Design Group Regulatory News (IGR)

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

*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

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 - Our 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 Adjusted profit 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).

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.

UK

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). Adjusted operating 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 Adjusted operating 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. Adjusted operating 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.

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:

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 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

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. 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 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:

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).

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;

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:

CONSOLIDATED INCOME STATEMENT

YEAR ENDED 31 MARCH 2020

Earnings per ordinary share

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 MARCH 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 MARCH 2020

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

(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

(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:

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

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:

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.

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.

(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.

(a) Including Asian manufacturing and sourcing.

(b) Including overseas entities for the USA operating segment

(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:

Revenue by customer destination