Design Group Regulatory News (IGR)

EMBARGOED UNTIL 7.00 AM, 28 JUNE 2022

IG Design Group PLC

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

Results for the year ended 31 March 2022

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 2022.

Highlights for the year ended 31 March 2022

(a) Adjusted Results are before Adjusting Items - for further detail see Alternative Performance Measures reconciliation within the Detailed Financial Review

(b) All prior year Adjusted results have been restated throughout our results to reflect the inclusion of share-based payment credits/charges within Adjusted metrics

· Focused on delivering customer commitments, the Group increased revenues by 11%, demonstrating continued strong demand for the Group's products

· A challenging year saw margins and earnings significantly reduced by unprecedented supply chain cost increases and freight availability

· The Group remained net cash positive at year-end, at $30.2 million, with the year-on-year reduction reflecting increased costs and working capital requirements

· In line with the Board's previous guidance, no final dividend is being declared. As a result, the full year dividend remains 1.25 pence (1.7 cents)

· A recent banking covenant amendment to March 2023, and facility extension to March 2024, has secured access to financing to support working capital requirements

· Board changes include the appointment of Stewart Gilliland as Non-Executive Chair in September 2021, and subsequently to Interim Executive Chair in June 2022; Paul Bal as Group CFO; Lance Burn as Interim Group COO; and Clare Askem and Claire Binyon as independent Non-Executive Directors

· The priority of the Group is a recovery in its financial performance with particular focus on DG Americas, with a change in leadership, this work is already underway and progress made to date

Outlook

· A strong orderbook for FY2023, which is already at 71% of budgeted revenues (FY2022: 60%), indicates customer relationships have been sustained with good ongoing demand. The cost environment remains challenging but where possible cost inflation is being passed through in pricing for customers, resulting in a slight operating margin improvement being expected for FY2023

· Higher financing costs are expected due to revised banking facilities and the Group maintaining higher working capital as it seeks to manage the higher cost environment in FY2023

· Strategy to restore profitable and sustainable growth being developed

Stewart Gilliland, Interim Executive Chair, commented:

"The extent of the impact of the inflation and supply chain challenges in FY2022 have given us cause to re-examine our business, and we are therefore laying out today a foundation for a strategy with a clear focus on restoring profitable and sustainable growth. While it will no doubt evolve further over the coming months, the Board and wider management team are fully aligned, focused on mitigating cost pressures and creating a more resilient business. This will provide a stronger base on which we can build in the future.

We have already made some good progress against these goals, including implementing organisational change, but we know that there remains much more work to be done. While macro-economic uncertainty is an unavoidable headwind, there are many elements of our business that give us confidence. We have a wonderful team, substantial scale, very strong customer relationships, and have recently secured an extension to our banking facilities, all of which gives us the flexibility to implement the changes we need to make to move forward. Most importantly, our management team truly believe in Design Group's ongoing potential, and we are committed to working together to execute our strategic initiatives."

OVERVIEW

The Group has experienced a very challenging FY2022. Despite continued strong demand from our customers which delivered double-digit revenue growth of 11% over the prior year, the full year earnings performance has been significantly impacted by unprecedented cost headwinds and supply chain availability issues experienced during the year. Therefore, Group Adjusted operating margins reduced from 4.3% to 0.4% in the year.

This impact was most significantly felt in DG Americas which delivered an Adjusted operating loss, despite growing revenues by 7%. As previously announced, in early 2022 the Board took the decision to change the leadership of DG Americas, with Lance Burn, who was previously CEO of DG International, also taking on the role of Group Interim Chief Operating Officer ('COO'), including the role of Interim CEO of DG Americas.

DG International benefitted from a 16% increase in revenue which helped offset some of the cost challenges. Adjusted operating margins for DG International reduced to 6.8%, a 260 bps drop year-on-year.

The Group has experienced significant cost increases in relation to freight and raw materials. Freight presented the most significant challenge across the Group with the scarce availability of sea containers, driven by increased demand and Covid-19 related shipping delays, significantly increasing the freight rates paid, and reducing the Group's operating margin. Freight rates in FY2022 were significantly higher than the prior year with the average rate paid nearly triple that from the prior year, a situation further exacerbated by the timing of these increases which limited the ability of the business to renegotiate pricing with customers to recover the higher costs. Raw material costs have also increased significantly during FY2022, as a result of the Group's two major categories of material purchases, paper and polypropylene (used in the DG Americas ribbons and bows business) increasing in cost. The average prices paid for paper increased beyond 50% during the year and beyond 100% for polypropylene compared to that paid for the financial year ending March 2020.

The Group's financial performance was further impacted by the challenges experienced in the labour markets. The 'Great Resignation' which has been experienced across most economies of the world following the Covid-19 pandemic, also impacted the Group, particularly in the UK and the US. This resulted in driving up labour rates whilst also reducing operating efficiencies. As market rates increased, reflecting the lower availability of labour in the market, employee turnover within the Group also increased, particularly in our manufacturing and distribution facilities. As a result, the Group responded by increasing wages and salaries in order to remain competitive in the market and ensure operational continuity.

The disappointing financial performance in the year overshadows some notable commercial and operational achievements across the Group. In the US, DG Americas was again awarded "Supplier of the Year for Seasonal and Celebrations Products" by Walmart, and delivered further cost synergies from the acquisition of CSS Industries, Inc. acquisition and strong growth in certain product categories. In DG UK, the focus on sustainable product innovation was recognised by the receipt of Tesco's "Supplier Partner Award for Sustainability", while DG Europe delivered 26% revenue growth by working swiftly with customers to address the challenging market conditions. 

On 1 June 2022, the Company signed an amendment to the existing banking facilities primarily to extend the agreement to March 2024 and replace the existing covenants with two new covenants which run to March 2023. This was a necessary change, and a result, the Directors believe the Group has sufficient facilities that secure funding to support the working capital requirements of the business through the current financial year. As originally planned, the Group aims to complete a full refinancing in the second half of FY2023. More details relating to the amended and restated facility arrangements are included in the Detailed Financial Review.

BOARD CHANGES

In addition to the leadership change in DG Americas, the Group has also seen changes at Board level.

In September 2021 Stewart Gilliland, having joined the Board in July 2021, took over from John Charlton as Chair of the Group's Board. John stepped down from the Board, and we thank him for his service to the Board and the Group.

The Group announced in February 2022 that Paul Fineman, was stepping down from his role as Group CEO, after 14 years in the role. Paul's contribution to the Group has been significant and the Board thank him for his committed service and contribution. Also in February, Executive Board Director Lance Burn, who has been with the Group for over 10 years, took on the role of Interim Group COO. This follows his previous role as CEO of DG International.

From June 2022, Stewart has assumed the role of Interim Executive Chair, pending the appointment of a new Group CEO, for which the search is underway. 

The Group also welcomes Paul Bal who joined the Board in May 2022 following the resignation of Giles Willits in August 2021. The Board would like to thank Giles for his contribution during his time with the Group and particularly appreciate him working beyond his notice period to ensure the Group remained under steady leadership during this period of transition. Giles steps down from the Board at the end of June 2022.

In addition, the Group are pleased to welcome two new independent Non-Executive Directors: Clare Askem, who joined the Board in July 2021 and Claire Binyon, who joined in June 2022, replacing Elaine Bond who stepped down from the Board in December 2021. We thank Elaine for her service to the Group.

INCENTIVE SCHEME

On 19 February 2021, the Company put in place a Long-Term Incentive Value Creation Scheme (the "VCS"). The Remuneration Committee of the Company, alongside consultation with participants of the VCS, intends to cancel grants made under the VCS effective 28 June 2022.

The Remuneration Committee no longer believes the VCS aligns to the interests of employees and shareholders and therefore a more appropriate incentive scheme will be developed over the coming months.

OUTLOOK

The challenges faced this year, have caused the Group to review its priorities, plans and strategy. The sheer scale and speed of the change in the cost architecture of the Group's product ranges, particularly in DG Americas, has resulted in the need to challenge the assumptions that underpin the commercial operations to ensure that the business going forward is delivering profitable product ranges based on more sustainable cost structures. As a result, the Growth Plan announced in June 2021, which set out targets aiming to double the size of the Group by FY2025 is to be replaced by a strategy to restore profitable and sustainable growth. This is explored in more detail in the Strategy section below.

Looking ahead, macroeconomic challenges are expected to continue in the new financial year bringing further uncertainty. However, the Board are encouraged by the ongoing strength of the Group's customer relationships which has delivered an increased orderbook at over 71%, compared to 60% in the prior year. Operating margins are forecast to improve gradually over the year, particularly in DG Americas. However, these gains will be offset by higher finance charges resulting from increased borrowing costs following the recent facility amendment and the increased average debt to support the higher working capital required to deliver the FY2023 seasonal orderbook

Consequently, as announced in the April 2022 Trading Update the Group expects to deliver a marginal profit improvement in FY2023, reflecting progress being made in DG Americas, with the Adjusted loss before tax expected to be broadly flat on the FY2022 results and driven primarily by the increased finance costs in the year ahead. Average debt across the Group is expected to increase to c. $75-80 million over FY2023, compared with c. $15 million in FY2022 reflecting the expected higher working capital requirements throughout FY2023 as the Group navigates the outlined challenges. The Board aspires to return to paying dividends in line with its historic policy but based on the current outlook for the Group, the Board does not expect to be in a position to pay a dividend in relation to the 2023 financial year.

SUMMARY FY2022 FINANCIAL RESULTS 

Revenue increased by 11% to $965.1 million (FY2021: $873.2 million). Despite the increase in sales, the supply chain cost headwinds, most significantly related to freight and raw materials reduced Adjusted operating margins to 0.4% (FY2021: 4.3%). As a result, Adjusted loss before tax was $1.3 million compared to the prior year profit of $32.8 million and Adjusted loss per share was 7.7 cents (FY2021: Adjusted earnings per share of 22.2 cents) reflecting primarily the decline in adjusted earnings alongside a non-cash one-time reversal of UK deferred tax assets.

The Group finished the year with a net cash balance of $30.2 million (FY2021: $76.5 million) with average leverage for the year at 1.0 times (FY2021: 0.0 times) reflecting the reduced EBITDA as well as the additional working capital requirements in the year to fund the cost increases.

Adjusting items in FY2022 were a net credit of $3.5 million (FY2021: charge $18.1 million) reflecting the receipt of insurance proceeds from the prior year DG Americas IT security incident alongside reversals of lease impairments following the successful negotiation of exits and sub-leasing from some of the properties left vacant as part of the US integration following the acquisition of CSS. These credits were partially offset by costs associated with the US integration, expenses incurred in relation to aborted acquisitions and acquisition amortisation. 

The Group ended the year with a profit before tax at $2.2 million (FY2021: $14.7 million) decreased by $12.5 million year-on-year. Consequently, diluted loss per share was 3.3 cents (FY2021: diluted earnings per share of 8.4 cents).

In line with the Group's Trading Update in January 2022, the Board are not recommending a final dividend, and as a result the full year dividend is 1.25 pence (1.70 cents) comprising only the interim dividend announced at the half-year and paid in January 2022.

OUR STRATEGY

The experiences of the past year have exposed areas in the Group to be addressed and strengthened. Our immediate priorities are building a strong management team, repairing margins and reducing working capital levels, particularly in DG Americas. However, as the global business backdrop remains challenging and uncertain, the Group's medium-to-long term strategy is also being revisited by the new Board, with the intention of communicating it alongside the announcement of the FY2023 interim results later in this calendar year.

A key purpose of the new strategy will be to ensure that the Group emerges more resilient in its financial performance to the types of shocks encountered in FY2022, of which some of the impacts will persist into FY2023. This resilience will also provide a more secure platform for continued organic growth. 

Therefore, it is expected that the strategy will address the following objectives:

· reducing complexity and better leveraging expertise and scale, and improving mix: by reviewing the portfolio of categories, products, markets and activities in which the Group participates

· improving margins: through customer terms, product design, improved mix and more efficient procurement and processes

· a more resilient supply chain: through reviewing our sourcing approach, our supplier and customer terms and our manufacturing footprint

· lowering working capital levels: through the various initiatives already outlined, as well as improved forecasting and planning processes

· strong leadership and management teams at all levels of the Group: by revisiting the organisational design and fostering closer alignment that better leverages expertise across the Group as well as the Group's scale

REGIONAL HIGHLIGHTS

Overall, the Group grew revenue 11% with Adjusted operating profit down to $3.8 million (FY2021: $37.8 million) following the significant cost headwinds incurred by the Group. The split between our Americas and International divisions is as follows:

Design Group Americas

Our business in the US which makes up nearly 70% of the Group's total revenues, grew revenue by 7% to $659.0 million (FY2021: $614.0 million), driven particularly by Celebrations (up 16%), stationery and goods not-for-resale (up 21%) and creative play (up 78%). These increases were offset by a decline in craft sales compared to the previous year which had benefitted from the multiple lockdowns with consumers turning to crafting whilst spending more time at home. Total DG Americas sales in FY2022 were slightly ahead of proforma pre-Covid-19 FY2020 sales (i.e. including CSS FY2020 sales). Despite the sales growth, however, the DG Americas finished the year generating an Adjusted operating loss of $11.7 million, significantly down compared to the previous year's Adjusted operating profit of $19.9 million. This reflects primarily the significant cost headwinds in freight and raw material alongside labour wage rate inflation which more than offsets the actions taken by the business to mitigate the impact of the costs increases.

Despite the challenges experienced, the consolidation and integration of the DG Americas business post the acquisition of CSS at the end of the 2020 financial year continued to progress with total synergies in excess of the initial estimates. Significant projects that were undertaken during the year included the consolidation of our pattern-printing facilities, leading to the closure of the Manhattan, Kansas site. The Kansas site is fully-owned by the Group and at the end of the financial year was in the process of being actively marketed for sale. In April 2022, the Group completed on the sale for net proceeds of approximately $6.7 million, delivering a profit on disposal of $4.5 million. 

Furthermore, during the year, we were successful in sub-leasing certain legacy sites that had been exited as part of the CSS consolidation plan. This included the design office at Budd Lake, New Jersey where we have sub-let the majority of the property, with part of the original lease having been cancelled. Additionally, we agreed a sub-lease for the Plymouth Meeting office (the former head-office of the CSS business) for a significant proportion of the rental outflows. The Group also entered an agreement to sub-lease the Midway, Georgia site, which we exited as part of the distribution facilities consolidation project. All of these represent cash savings to the business with regards to rental outflows going forward.

However, certain other projects, which were anticipated to drive additional synergies for the Group in FY2022, had to be delayed because of the operational challenges and are now expected to be delivered in FY2023.

Further operational progress was also made in relation to the expansion of the Byhalia, Mississippi site where we have now combined the DG Americas division's printing, converting and wrap distribution into one site, with the final phase of this project, the move of our printing facilities completed in March 2022. This project will deliver cost efficiencies and aims to remove completely the need to outsource any of the DG Americas' future printing requirements. This year saw record levels of in-house printing volumes, in excess of one billion linear feet of wrap, with even higher volumes of converting achieved.

DG Americas has won Walmart's "Supplier of the Year for Seasonal and Celebrations Products" award for the third year, which is the first time this has been achieved by any of Walmart's suppliers. This is a very notable achievement highlighting our focus on customer delivery in the midst of a very challenging year. This gives us confidence that our strong customer relationships will help support our focus on restoring profitability in DG Americas.

As announced in January 2022, following the poor financial performance of DG Americas during FY2022, the Board decided to undertake a detailed commercial, operational and organisational review of that business. This began with an immediate change of leadership with Lance Burn taking over as Interim CEO of DG Americas whilst a permanent replacement is found, replacing Gideon Schlessinger, the former DG Americas CEO who left the Group in February 2022.

The review has, so far, identified the following three priorities that aim to drive an improvement in the financial performance of the DG Americas business back to an operating margin of c.5-6% by FY2025:

i) balancing customer pricing to supply chain cost inflation

ii) driving immediate and longer-term cost savings

iii) addressing the commercial proposition to align the product offering to the new price/cost environment by simplifying the commercial architecture and reducing inventories 

As part of this three-step plan one of the first actions has been a reorganisation of the commercial and operational teams to simplify our activities in DG Americas. Realigning the commercial and operational organisation will enable the team to focus resources to better navigate the short-term challenges expected over the coming year while also establishing a customer-facing and integrated organisation able to achieve success in the longer-term. The reorganisation will deliver significant cost savings in FY2023 but has incurred severance costs in FY2022 which have been treated as Adjusting items. More information on the restructure costs is detailed in the Adjusting items section below.

Following the reorganisation, the business has already been successful in mitigating a significant proportion of the ongoing cost pressures through discussions with customers while at the same time delivering operational cost savings such as reducing external storage and freight-handling expenditure.

Although there is a long way to go to restore the profitability of the DG Americas business, significant progress has already been made in the past four months, with further initiatives already underway, which are set to deliver further value in FY2023 and beyond. 

Post the year end, the Group purchased the remaining 49 per cent of Anker Play Products, LLC ('APP'), bringing its total ownership to 100 per cent. This was completed pursuant to the exercise of a put option by Maxwell Summers, Inc., the holder of the 49 per cent, which the Group was legally obliged to purchase under the APP limited liability company agreement dated 30 March 2017.

Design Group International

The DG International business saw strong growth in revenues in FY2022 across all regions, up 16% year-on-year at $307.9 million (FY2021: $265.3 million) and up 12% on FY2020 pre-Covid-19 sales. The most significant improvements were in DG Europe and DG Australia, demonstrating the 'bounce back' post the impact of Covid-19 on the prior year. Adjusted operating profit at $20.8 million was down $4.2 million (FY2021: $25.0 million) as inflationary cost headwinds could not be fully mitigated.

DG UK sales, whilst showing growth year-on-year, were still behind pre-Covid-19 levels as consumer demand has yet to fully recover. Freight, raw material and labour costs, resulted in the UK's Adjusted operating margin halving year-on-year. The focus on sustainable product ranges saw strong sales of the Eco Nature® brand where sales have grown over 200% compared to FY2021 and we continue to have an excellent orderbook into FY2023.

DG Europe delivered another good year with revenue up 26% on the prior year and profit only marginally down despite the cost inflation pressures experienced.

DG Australia, which of all our regions has had the most prolonged set of lockdowns as a result of Covid-19, has still grown sales by 15% over FY2021 and has delivered strong profits despite the decline in margins. It should also be noted that DG Australia benefitted from AUD $3.0 million of government assistance in FY2021 but had no assistance in the FY2022 year.

OUR PRODUCTS, BRANDS AND CHANNELS

The Group aims to be our retail partners' 'supplier of choice' and our diverse product portfolio is a good demonstration of this in action.

Despite the supply chain cost challenges experienced during the year, the Group saw growth in the Celebrations category as families and friends came back together to celebrate life's special occasions. This was also highlighted by the growth in the 'not-for-resale' consumables category which includes paper retail bags as the retail market re-opened fully.

During the pandemic, the advantage of our well-diversified product portfolio was evident as our 'stay-at-home' products in the Craft & creative play category kept families and individuals entertained throughout lockdowns. It was therefore not a surprise to see Craft & creative play volumes normalise compared to the higher levels experienced in the prior year. In particular, the Group saw a reduction in Craft revenues being partly offset by growth in Creative play, predominantly through our APP venture. Furthermore, as many families had been spending more time in their homes during the pandemic, sales of home accessories which are included in the Gifting category, had surged in FY2021, and now normalised in FY2022, post the pandemic.

The channels through which we sell are broadening. However, the majority of our sales remain through the Value and Mass channel which includes the world's biggest retailers, positioning us well for any downturn in consumer sentiments. We continue to strengthen our relationship with some of our biggest customers, including Walmart who accounted for over 20% of revenues during the year and once again have awarded us "Supplier of the Year for Seasonal and Celebrations Products" for a third year. Overall, our top 20 customers account for 68% of the Group's sales (FY2021: 67%).

The Group has significantly changed the mix of its sales since the CSS acquisition, which introduced a portfolio more based on Everyday. FY2022 has shown a continuation in that trend. This diversified mix of seasons helps alleviate the pressures on seasonal working capital requirements. 

A review of revenues by brand type highlights a margin-enhancing movement from Licensed products to Design Group / Generic brand products. In part this was due to the reduction in new licenses available during FY2022, but it also reflected our creative teams' focus on the innovative design and development of new and exciting products. 

SUSTAINABILITY

During FY2021, the Board launched the Group's sustainability framework 'helping design a better future', which defined the Group's approach by identifying three pillars that will deliver a more sustainable future. These three pillars are People, Product and Planet.

The Group's sustainability strategy is underpinned by our overall aim to minimise our impact on the environment by constantly challenging ourselves to find ways in which we can use our scale and people to influence and drive positive, proactive change. We understand that our impact and responsibilities extend beyond our immediate surroundings, into the lives of our employees, the environment, and our local and global communities. We continue to believe we have a moral as well as a commercial necessity to strive for the highest standards of ethical behaviour and to innovate to reduce the environmental impact of our operations to protect and preserve our planet, for this and future generations.

Over the past year we have continued to refine the Group's approach to sustainability and the associated key performance indicators ('KPIs'). During the year, the Board have spent time finalising our Sustainability KPIs and are pleased to report our performance against these and the progress the Group has made during the year as seen in the Group's FY2022 financial statements. We recognise that we are still at the early stages of our sustainability journey but as we move forward, we are focusing on further expanding the number of metrics we monitor whilst also looking to set targets by which to measure our success.

People - Our people are key to the business and in the challenging times we are facing, it is even more important to ensure that we are recognising and investing in the many talented individuals and teams across the Group.

Notable achievements in FY2022 include training opportunities such as our leadership development programmes for emerging leaders in DG UK and DG Americas and a women's development network providing training opportunities for aspiring female leaders in DG Americas. DG UK has trained mental health first aiders across the business and run a monthly health programme with both mental and physical challenges for employees to get involved with.

Product - There is no question that the nature of our products requires us to be innovative in our design to create more sustainable collections to promote to our customers and theirs.

Notable achievements in FY2022 include DG UK winning Tesco's Supplier Partner Award for Sustainability for the supply of our Eco Nature® products, with selected lines rolled out in 750 stores nationwide following the successful trial last year. The development of our first to market shrink-free wrapping paper, which eliminates plastic waste through the use of recyclable paper labels, is another success story in the UK with Sainsburys using only shrink-free gift wrap ranges for Christmas 2021.

Planet - This year the Group formally recognised Climate Change as a principal risk (formerly an emerging risk) as we know we have a responsibility to protect and preserve our planet and its environment.

Notable achievements in FY2022 include DG Europe being awarded a climate neutral status on their gift wrap collections following investment in innovative Smartwrap™ technology. This, coupled with DG UK and DG Europe powering their manufacturing, warehousing, and office facilities with 100% renewable electricity, drives us forward on our journey towards net zero emissions.

DETAILED FINANCIAL REVIEW

The Group's financial results summarised below now include the credit/charge associated with share-based payments, both within the reported and the adjusted results. They are no longer treated as an Adjusting Item. The prior year has been restated to include the impact of this change in accounting presentation.

Revenue for the year ended 31 March 2022 grew 11% to $965.1 million (FY2021: $873.2 million) driven by strong demand from customers post Covid-19, with proforma sales up 7% on FY2020. Constant currency Group revenues grew 10% year-on-year. Adjusted operating profit saw a significant decrease year-on-year to $3.8 million (FY2021: $37.8 million) reflecting the impact of significant cost headwinds incurred by the Group which reduced Adjusted gross margin to 12.4% (FY2021: 17.5%). Adjusted overheads as a percentage of revenue decreased back to pre-pandemic levels at 12.0% (FY2021: 13.2%). Adjusted operating margin at 0.4% (FY2021: 4.3%) was down significantly year-on-year reflecting the lower gross margins. Overall Adjusted loss before tax was $1.3 million (FY2021: profit before tax $32.8 million).

The Group finished the year with a reported profit before tax of $2.2 million (FY2021: $14.7 million). This is higher than the Adjusted loss before tax, reflecting the Adjusting items net credit in the current year of $3.5 million compared to $18.1 million net charge in the prior year. Further details of the Adjusting items are detailed below.

Adjusted loss after tax was $4.6 million (FY2021: Adjusted profit after tax of $24.0 million) with loss after tax for the year at $0.3 million (FY2021: profit after tax of $10.4 million).

Finance expenses

Finance costs were marginally higher than the prior year at $5.5 million (FY2021: $5.2 million) resulting from higher underlying finance costs at $2.0 million (FY2021: $1.7 million) which reflected the increase in working capital during the year. The IFRS 16 related lease liability interest was in line with the prior year at $3.5 million, of which $0.4 million (FY2021: $0.2 million) was treated as an Adjusting item as it related to exited properties as part of the DG Americas integration. 

Adjusting items

Adjusting items are material items of an unusual or non-recurring nature which represent gains or losses which are separately presented by virtue of their nature, size and/or incidence. The Group's Adjusting items in the year to 31 March 2022 result in a net credit of $3.5 million compared to a net charge of $18.1 million in the prior year. The main items relate to the receipt of insurance proceeds relating to the FY2021 IT security incident, along with the reversal of asset impairments netted primarily against aborted acquisition costs incurred during the year. The treatment of share-based payment credits/charges has changed in the year such that they no longer form part of Adjusting items, with the comparatives restated. Details of all Adjusting items are included below:

Losses/(gains) and transaction costs relating to acquisitions and disposals of businesses - $3.7 million (FY2021: $0.3 million)

In the year, the final tranche of acquisition-related employee payments of $0.3 million which locked-in and incentivised legacy talent relating to the Impact Innovations Inc. acquisition in 2019 were incurred as we passed the three-year anniversary of the transaction. There will be no further costs associated with these incentive payments.

The balance of these costs in the year have been incurred on potential M&A projects before the decision not to proceed was taken. These all related to advisor costs associated with the relevant projects.

Acquisition integration and restructuring costs - credit $1.7 million (FY2021: charge $15.4 million)

In order to realise synergies from acquisitions, integration projects are undertaken that aim to deliver future savings and efficiencies for the Group. These are projects outside of the normal operations of the business and typically incur one-time costs to ensure their successful implementation. As such the costs associated with projects of this nature are included as Adjusting items. The costs incurred in FY2022 relate to the following DG Americas restructuring initiatives:

Site closures - As announced in previous years, CSS was acquired with a large portfolio of owned and leased sites, and part of the integration project included an assessment of the requirement for these sites as the Group consolidated its footprint. As sites were vacated and closed, the lease assets associated with those properties were impaired in the event that no prospective sub-tenants could be found. In addition, there were provisions for costs of moving and consolidating sites. These costs were all treated as Adjusting items in the prior year.

In the current year, however, we have successfully negotiated the return of part of the lease associated with the Budd Lake, New Jersey property as well as sub-let both the Midway, Georgia property and the Plymouth Meeting, Pennsylvania property which were impaired in the acquisition balance sheet of CSS. This has resulted in a write- back of the impairments previously taken in respect of these properties totalling $2.8 million in the year. All sub-lease income is also treated as an Adjusting item.

All costs (including rates and utilities) associated with the continuation of being responsible for a property no longer in the Group's use are taken as an Adjusting item, with a provision made on vacating. In the event of any sub-letting (for example with the Plymouth Meeting site), this provision has been released back to Adjusting items once the responsibility for the costs passes to the new tenants.

In the year costs were incurred in relation to the closure of the Manhattan, Kansas site also inherited as part of the CSS acquisition, and the consolidation of those operations into the Neenah, Wisconsin site. The facility in Kansas was a legacy McCalls' facility for which the Group holds the freehold title, and Neenah was a legacy Simplicity facility which is leased and run by a third party (The Outlook Group). The costs include severance costs, incentive payments to critical workforce to remain with the business during transition, inventory write-off and destruction, fixed asset disposal costs and labour and freight costs associated with the move to Neenah.

The Kansas property was being actively marketed since the decision to vacate the site was made. In April 2022, the sale of the site was completed, resulting in an approximate accounting gain of c$4.5 million, which will be accounted for in FY2023 Adjusting items.

Wrap manufacturing consolidation - Costs have been incurred in the year relating to the project to move wrap manufacturing (both printing and converting) from the Memphis site to Byhalia, consolidating all wrap manufacturing under one roof.

DG Americas review - The Group has already started to implement plans in relation to the review of the US business, and therefore costs such as staff severance and incremental costs associated with the travel and accommodation of the Interim DG Americas CEO have been treated as Adjusting items.

(Reversal of impairment)/impairment of assets - credit $2.6 million (FY2021: credit $5.8 million)

In light of the impact of Covid-19 on the business, a review of inventory, trade receivables and fixed assets was undertaken as at 31 March 2020 at the onset of the pandemic. Inventories were assessed at 31 March 2020 for their net realisable value, and an impairment of $7.4 million was taken. Similarly trade receivables were assessed for their expected credit loss in line with IFRS 9 and an impairment of $3.8 million was taken. Finally, the UK's bag line machines were impaired based on expected future cash flows associated with the 'not-for-resale' business. The assessment has been continued throughout FY2021 and into FY2022.

During the FY2022 year, the $2.6 million credit relates solely to reversal of previous impairments no longer required.

Incremental Covid-19 costs - $nil (FY2021: $1.5 million)

As a result of the Covid-19 outbreak the Group was affected in every region. Certain direct labour costs that related to Covid-19 and were incremental in FY2021, of $1.5 million, were included in Adjusting items. The most significant element of these costs relate to additional 'hazard pay' labour costs across our manufacturing facilities in the USA and Mexico in order to ensure our employees returned to work. No such costs have been incurred in FY2022.

IT security incident (income)/costs - credit $5.7 million (FY2021: charge $2.2 million)

The IT security incident which occurred in DG Americas in FY2021 resulted in one-off costs being incurred during FY2021 which were treated as Adjusting items to the value of $2.2 million. This did not include lost profits resulting from downtime in the business. During FY2022 two insurance pay-outs were received, totalling $5.7 million (net of a small amount relating to advisor costs associated with the claim) which have been recognised as Adjusting items.

Amortisation of acquired intangibles - $2.8 million (FY2021: $4.5 million)

Under IFRS, as part of the acquisition of a company, it is necessary to identify intangible assets such as customer lists and brands which form part of the intangible value of the acquired business but which are not part of the acquired balance sheet. These intangible assets are then amortised to the income statement over their useful economic lives. These are not considered operational costs relating to the running of the acquired business and are directly related to the accounting for the acquisition. These include tradenames and brands acquired as part of the acquisition of Impact Innovations Inc. and CSS Industries Inc. in the USA. As such we include these as Adjusting items. Note that the trade names acquired as part of the acquisition of Biscay Pty Greetings Ltd in Australia were fully amortised in the prior year.

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 Group's Adjusted tax charge for the year is $3.3 million (FY2021: $8.8 million) despite the losses incurred in the year. A significant element of this charge relates to the de-recognition of brought forward deferred tax assets relating to the UK business. The de-recognition has occurred as a result of the assessment of future taxable profits, resulting from growing costs in the plc business, against which the asset could unwind. The remainder relates to a tax charge on the profitable businesses offset by a tax credit associated with losses generated in the year in the USA. 

Tax paid in the year was $5.2 million (FY2021: $2.2 million). This is $3.0 million higher than the prior year reflecting higher profits in the Group's tax-paying jurisdictions as well as catch up payments in both Australia and Europe which were required in relation to FY2021 where taxable profits were better than originally anticipated and associated cash tax payments were estimated. 

(Loss) / Earnings per share

Adjusted loss per share at 7.7 cents (FY2021: Adjusted earnings per share 22.2 cents) is lower year-on-year driven by the significantly lower Adjusted earnings attributable to equity holders of the Company primarily reflecting the one-time non-cash reversal of deferred tax assets in the year. Diluted loss per share at 3.3 cents (FY2021: diluted earnings per share of 8.4 cents) are marginally better than Adjusted reflecting the Adjusting items credit in the FY2022 year. The reconciliation between reported and Adjusted loss per share is shown below:

Dividend

The Board are not recommending a final dividend in light for the Group's second half trading performance. As a result, the full year dividend is 1.68 cents (1.25 pence) (FY2021: 11.8 cents, 8.75 pence) based on the interim dividend which was paid in January 2022.

Return on capital employed

Improving the return on capital employed continues to be a key target for each of the business units, however given the challenges faced this year, the Group saw the return on capital employed reduce year-on-year to 1.3% (FY2021: 15.8%) reflecting the reduced profitability and increased working capital requirements.

Cash flow and net cash

The Group ended the year with its net cash balance at $30.2 million (FY2021: $76.5 million). The decrease in cash year-on-year is a direct result of the reduced EBITDA contribution and the increased working capital outflow resulting in Adjusted cash generated from operations significantly lower at $5.8 million (FY2021: $68.4 million).

Working capital

The working capital cash outflow in the year is driven primarily by the inventory-build of $56.9 million as the Group managed the increasing raw material cost, particularly in the last quarter of FY2022, and built volume to ensure availability. As a result, raw materials held at the end of the year were 62% higher in value than the prior year-end. Finished goods at the end of the year were 31% higher than the prior year primarily reflecting the increased cost to purchase or manufacture finished goods.

More than ever, the Group continues to actively track debtors and credit risk profiles of all of our customers 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 (FY2021: 0.5%), reflecting our continued proactive approach to mitigating credit risk exposure.

Capital expenditure

Capital expenditure in the year remained in line with the prior year at $8.3 million (FY2021: $8.1 million). There were no significant capital projects in the year to 31 March 2022. Capital expenditure in FY2023 is expected to remain in line with the current year.

Average leverage

Average leverage is a key measure for the Group measuring the seasonality of our working capital demands across the business and the need to ensure the Group manages its peak funding requirements within its bank facility limits. As at 31 March 2022 average leverage was 1.0 times, up from 0.0 times in the prior year. This reflects the decline in Adjusted EBITDA compared to the prior year and an increase in average debt from $2.2 million in FY2021 to $17.2 million in FY2022.

Our measure of average leverage excludes lease liabilities from our measurement of debt and we reduce Adjusted EBITDA for lease payments. This mirrors the approach taken by our 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

The Group maintains its banking facilities through a club of five banks chosen to reflect and support the geographical spread of the Group. The banks within the club are: HSBC, NatWest, Citigroup (who replaced BNP Paribas), Truist Bank (as successor by merger to SunTrust Bank) and PNC.

As previously announced, on 1 June 2022 the Company extended the term of its existing banking agreement to 31 March 2024. As part of this extension, covenants have been revised for the period to 31 March 2023. The amended facilities comprise:

· A revolving credit facility ('RCF A') which has reduced from $95.0 million to $90.0 million

· A further flexible revolving credit facility ('RCF B') with availability varying from month to month of up to a maximum level of £92.0 million (reduced from a maximum level of £130.0 million)

The Group also have access to invoice financing in Hong Kong with a maximum limit of $18.0 million, depending on the level of eligible receivables alongside local overdraft facilities. In total, accessible bank finance facilities are considered sufficient to cover the Group's peak requirements.

The revised covenants (measured on pre IFRS 16 accounting definitions), which operate for a maximum period to 31 March 2023 are as follows:

· Minimum Adjusted earnings before interest, depreciation and amortisation (Adjusted EBITDA), as defined by the banking facility, measured quarterly at the end of June, September, December and March, which requires the Group to be within $10.0 million of its Adjusted EBITDA budget at each quarter end, based on the last twelve-month EBITDA performance at each measurement point; and

· Minimum liquidity level, which requires the Group to maintain a minimum of $35.0 million headroom to the maximum available facility on a monthly basis

The amendment also stipulates that any dividends to be paid by the Group during the remaining term of the agreement will require majority lender approval. Banking and legal fees associated with the amendment and extension of the facility totalled c.$1 million.

From April 2023 the Group will revert to the previous covenants which are as follows:

· Interest cover, being the ratio of Adjusted EBITDA, as defined by the banking facility, to interest on a rolling twelve month basis; and

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

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.

The Group intends to complete a more comprehensive refinancing exercise in the second half of FY2023.

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 Group's reporting currency is US dollars in light of the fact that a significant proportion of the Group's revenues and profits are in US dollars. There remains a smaller part of the Group whose functional currency is something other than US dollar. However, the overall impact on revenue and profits from currency movements in FY2022 when compared to FY2021 is not significant relative to the balances. Revenue in FY2021 would have been $5.0 million higher if translated at FY2022 FX rates, with FY2021 Adjusted profit before tax $0.1 million higher.

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 adopts an active hedging policy to ensure 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.

Financial position and going concern basis

The Group's net assets decreased by $22.3 million to $369.7 million at 31 March 2022 (FY2021: $392.0 million) primarily reflecting the reduced cash held at the end of the year given the higher working capital requirements in the last quarter resulting from inventory build and ongoing cost pressures.

As at the 31 March 2022 balance sheet date, in light of the FY2022 results and the outlook for FY2023, the Directors have paid particularly close attention to their assessment of going concern in preparation of these financial statements. The Group is appropriately capitalised at the year end with a net cash position of $30.2 million ($50.2 million of cash and $20.4 million of bank overdraft excluding loan arrangement fees).

Going concern forecasts have been produced using the Group's FY2023 and FY2024 budgets and plans. These forecasts which have been produced and reviewed in detail by the Board and take into account the seasonal working capital cycle of the business, have been sensitised to reflect severe but plausible adverse downturns in the current assumptions including a miss in achieving the DG Americas FY2023 plan as well as increased inflationary pressures in the DG International business, beyond those risks already factored into the budgets and plans. The base forecasts and additional sensitivity analysis have been tested against the amended banking covenants to March 2023 described above as well as beyond this time point as and when the covenants revert back to the original covenants. The 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 and will also be compliant with all covenants within this time frame and beyond. 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 as the Group has sufficient 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 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 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/(loss) - Profit/(loss) before finance charges, tax and Adjusting items

· Adjusted profit/(loss) before tax - Profit/(loss) before tax and Adjusting items

· Adjusted profit/(loss) after tax - Profit/(loss) after tax before Adjusting items and associated tax effect

· Adjusted (loss)/earnings per share - Fully diluted (loss)/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 - Adjusted operating profit divided by finance charges (excluding IFRS 16 and one-time interest income)

Adjusting Items

Further details of the items categorised as Adjusting items are disclosed in more detail in note 3. Note that all prior year comparatives have been restated to include the share-based payments credit/charge within adjusted metrics.

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

Statement of directors' responsibilities in respect of the financial statements

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group financial statements in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and applicable law).

Under company law, directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing the financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• state whether applicable international accounting standards in conformity with the requirements of the Companies Act 2006 have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 102 have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements;

• make judgements and accounting estimates that are reasonable and prudent; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006.

The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmations

The directors consider that the annual report and the financial statements and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the group's and company's position and performance, business model and strategy.

Each of the directors, whose names and functions are listed in the Board of Directors confirm that, to the best of their knowledge:

• the group financial statements, which have been prepared in accordance with UK-adopted international

accounting standards, give a true and fair view of the assets, liabilities, financial position and loss of the group;

• the company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 102, give a true and fair view of the assets, liabilities and financial position of the company; and

• the Chief Financial Officer's Review includes a fair review of the development and performance of the business and the position of the group and company, together with a description of the principal risks and uncertainties that it faces.

In the case of each director in office at the date the directors' report is approved:

• so far as the director is aware, there is no relevant audit information of which the group's and company's auditors are unaware; and

• they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the group's and company's auditors are aware of that information.

CONSOLIDATED INCOME STATEMENT

YEAR ENDED 31 MARCH 2022

(Loss)/earnings per ordinary share

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 MARCH 2022

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 MARCH 2022

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 $1.8 million relating to the capital redemption reserve has been included within the column of share premium and capital redemption reserve in the balances at the end of the year (2021: $1.8 million). The only movement in this balance relates to foreign exchange.

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. Share capital, share premium, capital redemption reserve, merger reserve and hedging reserve are translated into US dollars at the rates of exchange at each balance sheet date and the resulting cumulative exchange differences are included in other reserves.

CONSOLIDATED BALANCE SHEET

AS AT 31 MARCH 2022

The consolidated financial statements were approved by the Board of Directors on 27 June 2022 and were signed on its behalf by:

Giles Willits

Director

CONSOLIDATED CASH FLOW STATEMENT

YEAR ENDED 31 MARCH 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2022

1 Accounting policies

a. Basis of preparation

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards ('UK IFRS'), with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK IFRS in its consolidated financial statements on 1 April 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework. The consolidated financial statements have been prepared in accordance with UK IFRS and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

The preparation of financial statements that conform with adopted UK 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. The estimates and underlying assumptions are reviewed on an ongoing basis (see Critical accounting judgements and estimates section below). Revisions to accounting estimates are recognised in the period in which the estimate is revised and future periods if relevant.

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

The financial information set out in this document does not constitute statutory accounts for IG Design Group plc for the year ended 31 March 2022 but is extracted from the Annual Report and Financial Statements. The Annual Report and Financial Statements 2022 will be delivered to the Registrar of Companies in due course. The auditors' report on those accounts was unqualified and neither drew attention to any matters by way of emphasis nor contained a statement under either Section 498(2) of Companies Act 2006 (accounting records or returns inadequate or accounts not agreeing with records and returns), or section 498(3) of Companies Act 2006 (failure to obtain necessary information and explanations).

Re-presentation of Adjusting items

Share based payments

The treatment of share-based payment credits/charges has changed in the year such that they no longer form part of Adjusting items in line with best practice guidance. The comparative figures relating to Adjusting items have been restated to exclude share-based payments where necessary in these financial statements.

Restatement of comparative amounts

Financial instruments

There has been a restatement between gross trade receivables and provision for doubtful debts of $6.6 million in note 24, Financial Instruments, due to misclassification in the prior year's data.

Presentation currency

The presentation currency of the Group is US dollars. 

The functional currency of the Parent Company remains as pound sterling as it is located in the United Kingdom and substantially all of its cash flows, assets and liabilities are denominated in pound sterling, as well as its share capital. As such, the Parent Company's functional and presentational currency differs to that of the Group's reporting currency.

Seasonality of the business

The business of the Group is seasonal and although revenues accrue relatively evenly in both halves of the year, working capital requirements including inventory levels increase steadily in the first half from July and peak in October as manufacturing and distribution of Christmas products builds ahead of shipping. The second half of the year sees the borrowing of the Group decline and move to typically a cash positive position as the Group collects its receivables through January to March.

Going concern

Information regarding the financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the detailed financial review above. 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, Citigroup (who replaced BNP Paribas), Truist Bank (as successor by merger to SunTrust Bank) 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. ('CSS'). The facilities were then further extended in May 2021.

In June 2022, the facilities were amended and extended through to March 2024. The amendment to the terms of the banking agreement comprise of a revolving credit facility ('RCF') of $90.0 million (reduced from $95.0 million) and a further flexible RCF of up to £92.0 million (reduced from a maximum level of £130.0 million) to meet the Group's working capital requirements during peak manufacturing and selling season. The financial covenants were also amended - see note 14 for more details on these.

We also have access to supplier financing arrangements from certain customers which we utilise at certain times of the year. The largest of these supplier financing arrangements are subject to the continuing support of the customers' banking partners and therefore could be withdrawn at short notice.

The Group financial statements have been prepared on a going concern basis as the Directors have a reasonable expectation that the Group has adequate resources to continue trading for a period of at least 12 months from the date of this report based on an assessment of the overall position and future forecasts for the going concern period. This assessment has also considered the overall level of Group borrowings and covenant requirements, the flexibility of the Group to react to changing market conditions and ability to appropriately manage any business risks.

The Directors have prepared detailed plans and forecasts from the date of signing these financial statements up to 30 June 2023. These forecasts reflect the fact that the Group continued to generate strong sales growth this year, albeit there were significant cost pressures in the supply chain impacting profitability that are assumed to continue in the going concern period. They also reflect the seasonal operating cycle of the business and a recovery associated with the DG Americas plan.

These forecasts have been sensitised to reflect severe but plausible adverse downturns in the current assumptions. Specifically, the severe but plausible downside scenario has taken account of the following risks:

· A range of pressures which could affect the attainment of the DG Americas plan including inflation in various parts of the business, sales shortfalls, sales timing and a disruption event such as a short term manufacturing disruption leading to increased temporary labour costs; and

· Additional inflationary pressure in the DG International business, noting that the potential risks in a severe but plausible downside scenario are not considered to be as significant as in the DG Americas business.

In the severe but plausible scenario modelled, there remains significant headroom in our forecast liquidity and sufficient headroom under the covenant requirements for both the amended covenants to March 2023 and the reverted covenants from June 2023 onwards.

Based on this assessment, the Directors have formed a judgement that there is a reasonable expectation the Group will have adequate resources to continue in operational existence for the foreseeable future.

Changes in accounting policies

There have been no changes to accounting policies during the year.

Other standards and interpretations

The Group also adopted the following new pronouncements at the start of the year, which did not have any material impact on the Group's financial statements:

· Amendments to IFRS 16 Leases - Covid-19-Related rent concessions

· Amendments to IFRS 4 Insurance Contracts - deferral of IFRS 9

· Amendments to IFRS 7, IFRS 4 and IFRS 16 interest rate benchmark reform - phase 2

Certain new accounting standards and interpretations have been published that are not yet effective and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

b. Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the 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.

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 presented in US dollars.

(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 the functional currency of the entity 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 US dollars 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.

(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 and put options over non-controlling interests) 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

The movements in the fair value of unhedged derivatives are charged/credited to the income statement.

The potential cash payments relating to put options issued by the Group over the non-controlling interest of subsidiary companies acquired are measured at estimated fair value and accounted for as financial liabilities. Subsequent to initial recognition, any changes to the carrying amount of non-controlling interest put option liabilities are recognised through equity.

e. Cash and cash equivalents

Cash and cash equivalents comprise cash balances. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management 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 twelve 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

- 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.

Where the Group identifies assets held for sale, they are held at the lower of current value and fair value less costs to sell.

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

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.

Leases greater than twelve 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.

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 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.

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.

Rentals associated with leases that are of low value or less than twelve 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.

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.

Right-of-use assets are impaired in line with the impairment accounting policy below.

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 are 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 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

Computer software 3-5 years

Trade names 3-5 years

Customer relationships 3-15 years

Other intangibles 3-5 years

Customer relationships are wide ranging in useful economic lives, from shorter relationships derived from smaller acquisitions to the long relationship with Walmart acquired as part of the acquisition of Impact Innovations, Inc. ('Impact').

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 ('CGU') 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 are 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.

The reversal of an impairment loss should be recognised if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment test was carried out. Impairment losses relating to goodwill are not permitted to be reversed.

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. For acquisitions, inventory acquired will be assessed for fair value in accordance with IFRS 3 and if applicable an uplift applied to stock on hand relating to sales orders already attached to the acquired stock. The unwind of the uplift in value is treated as an Adjusting item.

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 date.

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 impaired 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 recognises revenue on sales of Celebrations, Craft & creative play, Stationery, Gifting and 'Not‑for‑resale' consumable products across two reporting 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. 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 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 based on sales made in the 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 a '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. In this situation, 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, interest on lease liabilities, 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 is party to supplier financing arrangements with one of its 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, 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.

In the event that any scheme is cancelled the Group recognises immediately the amount that otherwise would have been recognised for services received over the remainder of the vesting period. The Group calculates this charge based on the number of the awards expected to achieve the performance conditions immediately before the award was cancelled.

Employer 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 those already vested.

Deferred tax assets are recognised in respect of share-based payment schemes.

u. Investment in own shares

The shares held in the Group's Employee Benefit Trust (IG Employee Share Trustee Limited) 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, other than those associated with Covid-19, are credited to the income statement so as to match them with the expenditure to which they relate. Covid-19 related grants are recognised gross in either other operating income or cost of sales.

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/(loss), Adjusted profit/(loss) before tax, Adjusted profit/(loss) after tax and Adjusted earnings/(loss) per share.

Adjusting items are items that are material and/or, 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) including fair value adjustments to acquisitions.

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 prior year figures at the current year 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.

The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

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.

Accounting estimates

(i) Intangible assets

Goodwill is not amortised but is tested annually for impairment, along with the finite-lived intangible assets and other assets of the Group's CGUs. Tests for impairment are based on discounted cash flows and assumptions (including discount rates 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 CGU or groups of CGUs. 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 that they are recoverable based on profit projections for future years. Management make a judgement in respect of the length of future cash flows against which to assess the future taxable profits and this aligns to other assessments that use similar forecasts including impairment. 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 certain tax assets within the Group and has adequate provision to cover all tax risks across all business operations. See note 11 for more details.

(iii) Lease asset impairments

The Group has impaired the right‑of‑use assets in respect of several properties that the Group has exited as part of the ongoing integration following the CSS acquisition. This is based on the properties themselves being a CGU in line with IAS 36 as they are being actively marketed for sub-tenants. The impairments are assessed at each reporting date and if necessary reversed should there be available sub-tenants for the properties, or an early termination had been agreed with the landlord.

As at 31 March 2022, the Group had offers agreed with sub-tenants on two of the seven properties that had been impaired and a portion of another property which terminated the lease earlier than the expiry date. This resulted in $2.5 million of impairment reversal in the year. For the remaining properties the Group had no offers from potential sub-tenants and given that this position is expected to continue for the foreseeable future, these leased properties remain impaired in full. As at 31 March 2022, if there was a reversal of the remaining impaired right-of-use assets, the right-of-use assets would increase by $6.5 million (2021: $13.1 million).

(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.

The 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. This is not a precise estimate and is based on best data at the time of recognition. Regular monitoring of stock levels, the ageing of stock and the level of the provision is carried out by the Directors to reassess this estimate. The assumptions made in relation to the current period are consistent with those in the prior year. As at 31 March 2022, inventory provisions were $38.4 million against a gross inventory value of $269.3 million (2021: $46.3 million provision, $222.5 million gross inventory value). This provision estimate is subject to potential material change, for example if market conditions change because expected customer demand fluctuates, or shipping delays reduce our ability to deliver on time and in full. A 10% change in the provision would create a difference of approximately $4.0 million (2021: $4.0 million).

2 Segmental information

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

The business operates under two reporting segments which are reported to, and evaluated by, the Chief Operating Decision Makers for the Group. The DG Americas segment includes overseas operations in Asia, Australia, UK, India and Mexico, being the overseas entities of US companies. The DG International segment comprises the consolidation of the separately owned UK, European and Australian businesses.

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 overseas entities for the Americas operating segment.