	-	25	(751)	(726)
Balance at 1 April 2019	(2,405)	31	(2,374)	19,458	17,084
Cash flows	1,505	1,234	2,739	21,239	23,978
Changes from financing cash flows
Amortisation of loan arrangement fees	-	(290)	(290)	-	(290)
Effect of movements in foreign exchange	104	-	104	1,397	1,501
Balance at 31 March 2020	(796)	975	179	42,094	42,273

15 Loans and borrowings

This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings. For more information about the Group's exposure to interest rate and foreign currency risk, see note 24.


	2020	2019
	£000	£000
Non-current liabilities
Secured bank loans	348	1,421
Loan arrangement fees	(525)	-
	(177)	1,421
Current liabilities
Current portion of secured bank loans	448	984
Loan arrangement fees	(450)	(31)
	(2)	953

Terms and debt repayment schedule


	2020	2019
	£000	£000
Due within one year:
Bank loans and borrowings	448	984
Due between one and two years:
Secured bank loans	348	984
Due between two and five years:
Secured bank loans	-	437
	796	2,405

Secured bank loans

On 17 January 2020 the facility was increased to support the acquisition of CSS Industries Inc. on 3 March 2020 and to accommodate the enlarged Group.

The facilities, which run to May 2022, comprises of:

· a revolving credit facility ('RCF A') of $95.0 million;

· a further flexible revolving credit facility ('RCF B') with availability varying from month to month of up to £130.0 million. This RCF is flexed to meet our working capital requirements during those months when inventory is being built within our annual business cycle and is £nil when not required, minimising carry costs; and

· an invoice financing arrangement in Hong Kong maximum limit $18.0 million but dependent on level of eligible receivables

In total, the accessible facilities are approximately £212.0 million (maximum £219.0 million) and are more than sufficient to cover our peak requirements. Being partially framed in US dollars they also provide a hedge against currency movements. The facilities, which do not amortise with time, include an additional uncommitted amount to finance potential acquisitions.

Invoice financing arrangements are secured over the trade receivables that they are drawn on. The RCF facilities are secured with a fixed and floating charge over all other assets of the Group.

There are financial covenants, tested quarterly, attached to the existing facilities as follows:

· interest cover, being the ratio of adjusted earnings before interest, depreciation and amortisation (EBITDA) as defined by the banking facility to interest on a rolling twelve‑month basis; and

· leverage, being the ratio of debt to adjusted EBITDA as defined by the banking facility on a rolling twelve-month basis.

Covenants are measured on pre IFRS16 accounting definitions.

There is a further covenant tested monthly in respect of the working capital RCF by which available asset cover must not fall below agreed levels relative to amounts drawn.

In January 2018, the Group's Australia business obtained a secured loan from Westpac of £5.1 million (AU$9.0 million). This is repayable monthly over a five year period. It is subject to a variable interest rate linked to the Australian base rate. £1.5 million was repaid during the year which, along with £104,000 exchange movement results in a balance at 31 March 2020 of £796,000 (AU$1.6 million). The Australia business also borrows from Westpac for financing working capital and the current facility level is AU$5.0 million from January to June and AU$10.0 million July to December.

Loan arrangement fees represent the unamortised costs in arranging the Group facilities. These fees are being amortised on a straight line basis over the terms of the facilities.

16 Deferred income


	2020	2019
	£000	£000
Included within non-current liabilities
Deferred grant income	452	751

Included within current liabilities
Deferred grant income	99	99
Other deferred income	32	-
	131	99

The deferred grant income is in respect of government grants relating to the development of the site in Wales. The conditions for this grant were all fully met in January 2019.

17 Provisions


	Property	Other	Total
	£000	£000	£000
Balance at 1 April 2019	3,434	327	3,761
Provisions made in the year	8	78	86
Additions of acquisition of business	1,753	2,284	4,037
Disposal of subsidiary	(158)	-	(158)
Provisions released during the year	(162)	(1,454)	(1,616)
Unwinding of fair value discounts	69	-	69
Provisions utilised during the year	(26)	-	(26)
Effect of movements in foreign exchange	149	52	201
Balance at 31 March 2020	5,067	1,287	6,354


	2020	2019
	£000	£000
Non-current	4,163	2,671
Current	2,191	1,090
	6,354	3,761

The property provision represents the estimated reinstatement cost of 13 (2019: six) of the Group's leasehold properties under fully repairing leases. A professional valuation was performed during 2016 for one of the leasehold properties and the provision was reassessed and is stated after discounting. £990,000 (2019: 935,000) of the non-current balance relates to a lease expiring in 2036; the balance relates to items between one and five years.

As a result of the acquisition of CSS Industries Inc. additional provisions of £4.0 million have been recognised of which £1.8 million relates to the reinstatement costs of CSS' leased properties. £2.2 million of other provisions relates to onerous customer contracts which is a short term provision.

Other provisions are short term and represent management's best estimate in respect of minor amounts arising in the normal course of business

The timing of the utilisation of provisions assumes the business continues to operate based on the most up to date business plan.

18 Other financial liabilities



	2020	2019
	£000	£000
Included within non-current liabilities
Other creditors and accruals	5,471	1,817
Included within current liabilities
Other creditors and accruals (restated)	38,698	18,942
Interest rate swaps and forward foreign currency contracts carried at fair value through the income statement	-	-
Interest rate swaps and forward foreign exchange contracts carried at fair value through the hedging reserve	7	2
	38,705	18,944

19 Trade and other payables


	2020	2019
	£000	£000
Trade payables	90,820	57,336
Other payables including social security	7,090	947
VAT payable	447	280
	98,357	58,563

20 Share capital

Authorised share capital at 31 March 2020 and 2019 was £6.0 million into 121.0 million ordinary shares of 5p each.


	Ordinary shares
In thousands of shares	2020	2019
In issue at 1 April	78,366	63,890
Options exercised during the year	711	1,655
Share issue as part of the consideration for Impact Innovations, Inc.	-	3,017
Share placing	17,290	9,804
In issue at 31 March - fully paid	96,367	78,366

	2020	2019
	£000	£000
Allotted, called up and fully paid
Ordinary shares of £0.05 each	4,818	3,918

Of the 96.4 million shares in the Company, 31,000 (2019: 31,000) are held by the International Greetings Employee Benefit Trust.

No share options were exercised during the year (2019: 200,000 ordinary shares were issued as a result of share option exercises which generated cash proceeds of £28,000).

LTIP options exercised during the year resulted in 711,000 ordinary shares being issued at nil cost (2019: 1.5 million ordinary shares being issued at nil cost).

In support of the acquisition of CSS Industries, Inc. on 24 January 2020, the Group raised £53.4 million after expenses of £1.4 million by way of a share placing of 7.9 million new ordinary shares at a share price of £6.94 per share. On 12 February 2020, the Group raised an additional £63.5 million after expenses of £1.7 million by way of a share placing of 9.4 million new ordinary shares at a share price of £6.94 per share.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

21 Earnings per share^(a)


		2020	2019
	Note	£000	£000
Earnings
Earnings attributable to equity holders of the Company		14,060	11,925
Adjustments
Adjusting items (net of non-controlling interest effect)		28,562	12,891
Tax charge/(relief) on adjustments (net of non-controlling interest effect)		(6,504)	(3,016)
Adjusting item - tax credit^(a)	7	(13,810)	-
Adjusted earnings attributable to equity holders of the Company		22,308	21,800
Weighted average number of shares
Basic weighted average number of shares outstanding		82,605	73,610
Dilutive effect of employee share option plans		476	1,269
Diluted weighted average ordinary shares^(b)		83,081	74,879
Earnings per share (pence)
Basic earnings per share		17.0	16.2
Adjustment		10.0	13.4
Basic adjusted earnings per share		27.0	29.6
Diluted earnings per share^(b)		16.9	15.9
Diluted adjusted earnings per share^(b)		26.9	29.1

Adjusted earnings per share is provided to reflect the underlying earnings performance of the Group.


In thousands of shares	2020	2019^(a)
Issued ordinary shares at 1 April	78,366	63,890
Shares held by Employee Benefit Trust	-	(31)
Shares relating to share options	1,594	2,419
Shares issued as part of the consideration for Impact	-	1,761
Shares issued in respect of share placing	2,645	5,571
Weighted average number of shares at 31 March	82,605	73,610

(a) Please refer to note 11 for details of the adjusting tax credit associated with a US loss carry back claim.

(b) From 2020 onwards, the Group have adjusted their assumptions as to the shares that are to be included in the calculation of the weighted average number of shares for diluted EPS purposes. As such the numbers detailed in respect of 2019 have been re-presented using the same methodology in order to provide appropriate comparatives.

Diluted earnings per share

The diluted earnings per share is calculated taking into account LTIP awards whose specified conditions were satisfied at the end of the year of 476,000 (2019: 1.2 million) share options (including those under the Executive share options scheme). At 31 March 2020 the diluted number of shares was 83.1 million (2019: 74.9 million).

22 Dividends paid and proposed

A final dividend for year ending 31 March 2019 of 6.00p (for year ending 31 March 2018: 4.00p) was paid on 16 September 2019. An interim dividend of 3.00p was paid on 17 January 2020 (2019: 2.50p). The Directors are recommending a final dividend of 5.75p in respect of the year ended 31 March 2020 (2019: 6.00p). If approved it will be paid in November 2020 to shareholders on the register at the close of business on 2 October 2020.


	2020		2019
	Pence		Pence
	per share	£000	per share	£000
Final equity dividend for prior year	6.00	4,732	4.00	2,597
Interim equity dividend for current year	3.00	2,372	2.50	1,956
Dividends paid in the year		7,104		4,553


	2020		2019
	Pence		Pence
Proposed for approval at Annual General Meeting	per share	£000	per share	£000
Final equity dividend for the current year	5.75	5,541	6.00	4,702

23 Employee Benefits

Post Employment Benefits

The Group administers a defined benefit pension plan that was inherited through the acquisition of CSS Industries Inc. and covers certain employees of a UK subsidiary. The scheme closed to future accrual on 31 December 2012. This is a separate trustee administered fund holding the pension scheme assets to meet long term pension liabilities. The plan assets held in trust are governed by UK regulations and responsibility for governance of the plan - including investment decisions and contribution schedules - lies with the group of trustees. The assets of the scheme are invested in the SPI With-Profits Fund, which is provided by the Phoenix Life Limited.

The last triennial valuation performed was in December 2017. A further actuarial valuation was carried out at 28 February 2020, just prior to the acquisition of the CSS business by a qualified actuary, independent of the scheme's sponsoring employer. No additional valuation was performed at the balance sheet date based on the assumed immaterial movement between acquisition and year end.

The major assumptions used by the actuary are shown below.

Present values of defined benefit obligation, fair value of assets and defined benefit asset (liability)


		2020
		£000
Fair value plan of assets		2,442
Present value of defined benefit obligation		(1,960)
Surplus (deficit) in plan		482

Net defined benefit asset (liability) to be recognised		482

Reconciliation of opening and closing balances of the defined benefit obligation


	2020
	£000
Defined benefit obligation at start of year	-
Liabilities acquired in a business combination	(1,960)
Defined benefit obligation at end of year	(1,960)

Reconciliation of opening and closing balances of the fair value of plan assets


	2020
	£000
Fair value of plan assets at start of year	-
Assets acquired in a business combination	2,442
Fair value of plan assets at end of year	2,442

Given the timing between acquisition and financial year end, no amounts have been expensed against group operating profit, nor has any finance expense been incurred.

The principal assumptions used by the independent qualified actuaries for the purposes of IAS 19 are as follows:


	2020
Increase in salaries	-
Increase in pensions	-
at RPI capped at 5%	3.50%
at CPI capped at 5%	1.95%
at CPI capped at 2.5%	1.95%
Discount rate	1.70%
Inflation rate - RPI	2.80%
Inflation rate - CPI	1.95%

Due to the timescale covered, the assumptions may not be borne out in practice.

The life expectancy assumptions (in number of years) used to estimate defined benefit obligations at the year end are as follows:


	2020
Male retiring today at age 60	26.4
Female retiring today at age 60	28.5
Male retiring in 20 years at age 60	28.0
Female retiring in 20 years at age 60	30.1

Long Term Incentive Plan

On 31 March 2014, the Group announced the introduction of a new Long Term Incentive Plan ('LTIP'). Under the LTIP, options to subscribe for ordinary shares of a nominal value of 5p each ('ordinary shares') may be awarded annually to Executive Board Directors of the Company, Managing Directors and other selected senior management team members within the Group. Ordinary shares only vest to the degree that stretching performance conditions are met. The maximum dilution under the LTIP is 15% over a ten year period. The scheme rules, which have been agreed by the Remuneration Committee, include reasonable provisions in the event of change of control, suitable flexibility to modify performance targets in specified situations and also a mechanism for claw-back under certain circumstances. The Board retains the flexibility to buy ordinary shares through an Employee Benefit Trust to mitigate future dilution should it need to do so.

The performance period for each award under the LTIP is three years. The cost to employees of ordinary shares issued under the LTIP if the performance criteria are met is nil. In principle the number of ordinary shares to be granted to each employee under the LTIP will not be more than 325% in value of the relevant employee's salary base. The maximum opportunity available is up to 175% for the CEO and for other Executive Directors up to 150% of base salary. For the 2018-2021 scheme grant B and the 2019-2022 scheme (for Paul Fineman, Giles Willits, Lance Burn and two other members of the Executive Committee) there is an outperformance element of up to 50% of the initial grant.

Vested LTIP schemes - outstanding options


		Exercise
	Number of	price
	ordinary shares	pence	Exercise dates
2014-2017 LTIP scheme	36,401	nil	June 2017 - August 2024
2015-2018 LTIP scheme	408,236	nil	June 2018 - January 2028
2016-2019 LTIP scheme	438,402	nil	June 2019 - January 2028
2017-2020 LTIP scheme^(a)	476,449	nil	July 2020 - August 2027
	1,359,488

All performance criteria have been met for the above schemes.


	2020		2019
	Weighted		Weighted
	average		average
	exercise price	Number of	exercise price	Number of
	pence	options	pence	options
Outstanding at the beginning of the year	nil	1,575,385	nil	2,306,034
Prior year adjustment^(a)	nil	18,337	-	-
Options vesting during the year^(b)	nil	476,449	nil	723,632
Exercised during the year	nil	(710,683)	nil	(1,454,281)
Outstanding at the end of the year	nil	1,359,488	nil	1,575,385
Exercisable at the end of the year	nil	1,359,488	nil	1,575,385

(a) Relates to share options not included in the prior year balance

(b) 76% of the initial award plus dividend shares will formally vest on 23 July 2020 following the Remuneration and Audit Committees' approval of the results of the year ended 31 March 2020.

Scheme details for LTIPs in vesting periods during the year

During the financial year to 31 March 2020 there were three LTIP schemes still within their vesting periods (2019: three).

The award and performance targets for these are in the tables below.

Awards


	2017-2020		2018-2021		2019-2022
	Grant A	Grant B	Grant A	Grant B	Grant A
Fair value per share (£)	3.71	4.04	5.55	5.56	6.02
Number of participants	18	2	16	5	30
Initial award	354,638	297,844	151,859	633,372	758,782
Dividend shares	8,963	8,686	2,303	11,841	10,796
Lapses and forfeitures	(122,199)	(71,483)	(29,649)	-	(8,311)
Potential to vest as at 31 March 2020	241,402	235,047	124,513	645,213	761,267
Potential to vest as at 31 March 2019	305,401	304,897	134,154	636,080	-

The LTIP awards 'Grant A' were made in 2017, 2018 and 2019 respectively. The LTIP awards 'Grant B' were made in January 2018 to Paul Fineman in respect of the 2015-2018 and 2016-2019 schemes and to Paul Fineman and Giles Willits in respect of the 2017-2020 scheme. There was also a 'Grant B' award in respect of the 2018-2021 scheme to Paul Fineman, Giles Willits, Lance Burn and two other members of the Executive Committee in November 2018.

The grant date fair value of the options granted in the year assuming they are to vest in full is £4.6 million (2019: £4.4 million). The exercise price is nil.

Performance targets

Awards are granted with threshold and stretch targets. 25% of the weighted awards vests if the relevant threshold target is achieved with straight-line vesting of the balance up to 100% of the weighted award if the stretch target is achieved.

The 'Grant B' of the 2018-2021 scheme and the 2019-2022 scheme (for the Executive Board) also includes a super stretch target which will vest in accordance with the following bands relating to CAGR^(b) in EPS^(a):

· more than 17% but not more than 20%: 10% x number of shares in respect of which the base award vests;

· more than 20% but not more than 22.5%: 22% x number of shares in respect of which the base award vests;

· more than 22.5% but not more than 25%: 35% x number of shares in respect of which the base award vests; and

· more than 25%: 50% x number of shares in respect of which the base award vests.


	Weighting	Threshold	Stretch	Super stretch
2017-2020 scheme
EPS^(a)	100%	CAGR^(b) 10 %	CAGR^(b) 17.5 %	-
2018-2021 scheme
EPS^(a)	100%	CAGR^(b) 10 %	CAGR^(b) 17.0 %	CAGR^(b) 25.0 %
2019-2022 scheme
EPS^(a)	100%	CAGR^(b) 10 %	CAGR^(b) 17.0 %	CAGR^(b) 25.0 %

(a) EPS before Board approved adjusting items.

(b) Compound Annual Growth Rate.

In light of Covid-19 the remuneration committee are reviewing the schemes that have not yet vested with a view to amending the performance targets. At the reporting date, no decision on revised metrics had been made.

Share-based payments charges

The total expense recognised for the year arising from equity‑settled share‑based payments are as follows:


	2020	2019
	£000	£000
(Credit)/ Charge in relation to the 2016-2019 LTIP scheme	-	637
(Credit)/ Charge in relation to the 2017-2020 LTIP scheme	382	1,083
(Credit)/ Charge in relation to the 2018-2021 LTIP scheme	(613)	613
(Credit) / Charge in relation to the 2019-2022 LTIP Scheme	-	-
Equity-settled share-based payments (credit)/charge	(231)	2,333
Social security charge on LTIP awards	29	672
Total equity-settled share-based payments (credit)/charge	(202)	3,005

Social security charges on share-based payments

Social security is accrued, where applicable, at a rate which management expects to be the prevailing rate when share-based incentives are exercised and is based on the latest market value of options expected to vest or having already vested.

The total social security accrual outstanding at the year end in respect of share-based payment transactions was £824,000 (2019: £1.1 million).

24 Financial instruments

Derivative financial assets

a) Fair values of financial instruments

The carrying values for each class of financial assets and financial liabilities in the balance sheet, which are given below, are not considered to be materially different to their fair values.

As at 31 March 2020, the Group had derivative contracts, which were measured at Level 2 fair value subsequent to initial recognition, to the value of an asset of £332,000 (2019: £129,000) and a liability of £7,000 (2019: £2,000).

Derivative financial instruments

The fair value of forward exchange contracts is assessed using valuation models taking into account market inputs such as foreign exchange spot and forward rates, yield curves and forward interest rates.

Fair value hierarchy

Financial instruments which are recognised at fair value subsequent to initial recognition are grouped into Levels 1 to 3 based on the degree to which the fair value is observable. The three levels are defined as follows:

· Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

· Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and

· Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

b) Credit risk

Financial risk management

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group's receivables from customers and investment securities.

The Group's exposure to credit risk is managed by dealing only with banks and financial institutions with strong credit ratings. The Group's financial credit risk is primarily attributable to its trade receivables.

The main customers of the Group are large and mid‑sized retailers, other manufacturers and wholesalers of greetings products, service merchandisers and trading companies. The Group has established procedures to minimise the risk of default of trade receivables including detailed credit checks undertaken before new customers are accepted and rigorous credit control procedures after sale. These processes have proved effective in minimising the level of provisions for doubtful debts required.

The amounts presented in the balance sheet are net of allowances for doubtful receivables estimated by the Group's management, based on prior experience and their assessment of the current economic environment.

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. Therefore, the maximum exposure to credit risk at the balance sheet date was £150.2 million (2019: £129.7 million after restatement) being the total of the carrying amount of financial assets, excluding equity investments above.

The maximum exposure to credit risk for trade receivables at the balance sheet date by geographic region was:


	2020	2019
	£000	£000
UK and Asia	9,246	8,998
USA (restated)	60,631	25,933
Europe	5,106	5,303
Australia	2,733	3,863
	77,716	44,097

Credit quality of financial assets and impairment losses

There was no change to the level of provision for doubtful debts upon the adoption of IFRS 9.

The ageing of trade receivables at the balance sheet date was:


	2020			2019
	Expected		Provisions for	Expected		Provisions for
	loss rate	Gross	doubtful debts	loss rate	Gross	doubtful debts
	%	£000	£000	%	£000	£000
Not past due (restated)	8.0	62,707	(5,028)	0.6	35,985	(200)
Past due 0-60 days	11.1	17,988	(1,998)	5.4	6,854	(369)
61-90 days	33.6	1,975	(664)	18.4	1,601	(295)
More than 90 days	64.4	7,687	(4,951)	90.9	5,727	(5,206)
	14.0	90,357	(12,641)	12.1	50,167	(6,070)

There were no unimpaired balances outstanding at 31 March 2020 (2019: £nil) where the Group had renegotiated the terms of the trade receivable.

Expected credit loss assessment

For the Group's trade receivables, expected credit losses are measured using a provisioning matrix based on the reason the trade receivable is past due. The provision matrix rates are based on actual credit loss experience over the past three years and adjusted, when required, to take into account current macro-economic factors. The Group applies experienced credit judgement that is determined to be predictive of the risk of loss to assess the expected credit loss, taking into account external ratings, financial statements and other available information. The Group's trade receivables are unlikely to extend past twelve months and as such for the purposes of expected credit loss modelling, the lifetime expected credit loss impairments recognised are the same as a 12 month expected credit loss.

There has been no significant credit risk movements since initial recognition of impairments.

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:


	2020	2019
	£000	£000
Balance at 1 April	6,070	804
Charge for the year	6,505	1,697
Unused amounts reversed	(1,034)	(51)
Acquisition of businesses	1,757	3,724
Amounts written off	(953)	(407)
Effects of movement in foreign exchange	296	303
Balance at 31 March	12,641	6,070

The allowance account for trade receivables is used to record provisions for doubtful debts unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amounts considered irrecoverable are written off against the trade receivables directly.

c) Liquidity risk

Financial risk management

Liquidity risk is the risk that the Group, although solvent, will encounter difficulties in meeting obligations associated with the financial liabilities that are settled by delivering cash or another financial asset. The Group's policy with regard to liquidity ensures adequate access to funds by maintaining an appropriate mix of short-term and longer-term facilities, which are reviewed on a regular basis. The maturity profile and details of debt outstanding at 31 March 2019 are set out in note 15.

The following are the contractual maturities of financial liabilities, including estimated interest payments:

		Carrying	Contractual	One year	One to two	Two to five	More than
		amount	cash flows	or less	years	years	five years
31 March 2020	Note	£000	£000	£000	£000	£000	£000
Non-derivative financial liabilities
Secured bank loans - Australian dollar ^(a)		796	(821)	(460)	(361)	-	-
Other financial liabilities ^(b)	18	44,169	(44,169)	(38,699)	(5,446)	(22)	(2)
Lease liabilities ^(b)	10	76,946	(88,341)	(16,247)	(14,753)	(32,298)	(25,043)
Trade payables ^(b)	19	90,820	(90,820)	(90,820)	-	-	-
Other payables ^(b)	19	7,537	(7,537)	(7,537)	-	-	-
Derivative financial liabilities
Forward foreign exchange contracts carried at fair value through the hedging reserve^(b)		7	(3,629)	(3,629)	-	-	-
		220,275	(235,317)	(157,392)	(20,560)	(32,320)	(25,045)

(a) Nominal interest rate 4.49%.

(b) Measured at Level 2.


		Carrying	Contractual	One year	One to two	Two to five	More than
		amount	cash flows	or less	years	years	five years
31 March 2019	Note	£000	£000	£000	£000	£000	£000
Non-derivative financial liabilities
Secured bank loans - Australian dollar^(a)		2,405	(2,532)	(1,069)	(1,023)	(440)	-
Other financial liabilities^(b)(restated)	18	20,759	(20,759)	(18,942)	(373)	(171)	(1,273)
Trade payables^(b)	19	57,336	(57,336)	(57,336)	-	-	-
Other payables^(b)	19	1,227	(1,227)	(1,227)	-	-	-
Derivative financial liabilities
Forward foreign exchange contracts carried at fair value through the hedging reserve^(b)		2	(248)	(248)	-	-	-
		81,729	(82,102)	(78,822)	(1,396)	(611)	(1,273)

(a) Nominal interest rate 4.49%.

(b) Measured at Level 2.

The following table shows the facilities for bank loans, overdrafts, asset‑backed loans and revolving credit facilities:

	31 March 2020				31 March 2019
		Facility used				Facility used
	Carrying	contractual	Facility	Total	Carrying	contractual	Facility	Total
	amount	cash flows	unused	facility	amount	cash flows	unused	facility
	£000	£000	£000	£000	£000	£000	£000	£000
Secured bank loans	796	(821)	-	(821)	2,405	(2,532)	-	(2,532)
Corporate revolving credit facilities	-	-	(78,246)	(78,246)	-	-	(29,602)	(29,602)
Receivables financing	-	-	-	-	-	-	(15,967)	(15,967)
Bank overdraft	-	-	(3,581)	(3,581)	-	-	(3,249)	(3,249)
	796	(821)	(81,827)	(82,648)	2,405	(2,532)	(48,818)	(51,350)

The receivables financing facilities are dependent upon the levels of the relevant receivables.

The major bank facilities vary in the year depending on forecast debt requirements. The maximum limit across all facilities with the major bank was £219.0 million (2019: £139.0 million).

At 31 March 2020 the facility amounted to £78.2 million (2019: £45.6 million).

Additional facilities were available at other banks of £3.6 million (2019: £3.2 million).

On 5 June 2019 we entered into a new three year Group banking facility, see note 15 for more information.

d) Cash flow hedges

The following derivative financial instruments were designated as cash flow hedges:


	2020	2019
Forward exchange contracts carrying amount	£000	£000

Derivative financial assets	332	129
Derivative financial liabilities	(7)	(2)

The Group has forward currency hedging contracts outstanding at 31 March 2020 designated as hedges of expected future purchases in US dollars and Chinese renminbi and sales in euros for which the Group has firm commitments, as the derivatives are based on forecasts an economic relationship exists at the time the derivative contracts are taken out.

The terms of the forward currency hedging contracts have been negotiated to match the terms of the commitments. All contracts outstanding at the year end crystallise within 12 months of the balance sheet date at average prices of 1.11 for US dollar contracts (2019: 1.16), 7.09 for Chinese Renminbi contracts (2019: n/a) and 1.14 for Euro contracts (2019: n/a). At the year end the Group held $9.6 million (2019: $6.7 million), RMB 31.9 million (2019: RMB nil) and €0.9 million (2019: €nil) in hedge relationships.

When assessing the effectiveness of any derivative contracts, the Group assesses sources of ineffectiveness which include movements in volumes or timings of the hedged cashflows.

The cash flow hedges of the expected future purchases in 2021 were assessed to be highly effective and as at 31 March 2020 a net unrealised gain of £517,000 (2019: £377,000) with related deferred tax credit of £nil (2019: £nil) was included in other comprehensive income in respect of these hedging contracts. Amounts relating to ineffectiveness recorded in the income statement in the year was £nil (2019: £27,000 credit)

e) Market risk

Financial risk management

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group's income or the value of its holdings of financial instruments.

The Group hedges a proportion, as deemed appropriate by management, of its sales and purchases of inventory denominated in foreign currency by entering into foreign exchange contracts. Such foreign exchange contracts typically have maturities of less than one year.

The Group rarely hedges profit translation exposure, since such hedges provide only a temporary deferral of the effects of movement in foreign exchange rates. Similarly, the Group does not hedge its long-term investments in overseas assets.

However, the Group holds loans that are denominated in the functional currency of certain overseas entities.

The Group's exposure to foreign currency risk is as follows. This is based on the carrying amount for monetary financial instruments, except derivatives, when it is based on notional amounts.


		Sterling	Euro	US dollar	Other	Total
31 March 2020	Note	£000	£000	£000	£000	£000
Long term assets		-	-	5,019	-	5,019
Cash and cash equivalents	14	7,988	2,682	50,238	6,190	67,098
Trade receivables	13	7,823	5,090	62,012	2,791	77,716
Derivative financial assets		198	-	-	134	332
Secured bank loans	15	-	-	-	(796)	(796)
Bank overdrafts		-	(10,408)	(14,559)	(37)	(25,004)
Loan arrangement fees	15	975	-	-	-	975
Trade payables	19	(8,858)	(6,335)	(73,382)	(2,245)	(90,820)
Other payables	19	(754)	(632)	(5,991)	(160)	(7,537)
Balance sheet exposure		7,372	(9,603)	23,337	5,877	26,983


		Sterling	Euro	US dollar		Other	Total
31 March 2019	Note	£000	£000	£000		£000	£000
Cash and cash equivalents (restated)	14	65,845	4,922	9,719		4,829	85,315
Trade receivables (restated)	13	7,731	5,403	27,112		3,851	44,097
Other receivables		966	22	1,651		40	2,679
Derivative financial assets		110	-	-		19	129
Secured bank loans	15	-	-	-		(2,405)	(2,405)
Bank overdrafts (restated)		--	(9,539)	(56,315)		(3)	(65,857)
Loan arrangement fees	15	31	-	-		-	31
Trade payables	19	(10,494)	(7,013)	(30,378)		(9,451)	(57,336)
Other payables	19	(541)	(409)	-		(277)	(1,227)
Balance sheet exposure		63,648	(6,614)	(48,211)	(3,397)			5,426

The following significant exchange rates applied during the year:

	Average rate		Reporting date spot rate
	2020	2019	2020	2019
Euro	1.14	1.13	1.12	1.16
US dollar	1.27	1.31	1.24	1.30

Sensitivity analysis

A 10% weakening of the following currencies against sterling at 31 March 2020 would have affected equity and profit or loss by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date.

This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant. The analysis was performed on the same basis for 31 March 2019.

	Equity		Profit/(loss)
	2020	2019	2020	2019
	£000	£000	£000	£000
Euro	(873)	601	22	6
US dollar	2,122	4,775	183	883

On the basis of the same assumptions, a 10% strengthening of the above currencies against sterling at 31 March 2020 would have affected equity and profit or loss by the following amounts:

	Equity		Profit/(loss)
	2020	2019	2020	2019
	£000	£000	£000	£000
Euro	1,067	(735)	(27)	(8)
US dollar	(2,593)	(5,837)	(223)	(1,079)

Profile

At the balance sheet date the interest rate profile of the Group's interest-bearing financial instruments was:



		2020	2019
	Note	£000	£000
Variable rate instruments
Financial assets (restated)		67,098	85,315
Financial liabilities (restated)		(25,800)	(68,262)
Loan arrangement fees		975	31
Net cash	14	42,273	17,084

A change of 50 basis points (0.5%) in interest rates in respect of financial assets and liabilities at the balance sheet date would have affected equity and profit or loss by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date.

This analysis assumes that all other variables, in particular foreign currency rates, remain constant and considers the effect on financial instruments with variable interest rates, financial instruments at fair value through profit or loss. The analysis is performed on the same basis for 31 March 2019.

Sensitivity analysis


	2020	2019
	£000	£000
Equity
Increase	206	85
Decrease	-	-

Profit or loss
Increase	206	85
Decrease	-	-

f) Capital management

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group is dependent on the continuing support of its bankers for working capital facilities and so the Board's major objective is to keep borrowings within these facilities.

The Board manages as capital its trading capital, which it defines as its net assets plus net debt. Net debt is calculated as total debt (bank overdrafts, loans and borrowings as shown in the balance sheet), less cash and cash equivalents. The banking facilities with our principal bank have covenants relating to interest cover, cash flow cover and leverage, and our articles currently permit borrowings (including letter of credit facilities) to a maximum of four times equity.

		Equity
		2020	2019
	Note	£000	£000
Net equity attributable to owners of the Parent Company		299,375	171,506
Net cash	14	(42,273)	(17,084)
Trading capital		257 102	154,422

The main areas of capital management relate to the management of the components of working capital including monitoring inventory turn, age of inventory, age of trade receivables, balance sheet reforecasting, monthly profit and loss, weekly cash flow forecasts and daily cash balances. Major investment decisions are based on reviewing the expected future cash flows and all major capital expenditure requires sign off by the Chief Financial Officer and Chief Executive Officer or above certain limits, by the Board. There were no major changes in the Group's approach to capital management during the year. A particular focus of the Group is leverage measured as the ratio of average monthly net debt to EBITDA before adjusting items.

25 Capital commitments

At 31 March 2020, the Group had outstanding authorised capital commitments to purchase plant and equipment for £1.9 million (2019: £2.7 million).

26 Related parties


	2020	2019
	£000	£000
Sale of goods:
Hedlunds Pappers Industri AB	209	69
Festive Productions Ltd	7	12
Hedlund Import AB	2,225	2,955
S A Greetings (pty) Ltd	169	126
	2,610	3,162
Purchase of goods:
Mattr Media Ltd	71	56
	71	56
Receivables:
Hedlund Import AB	-	29
S A Greetings (pty) Ltd	-	31
	-	60

Payables:
Mattr Media Ltd	25	-
Balance at 31 March	25	-

Identity of related parties and trading

Hedlund Import AB and AB Alrick-Hedlund are under the ultimate control of the Hedlund family who are a major shareholder in the Company. Anders Hedlund is a director of Hedlunds Pappers Industri AB which is under the ultimate control of the Hedlund family. Festive Productions Ltd is a subsidiary undertaking of Malios Holding AG, a company under the ultimate control of the Hedlund family.

John Charlton is Chairman of SA Greetings (pty) Ltd (South African Greetings).

During the year the Company paid for marketing services to Mattr Media Ltd, a company controlled by Joshua Fineman, who is the son of the Group CEO.

The above trading takes place in the ordinary course of business.

Other related party transactions

Directors of the Company and their immediate relatives have an interest in 27% (2019: 34%) of the voting shares of the Company.

Directors' Remuneration


	2020	2019
Short-term employee benefits	1,407	1,835
Post-employment benefits	8	12
Share-based payments (credit)/charge	(17)	1,937
	1,398	3,784

27 Subsidiary with significant non-controlling interest

The Company has two subsidiary companies which have a material non-controlling interest, IG Design Group Australia Pty Ltd ('Australia') and Anker Play Products LLC ('APP'). Summary financial information in relation to Australia and APP is shown below.


	2020			2019
	Australia	APP	Total	Australia	APP	Total
Non-controlling interest - balance sheet as at 31 March	£000	£000	£000	£000	£000	£000
Non-current assets	8,540	191	8,731	4,582	16	4,598
Current assets	9,269	2,514	11,783	10,052	3,219	13,271
Current liabilities	(4,997)	(2,752)	(7,749)	(6,755)	(2,600)	(9,355)
Non-current liabilities	(5,325)	(62)	(5,387)	(143)	-	(143)



	2020			2019
	Australia	APP	Total	Australia	APP	Total
Non-controlling interest-comprehensive income for the year ended 31 March	£000	£000	£000	£000	£000	£000
Revenue	32,337	14,979	47,316	39,067	11,078	50,145
Profit after tax	1,500	(731)	769	2,434	531	2,965
Total comprehensive income	1,615	(731)	884	2,229	531	2,760


	2020			2019
	Australia	APP	Total	Australia	APP	Total
Non-controlling interest - cash flow for the year ended 31 March	£000	£000	£000	£000	£000	£000
Net increase/(decrease) in cash and cash equivalents	374	50	424	444	(35)	409


	2020			2019
	Australia	APP	Total	Australia	APP	Total
Non-controlling interest	£000	£000	£000	£000	£000	£000
1 April	3,740	311	4,051	3,661	-	3,661
Share of profits for the year	750	-	750	1,326	-	1,326
Other comprehensive income	57	-	57	(10)	-	(10)
(Derecognition)/ recognition of non-controlling interest	-	(325)	(325)	-	311	311
Disposal of Urban Dollar	-	-	-	(110)	-	(110)
Dividend paid to non-controlling interest	-	-	-	(1,075)	-	(1,075)
IFRS 16 retained earnings adjustment	(440)	-	(440)	-	-	-
Currency translation	(363)	14	(349)	(52)	-	(52)
31 March	3,744	-	3,744	3,740	311	4,051

28 Acquisitions and disposals of subsidiaries

Acquisitions in the year

On 3 March 2020, the Group acquired 100% of the equity of CSS Industries, Inc. ("CSS"), a creative consumer products company, focused on the craft, gift and seasonal categories predominately within the US.

The acquisition, made through a wholly owned subsidiary of IG Design Group plc, IG Design Group Americas Inc., was satisfied by total consideration of £95.9 million ($122.8 million), all of which was paid in cash.

CSS was a NYSE listed designer and manufacturer of craft, seasonal and gift products. CSS specialises in the creative development, manufacture and sale of products through a multi-channel distribution model to a broad base of mass, specialty and online retailers and distributors. Its core products within each category are as follows:

· Craft - sewing patterns, ribbons, trims, buttons, needle arts and kids' crafts;

· Gift - products designed to celebrate certain life events or special occasions, with a focus on ribbons, bows, bags and wrap, as well as stationery, baby gift items, and party and entertaining products; and

· Seasonal - holiday gift packaging items including ribbons, bows, bags, tags and gift card holders, in addition to specific holiday-themed decorations and activities.

The Directors believe that the acquisition will:

· broaden the Group's product portfolio and provides its customers with a substantially enhanced "one-stop-shop" product and service offering;

· allow Design Group entry into the craft market and accelerates online revenues;

· deliver substantial estimated annual synergies of £10.0 million by March 2023; and

· provide for tangible operating synergies through the combination of the Group's US business with CSS, including economies of scale, enhanced US manufacturing capacity and combined US distribution network.

In the period from acquisition to 31 March 2020, CSS contributed sales of £15.9 million to the consolidated Group revenue for the year ended 31 March 2020 and adjusted profit of £3.4 million. If the acquisition had occurred on 1 April 2019, Group revenue would have been £716.7 million and net adjusted profit before tax would have been £28.9 million.

£3.6m of transaction costs were recognised in the consolidated income statement in adjusting items.

Effect of acquisition of CSS

	Provisional fair values recognised on acquisition £000
Property, plant and equipment	31,695
Right-of-use assets	31,758
Intangible assets	4,656
Inventories	44,242
Trade and other receivables	51,013
Doubtful debt provision	(1,743)
Cash	8,233
Trade and payables	(58,739)
Provisions	(4,037)
Income taxes	(2,991)
Deferred tax	6,873
Lease liabilities	(36,988)
Net identifiable assets and liabilities	73,972
Consideration paid in shares	-
Consideration paid in cash	95,929
Total consideration	95,929
Goodwill	21,957

The valuation techniques used for measuring the fair value of material assets acquired were as follows:

· property, plant and equipment has been valued using market comparison and cost techniques. The valuation model considers market prices for similar items when they are available, and depreciated replacement costs when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence. The Directors consider that the property plant and equipment has been fairly valued using the depreciated replacement cost method although the assessment is provisional and will be finalised during the look back period

· intangible assets are made up of customer relationships which have been valued using a Multi-period Excess Earnings Method ('MEEM') approach and brands valued using the relief-from royalty method; and the replacement cost approach has been used to value the raw materials, intermediary inventory and finished goods purchased (adjusted for reserves) as at the Valuation Date. WIP and finished goods manufactured are valued using Net Realisable Value ("NRV") method.

The goodwill recognised above includes certain intangible assets that cannot be separately identified and measured due to their nature. This includes control over the acquired business, the skills and experience of the assembled workforce, the increase in scale, significant synergies and the future growth opportunities that the business provide to the Group's operations. The goodwill is not deductible for tax purposes.

Contingent liabilities of £3.6 million were recognised as part of the business combination relating to reinstatement costs of leased buildings, potential change of control penalties, potential environmental claims and potential litigation. The liabilities have the potential to unwind over one to five years and contain estimates.

Fair values of assets and liabilities, including property, plant and equipment, acquired for CSS are provisional and subject to change as the Group is still permitted to make fair value adjustments up until 12 months after the date of acquisition.

Disposals in the current year

On 24 February 2020, the Group divested of its operations in Shaoxing to Chen Yue, a well-known supplier to the Group, and comprised a sale of 100% of the equity of the company, which was a direct subsidiary of IG Design Group Americas Inc. After the release of acquisition risks provisions in the opening balance sheet relating to commercial and tax issues, the disposal resulted in a gain before tax of £2.0 million, which has been recognised within adjusting items. Related transaction costs and tax costs of £487,000 were also recognised in the consolidated income statement in adjusting items.

The disposal proceeds, net liabilities disposed of and gains arising from the movement in foreign currency exchange from the divestment of the Shaoxing business were as follows:


	£000
Property, plant and equipment	108
Right-of-use assets	461
Inventories	635
Trade and other receivables	561
Corporation tax	(2,570)
Trade and other payables	(444)
Provisions	(158)
Lease liabilities	(502)
	(1,909)

Gain on disposal calculated as:
Disposal proceeds	98
Net liabilities disposed	1,909
	2,007
Transaction costs	(193)
Tax on sale of business (including Chinese withholding tax)	(294)
Reclassification of gains from movement in foreign currency exchange	(34)
	1,486
Disposal proceeds
Satisfied by:
Cash consideration	98
Deferred consideration	(98)
Net cash outflow from disposals of businesses	-

Acquisitions in the prior year

Impact Innovations Inc.

On 31 August 2018, the Group acquired 100% of the equity of Impact Innovations Inc. ('Impact'), a leading supplier of gift packaging and seasonal décor products in the US.

The provisional acquisition accounting as stated in the financial statements to 31 March 2019 has been reviewed and measurement period adjustments made to goodwill, intangibles and provisions. The fair values of the assets and liabilities acquired have been reconsidered as part of the hindsight period. The changes made were the creation of additional provisions of £1.3 million and reduction of certain intangible assets (trade name) from £1.9 million to £1.2 million.

In the period from acquisition to 31 March 2019, Impact contributed sales of £88.7 million to the consolidated Group revenue for the year ended 31 March 2019. If the acquisition had occurred on 1 April 2018, Group revenue would have been £489.8 million. Following the restructuring of the US business to combine manufacturing facilities into one operation, it is no longer possible to separately disclose the profit of the Impact business.

Adjustment to provisional accounting


	Provisional	Adjustments	Final
	fair values	within the	fair values
	recognised	measurement	recognised
	on acquisition	period	on acquisition
	£000	£000	£000
Property, plant and equipment	9,313		9,313
Intangible assets	19,000	(692)	18,308
Inventories	26,295		26,295
Trade and other receivables	31,966		31,966
Cash	1,208		1,208
Trade and other payables	(31,433)		(31,433)
Provisions (including taxation)	(2,197)	(1,312)	(3,509)
Net identifiable assets and liabilities	54,152	(2,004)	52,148
Consideration paid in shares	15,385		15,385
Consideration paid in cash	66,809		66,809
Total consideration	82,194		82,194
Goodwill	28,042	2,004	30,046

Fair value adjustments were made to trade names, customer relationships and inventory.

29 Non-adjusting post balance sheet events

There were no known material non-adjusting events which occurred between the end of the reporting period and prior to the authorisation of these financial statements on 27 July 2020.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR MZGZNRNLGGZM

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IG Design Group (IGR)

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