Record preliminary results

International Greetings PLC 29 June 2004 Embargoed until 0700, 29th June 2004 International Greetings plc ('International Greetings' or 'the Group') Record preliminary results Management signal confidence with 13% dividend increase International Greetings plc (AIM: IGR), the leading designer and manufacturer of private label greetings products and film and television character based licensed stationery, announces today its preliminary results for the year ended 31st March 2004. Financial highlights •Turnover up 11% to £126.7m (2003: £113.7m) and profit before tax up 3% to £11.2m (2003: £10.9m) •Turnover, excluding Hoomark, increased 10% to £124.6m (2003: £113.7m) •Adjusted profit before tax*, excluding Hoomark, increased 14% to £12.7m (2003: £11.1m) •Adjusted EPS*, excluding Hoomark, increased 15% to 21.6p (2003: 18.8p) •Final dividend of 5p per share (2003: 4.45p) increases full year dividend 13% to 6.5p per share (2003: 5.75p) •Hoomark trading since acquisition (loss before tax of £0.6m) in-line with expectations •US division performed well with operating profit (in $US) rising 14% to $2m. * figure excludes goodwill amortisation of £233,000 (2003 : £175,000) and exceptional item of £684,000 (2003 : nil). Operational highlights •Strong organic growth and platforms created for further growth through acquisitions •Acquisition of leading Dutch gift wrap business, Hoomark, strengthens the Group's position in Europe •Licensing agreements secured for summer blockbusters including Harry Potter and the Prisoner of Azkaban, Shrek 2 and Thunderbirds •Increased production and sourcing from the Far East •New licensed Christmas decorations product range launched which is already contributing sales to the Group. Post year-end event •Acquisition of Krakajack, a cracker manufacturer, for a consideration of approximately £900,000, providing entry in to in the important Irish and catering markets. Commenting, Nick Fisher, CEO of International Greetings said: 'This strong set of results demonstrates International Greetings' focus on and ability to deliver growth, both organically and through acquisition. We are encouraged by the performance of our US division and by progress being made in the Far East, as well as looking forward to receiving a full year's contribution from Hoomark. As ever, our licensed products sold well and we anticipate a strong performance from both Shrek 2 and Thunderbirds, with further demand at Christmas, coinciding with DVD releases. We are confident about the year ahead, as evidenced by the improved dividend, and look forward to delivering further shareholder value.' For further information: Nick Fisher, International Greetings: 01707 630630 Richard Sunderland/ Tim McCall, mj2 ltd: 020 7491 7776 Richard.sunderland@mj2.co.uk Graeme Cull, Arden Partners: 0121 423 8960 CHAIRMAN'S STATEMENT International Greetings is a business focused on growth. During the past year the Group has seen impressive organic growth from its existing businesses, and created new platforms for future growth through acquisitions. For the year ended 31st March 2004, adjusted profit before tax* increased to £12.1m with turnover increasing to £126.7m. Excluding the results attributable to Hoomark, the leading Dutch gift wrap business which was acquired in November last year, turnover increased by 10% to £124.6m with adjusted profit before taxation* increasing by 14% to £12.7m. These are excellent results which reflect the continuing success of the Group in meeting the challenge of satisfying both the quality and value demands of its customers. They also demonstrate the benefits of continued investment in product development and design, together with ongoing cost control and improved manufacturing efficiency. This was particularly apparent in the strong performance of the US division where, in US$, operating profit increased by 14% on turnover up 3%. Work continues with the integration of Hoomark, which was in its seasonally loss-making period when it was acquired by International Greetings in November last year. Its performance since then has been in line with expectations and it is expected to make a positive contribution to the group's next annual results. Since the year end, we have also further strengthened the Group's offering through the purchase of Krakajack, one of the leading suppliers of Christmas crackers to the Irish and catering markets. Licensing remains an important area of the Group's core business and coinciding with this results announcement are the release of two major film properties, Shrek 2 and Thunderbirds. We have exclusive licences in our product categories for these properties and have launched ranges of merchandise this summer utilising characters from these films. We expect further sales opportunities during the autumn period when DVD's are released for Christmas. Once again I would like to commend all our employees for their continued commitment in ensuring our business achieves its desired objectives. This year's performance in all divisions illustrates their dedication to International Greetings. The business continues to perform well, and the Board is confident in the future prospects for the Group. As a result, and reflecting the strong financial position, with net funds at the year end of £10.3m, we are recommending a final dividend of 5p per share. This makes a total for the year of 6.5p, and represents an increase of 13% over last year. John Elfed Jones CBE DL Chairman *figure excludes goodwill amortisation of £233,000 (2003: £175,000) and exceptional item of £684,000 (2003: nil). REVIEW OF OPERATIONS The last 12 months have been an active and successful period for International Greetings. We have seen impressive growth in both turnover and profits from our core businesses, and in addition to establishing a new licensed Christmas decorations product category, the Group's range of activities have been broadened with the acquisitions of Hoomark and Krakajack. UK and European Market The core business has performed extremely well during the last year, with turnover of the UK business increasing by 14% to £108m. This includes a turnover contribution from the newly established licensed Christmas decorations product category of £2.4m. We are encouraged by the favourable response this new area of business has received from customers, and are confident in its future growth potential. The acquisition of Hoomark represents a major step forward in the Group's development into mainland Europe. In addition to the sales opportunities it gives to supply the Group's products into this important market place, there are also many synergy benefits. Manufacturing facilities in the UK will benefit from the extra capacity now available and efficiency gains and economies of scale arising in areas such as printing and sourcing of raw materials are expected. On 1st June 2004, the Group completed the purchase of the assets and trade of Krakajack, a cracker manufacturing business based in Ireland, for a total consideration of approximately £900,000. This acquisition has enabled International Greetings to acquire, for a relatively low cost, a unique high speed automated cracker production line, complementing its existing hand-made manufacturing facilities in South Wales and the Far East. The production equipment will be relocated to South Wales, and the acquisition provides the Group with an entry into the catering side of the cracker market as well as a significant market share in Ireland. US Market The US division has also performed well during the year. The results of this division, translated into sterling, have been negatively affected by movements in exchange rates during the year. However, in US$, although turnover only increased by 3%, efficiency improvements resulted in operating profit increasing by 14%. These improvements in productivity have primarily arisen from increasing in-house printing and conversion, following recent investments in new equipment. The Group continues with its strategy of developing further into the US mass market sector, and has now set up a dedicated sales and marketing division to maximise this opportunity. Additional sales from this division are expected to start coming through in the current year. Far East Production Production and sourcing from Hong Kong and China continues to be of increasing importance to the Group. In April last year we opened a cracker production facility in China. All production targets for last year's Christmas orders were met and as a result, an increase in production from this facility is expected during the next 12 months. The Group continues to develop new products and source new materials and finishes from the region, in order to maintain our competitive market position. Design and Licensing The trend by consumers to constantly demand new and fresh ideas is very apparent in greetings and stationery products. The Group's design teams have once again demonstrated their ability to create new ranges and designs, which can be manufactured economically to meet consumers' demands. An important measure of the Group's success is the sell-through of its products by its retail customers, and we are pleased to report excellent retail sales during the past year, not only for Christmas products, but also for everyday ranges. Sales targets for new licensed properties launched during the past 12 months were met, and coinciding with this results announcement are the release of two major film properties, Shrek 2 and Thunderbirds. Sales of merchandise from these two films will be generated during the current financial year, together with those from the Group's perennial Disney, Barbie, Simpsons and other licences. The Group's policy of maintaining a strong core licence portfolio together with new film signings complements its customers' range requirements for licensed merchandise, and new licensed properties will continue to be sourced. Conclusion Following another successful year for the Group, the focus will remain on what International Greetings does best - innovation and excellence in design, efficient manufacturing and exemplary service to customers. The Group will also continue to pursue its strategy of organic growth, supplemented by selective acquisitions of complementary businesses that create additional value. We are confident that all these initiatives will ensure that International Greetings continues to be a successful, thriving growth business. Nick Fisher Joint Chief Executive Anders Hedlund Joint Chief Executive FINANCIAL REVIEW Group Performance Turnover for the year to 31st March 2004 increased to £126.7m. Excluding the sales of £2.1m attributable to Hoomark since its acquisition, turnover increased by 10% to £124.6m. Adjusted operating profit* for the year to 31st March 2004 increased to £12.3m. Excluding the operating loss attributable to Hoomark since acquisition, adjusted operating profit* increased by 8% to £12.7m, and represents an adjusted operating margin* of 10.2%. Hoomark made an operating loss of £0.4m for the period it was part of the Group. However, in common with the rest of the Group, Hoomark's business has a considerable degree of seasonality, and the results for this period are not representative of the full year's performance. Based on unaudited management accounts figures, Hoomark had turnover for the 12 months to 31st March 2004 of £9.2m and made an operating profit of £0.5m. The exceptional item of £0.7m represents the one-off start up costs associated with setting up the new licensed Christmas decorations product category, which is already contributing sales to the Group. Lower borrowing levels throughout the year have been primarily responsible for the interest charge for the year to 31st March 2004 of £0.1m being significantly lower than last year's £0.7m. Adjusted profit before tax* increased to £12.1m. Excluding the loss before tax attributable to Hoomark since acquisition, adjusted profit before tax* increased by 14% to £12.7m. Earnings Per Share and Dividend Adjusted basic earnings per share* for the year ended 31st March 2004 were 20.7p, an increase of 10%. Excluding the loss per share attributable to Hoomark since acquisition, adjusted basic earnings per share* for the year ended 31st March 2004 increased by 15% to 21.6p. Basic earnings per share were 19.2p, an increase of 3%. The final dividend for the year of 5p (2003: 4.45p) makes a total dividend for the year of 6.5p, an increase of 13% and is covered three times by basic earnings per share. Balance Sheet and Cash Flow The Group has once again produced a strong cash flow performance and strengthened its financial position. Shareholders' funds increased by £6.2m to £44.1m, and net funds have increased by £6.8m to £10.3m, notwithstanding the additional net debt of £8.2m arising as a result of the acquisition of Hoomark. Treasury Operations The Board continues to assess and manage the risks associated with the treasury function as the business develops. The Group's business has a strong seasonal focus, resulting in large variations in working capital, with net funds for certain periods of the year and net borrowings in other periods. As a result, the Board considers that long term reduction of exposure to fluctuations in interest rates on working capital is unlikely to be economically viable. A significant proportion of the Group's purchases are denominated in US$. The effect of exchange rate fluctuations is reduced through a combination of measures including hedging and forward exchange contracts. Mark Collini Finance Director *figure excludes goodwill amortisation of £233,000 (2003: £175,000) and exceptional item of £684,000 (2003: nil). Consolidated profit and loss account for the year ended 31 March 2004 Note Continuing operations Pre-exceptional Exceptional Acquisition Total Total item item 2004 2004 2004 2004 2003 £000 £000 £000 £000 £000 Turnover 2 124,639 - 2,050 126,689 113,732 Cost of sales (86,917) - (1,756) (88,673) (78,239) --- --- --- --- --- Gross profit 37,722 - 294 38,016 35,493 Distribution expenses (11,529) - (325) (11,854) (11,357) Administrative expenses (13,714) (684) (427) (14,825) (12,515) --- --- --- --- --- Operating profit 2 12,479 (684) (458) 11,337 11,621 Net interest payable (40) - (97) (137) (690) --- --- --- --- --- Profit on ordinary activities before taxation 2-3 12,439 (684) (555) 11,200 10,931 --- --- --- --- --- Tax on profit on ordinary activities 4 (3,142) (3,299) --- --- --- --- --- Profit for the financial year 8,058 7,632 Dividends - equity 5 (2,774) (2,385) --- --- --- --- --- Retained profit for the financial year 5,284 5,247 === === === === === Earnings per share 6 Basic 19.2p 18.5p Adjusted basic excluding goodwill and exceptional item 20.7p 18.8p Diluted 19.1p 18.3p === === === === === Consolidated statement of total recognised gains and losses for the year ended 31 March 2004 2004 2003 £000 £000 Profit for the financial year 8,058 7,632 Currency translation differences arising on foreign currency net investments (835) (602) --- --- Total recognised gains and losses relating to the financial year 7,223 7,030 === === Consolidated balance sheet at 31 March 2004 Note 2004 2003 £000 £000 £000 £000 Fixed assets Intangible assets - goodwill 2,737 1,071 Tangible assets 23,271 21,721 --- --- 26,008 22,792 Current assets Stocks 22,069 21,860 Debtors 11,492 9,856 Cash at bank and in hand 16,233 10,547 --- --- 49,794 42,263 Creditors: amounts falling due within one year (25,583) (21,438) --- --- Net current assets 24,211 20,825 --- --- Total assets less current 50,219 43,617 liabilities Creditors: amounts falling due after more than one year (3,059) (2,278) Provisions for liabilities and charges (243) (394) Deferred income (2,802) (3,016) --- --- Net assets 44,115 37,929 === === Capital and reserves Called up share capital 2,112 2,077 Share premium account 1,703 1,081 Potential issue of shares 8 1,080 - Other reserves 181 1,016 Profit and loss account 39,039 33,755 --- --- Equity shareholders' funds 7 44,115 37,929 === === Consolidated cash flow statement for the year ended 31 March 2004 2004 2003 £000 £000 Net cash inflow from operating activities 23,695 22,510 Returns on investments and servicing of (191) (707) finance Taxation (3,175) (2,980) Capital expenditure (4,842) 752 Acquisitions and disposals (7,777) - Equity dividends paid (2,511) (1,892) ---------------- ---------------- Cash inflow before financing 5,199 17,683 Financing 1,440 (1,553) ---------------- ---------------- Increase in cash 6,639 16,130 ================ ================ Reconciliation of net cash flow to movement in net funds for the year ended 31 March 2004 2004 2003 £000 £000 Increase in cash in the year 6,639 16,130 Cash (inflow)/outflow from debt and lease (783) 1,877 financing ---------------- ---------------- Change in net funds resulting from cash flows 5,856 18,007 New finance leases (180) (695) Finance leases acquired with subsidiary (393) - Translation differences 1,552 1,028 ---------------- ---------------- Movement in net funds in the year 6,835 18,340 Net funds/(debt) at beginning of year 3,433 (14,907) ---------------- ---------------- Net funds at end of year 10,268 3,433 ================ ================ Notes 1 Basis of preparation The financial information set out above does not constitute the Company's statutory financial statements for the years ended 31 March 2004 or 2003. Statutory financial statements for 2003 have been delivered to the registrar of companies, and those for 2004 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. 2 Segmental analysis (a) Geographical area of operation UK & Europe USA Group 2004 2003 2004 2003 2004 2003 £000 £000 £000 £000 £000 £000 Turnover 110,338 95,260 16,351 18,472 126,689 113,732 === === === === === === Operating profit before exceptional item 10,944 10,524 1,077 1,097 12,021 11,621 Exceptional item (see below) (684) - - - (684) - --- --- --- --- --- --- Operating profit after exceptional item 10,260 10,524 1,077 1,097 11,337 11,621 --- --- --- --- Net interest (137) (690) --- --- Profit on ordinary activities before taxation 11,200 10,931 === === Net assets 38,408 31,961 5,707 5,968 44,115 37,929 === === === === === === The above results relate entirely to continuing operations. Exceptional item During the year ended 31 March 2004 the group established a new product category involved in the design and selling of licensed decorations. The exceptional item of £684,000 (2003: £Nil) represents the one-off start-up costs associated with this category. (b) Geographical analysis of turnover by destination 2004 2003 £000 £000 UK 90,986 79,101 USA 23,287 27,180 Europe 10,427 6,977 Rest of world 1,989 474 ------------- --------------- 126,689 113,732 ============= =============== 3 Profit on ordinary activities before taxation 2004 2003 £000 £000 Profit on ordinary activities before taxation is stated after charging/(crediting) Auditors' remuneration- audit fees paid to the company's auditor and its associates 73 68 - non audit fees paid to the company's auditor and its associates 52 68 Hire of plant and machinery - rentals payable under operating leases 309 341 Hire of other assets - operating leases 741 307 Release of deferred grant income (299) (293) Depreciation - owned 4,327 3,821 - leased 139 101 Amortisation of goodwill 233 175 === === Audit fees payable by the company for the year were £14,000 (2003: £6,000). 4 Taxation 2004 2003 £000 £000 £000 £000 Current tax UK corporation tax on profits of the year 3,414 3,278 Adjustments in respect of previous periods (63) 55 -------- -------- 3,351 3,333 Foreign tax On profits of the year 166 264 Adjustments in respect of previous periods (205) 92 -------- -------- (39) 356 -------- -------- Total current tax 3,312 3,689 Deferred taxation Origination and reversal of timing differences (190) (316) Adjustments in respectof previous periods 20 (74) -------- -------- Total deferred tax (170) (390) -------- -------- Tax on profits onordinary activities 3,142 3,299 -------- -------- 5 Dividends 2004 2003 £000 £000 Interim paid - 1.5p per share (2003: 1.3p) 662 536 Final proposed - 5.0p per share (2003: 4.45p) 2,112 1,849 ---------------- ---------------- 2,774 2,385 ---------------- ---------------- 6 Earnings per share 2004 2003 Adjusted basic earnings per share excluding goodwill and exceptional item 20.7p 18.8p Loss per share on goodwill (0.4p) (0.3p) Loss per share on exceptional item (1.1p) - ---------------- ---------------- Basic earnings per share 19.2p 18.5p ================ ================ Diluted earnings per share 19.1p 18.3p ================ ================ The basic earnings per share is based on the earnings of £8,058,000 (2003: £7,632,000) and the weighted average number of ordinary shares in issue of 41,995,174 (2003: 41,229,758). The calculation of diluted earnings per share is based on 42,180,513 (2003: 41,760,588) ordinary shares. The difference of 185,339 (2003: 530,830) represents the dilutive effect of outstanding employee share options which has been calculated in accordance with FRS 14. Adjusted basic earnings per share excluding goodwill and exceptional item is calculated after adjusting for amortisation of goodwill of £233,000 (2003: £175,000), the exceptional item of £684,000 (2003: £Nil), and the tax relief attributable to these items. 7 Reconciliations of movements in shareholders' funds Group 2004 2003 £000 £000 Profit for the financial year 8,058 7,632 Dividends (2,774) (2,385) --- --- 5,284 5,247 Other recognised gains and losses relating to the year (net) (835) (602) New share capital subscribed 657 324 Potential issue of shares (see below) 1,080 - --- --- Net addition to shareholders' funds 6,186 4,969 Opening shareholders' funds 37,929 32,960 --- --- Closing shareholders' funds 44,115 37,929 === === 8 Acquisition On 19 November 2003 the company acquired 100% of the issued share capital of Hoomark Gift-wrap Partners BV, a manufacturer of gift wrapping paper based in The Netherlands. The provisional fair value of total assets acquired was as follows: Book value of Provisional fair value Provisional fair value acquired adjustments (note (a) at date of acquisition business below) £000 £000 £000 Fixed assets 1,352 393 1,745 Stock 2,860 (158) 2,702 Debtors 4,681 (133) 4,548 Creditors (1,525) (393) (1,918) Bank loans and (6,551) - (6,551) overdraft ---------------- ---------------- ---------------- Net assets acquired 817 (291) 526 ================ ================ =============== Satisfied by: £000 Cash paid 1,226 Estimated future deferred consideration (see note (b) below) 1,217 ---------------- Total consideration 2,443 ---------------- Goodwill 1,917 ================ The goodwill relating to the acquisition is written off over 10 years, being its estimated useful economic life. (a) The adjustments made to the net book values of the assets and liabilities of Hoomark represent the capitalisation of fixed assets held under finance leases and adjustments to bring stock and debtor provisioning into line with group policies. (b) The estimated future deferred consideration, of which £1,080,000 may be paid by the issuance of new ordinary shares at the company's option, consists of: i) an amount of €1,000,000 due in June 2004, payable in either cash or by the issuance of new ordinary shares, at the company's option. ii) an amount equivalent to 50% of the estimated profit after tax of Hoomark Gift-wrap Partners BV for the 3 years ended 31 March 2007. This is payable in 3 annual instalments commencing 31 July 2005. Up to 75% of this element of the deferred consideration may be payable by the issuance of new ordinary shares, at the company's option. (c) In January 2003, Hoomark Gift-wrap Partners BV bought certain assets and the business previously carried out by Hoomark BV from the trustee in bankruptcy of Hoomark BV, and commenced trading. As a result no accounts are available for the year ended 31 March 2003. For the period 1 April 2003 to 18 November 2003, unaudited management accounts figures (translated at the 31 March 2004 exchange rate) reflect turnover of £7.14m, operating profit of £0.95m and interest payable of £0.34m, resulting in a profit before tax of £0.61m. This information is provided by RNS The company news service from the London Stock Exchange

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