International Greetings has now released their interim results for the year ending 2015.
When compared to the first half of last year, revenue fell by more than £1.5M as increases in European and USA sales were offset by a £3M decline in UK revenue and a £900K fall in Australian turnover, although on a constant currency basis, revenues increased slightly. The cost of the UK efficiency plan seems to be reducing, and indeed only £300K of it was in the form of cash. Other cost of sales also fell but gross profit was still some £661K lower than in the first half of 2014. We also saw selling and admin expenses fall and there was a small increase in other operating income so that profit at the operating level actually increased on last year. There was also the lack of the accelerated amortisation of loan fees and a fall in finance costs, somewhat mitigated by a collapse in income tax credits before a flat tax charge meant that the profit for the year stood at £2.2M, an increase of £935K on the first half of last year.
Due to the heavy seasonality in earnings I have used a comparison with this time last year for the balance sheet comparison. When compared to the half year point in 2014, total assets increased by some £8.1M driven by a £7.9M increase in trade & other receivables, along with a £2.2M increase in the value of property, plant and equipment somewhat offset by smaller falls in the other assets. Liabilities also increased with nearly every type of liability increasing, in particular other financial liabilities increasing by about £1.7M, the bank overdraft increasing by 1.4M and borrowings up £700K. The result is a net tangible asset increase of £3.1M to £26.4M.
Before movements in working capital, cash from operations increased by £181K to £6.6M but a huge increase in receivables meant that the cash lost from operations was £46.4M, an increased loss of £7.5M and after tax and interest was paid, the outflow was £8.1M. The group then spent £1.5M on businesses acquired and £1.3M on the purchase of tangible assets so that the cash outflow before financing was £51.7M. In order to balance the books somewhat, there was a net £48.2M in capital facilities, offset by a £4.2M reduction in loans and some £829K of dividends sent to non-controlling interests to give a cash outflow at the half year point of £8.6M, although a cash flow analysis at this stage does not tell us much due to the working capital movements relating to Christmas trading and differing phasing year to year.
UK profits were £2.7M, an increase of £900K when compared to the same period of last year as the project to invest in printing equipment starts to show in improved performance. There was also a good performance from the Chinese Christmas cracker manufacturing operation where 74 million crackers were delivered, exceeding targeted efficiencies and going forward the group are looking at further automation at the factory.
Europe profits were £823K, an increase of £144K when compared to the same period of 2014 as the previous investment in the high definition printing facilities and the acquisition of Enper underpinned growing levels of gift wrap production and sales growth. USA profits were £617K, a decline of £88K when compared to the first half of last year despite improved sales, although the death of US CEO Rich Eckman may have affected performance somewhat, however, the process to recruit a replacement is progressing well.
Australian profits were £594K, a £769K collapse when compared to the first half of 2014 as the group invested in growth with new customers, product categories and channels, which affected margins. The board are encouraged by the prospects now offered through establishing these new opportunities for expansion. The regions where the group are improving profit performance are the ones where they have made investments in manufacturing equipment and the group are now appraising whether to invest in the US marketplace to match the same technological platform. Apparently this year there has been some order slippage so that sales will be more weighted to the second half than usual.
Banking facilities have been renegotiated with improved terms and an increased maturity profile out to 2018. The underlying tax rate fell due to reductions in the UK rate and the continued use of tax losses in the US and there remains $3.8M of unrecognised losses in the US and £300K in the UK. The acquisition has already been integrated into the Netherlands business with expected synergies to occur next year. Overall trading activities during the first half were in line with expectations with a strong order book in place for the rest of the year. Orders are already beginning to build for next year.
Net debts at the end of the half year point stood at £89.9M, an increase from the £84.8M recorded at the same point of last year which is a bit disappointing although is probably being used to finance the increased working capital and was in line with expectations with the programme to reduce year end net debt on track. There will be no interim dividend this time, which seems sensible given the continued high debt levels but the board intends to review this position as they expect to get closer to their target of year end net debt to EBITDA below two times.
Overall then, this seems like a decent update with a fairly flat profit outcome and a slightly increased net asset base. Trying to determine cash flow at the half year point is a bit of a fruitless exercise due to the seasonality of orders and changed phasing of cash inflows so I will have to take management at their word that net debt will be lower at the year end. Operationally, after investments in equipment in the UK and the Netherlands, performance in these regions are good but the Australian profit fall is a bit of a concern. All in all, I still like this company and might look again at the end of the year but for now there just seems to be a few uncertainties holding me back.
On the 28th January the group released a statement covering trading in Q3 that includes the all important Christmas period. The group performed well with results in line with expectations. In Wales the new giftwrap manufacturing facility was completed on time and to budget with the facility already producing significant volumes efficiently. The Dutch operation achieved record sales and production volumes with the acquired Enper business now fully integrated. In the US, record sales levels were achieved with growth across all channels underpinned by managing the short term operational challenges reported previously and the group’s sales of licensed products have included over three million products featuring Disney’s Frozen. All in all, a good update for a very important period.
On the 21st April the group released a trading update covering the year ending 2015. Progress has been made in Q4 that means the financial performance for the year will exceed current market expectations and the good operational performance, lower financial costs and an improved mix of tax rates will significantly enhance earnings per share. Debt reduction has also been significant with substantial reductions in working capital meaning that the target of bringing the ratio of year end debt to EBITDA to below two times has been achieved a year ahead of schedule (although the improved working capital situation could be temporary). The board are now confirming that the company will return to the dividend list with a final dividend being declared.
The UK and European businesses delivered strong results, underpinned by savings achieved by the execution of the capital investment programme in the UK and excellent integration of the acquired Enper business in Europe. This performance has helped compensate for the challenging conditions faced by the Australian joint venture. Top line growth in the US remained strong but there is apparently scope for margin and efficiency improvements going forward and Gideon Schlessinger has been appointed CEO of the US operation after the death of Rich Eckman. Gideon has experience in developing businesses with US and global retailers. This all seems very positive and I have purchased my first shares in this company.