Design Group Regulatory News (IGR)

20 June 2023

IG Design Group PLC

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

Results for the year ended 31 March 2023

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 audited results for the year ended 31 March 2023.

Highlights for the year ended 31 March 2023

(a) Adjusted results exclude the impact of adjusting items - for further detail see alternative performance measures reconciliation within the detailed financial review

· Adjusted profit before tax was significantly ahead of initial expectations mostly driven by strong trading in Europe, and further benefits from ongoing restructuring initiatives in the US

· We delivered on customer commitments, but reported revenues were down by nearly 8% (4% on constant currency) mainly as a result of adverse foreign currency movements, lower second-half volumes in DG Americas and the strategic decision to continue to exit from unprofitable contracts in the US

· Margins improved due to continued efforts to manage costs, simplify the business and some recovery of prices in the face of continued high cost inflation

· Reported profit before tax was significantly impacted by a non-cash, one-off write-down of the historic goodwill in the UK business

· The Group remained net cash positive at year-end, at $50.5 million, with the strong year-on-year improvement reflecting better working capital management

· In line with the Board's previous guidance, no dividend is being declared for the year (FY2022: 1.25 pence)

· Post year end, the Group announced that it had completed the refinancing of its banking facilities to June 2026 which has secured access to appropriate financing to support the seasonal working capital cycle

· Board changes include the appointment of Paul Bal, previously Group CFO, as Group CEO from April 2023; Rohan Cummings joins as Group CFO from July 2023; Lance Burn stepped down as Interim Group COO at the end of March 2023; and Claire Binyon joined as an independent Non-Executive Director in June 2022

· Senior management team strengthened with the appointments of new CEO and CFO for DG Americas and two new MDs within the DG International businesses

· Supported our workforce through additional cost of living enhancements

Outlook

· The immediate priority of the Group remains continued recovery in its financial performance with particular focus on DG Americas, where the leadership team has been strengthened

· The FY2024 orderbook continues to build, at 62% of budgeted revenues (FY2022: 71%), reflecting a return to more normalised phasing of orders between H1 and H2 than experienced last year, as customers expect more stable supply chains

· Inflation remains an issue, with pricing challenges in all markets, but especially so in the UK

· A new strategy to restore sustainable, profitable growth is being developed and cascaded through the Group

· During FY2024, the Board anticipates continued progress with its aspiration to return to pre-pandemic operating profit margins by the end of FY2025

Stewart Gilliland, Non-Executive Chair, commented:

"FY2023 was a strong year of recovery and delivery by the Group, notwithstanding continued economic challenges across our markets. Last year's decision to place stronger, immediate focus on recovering margins, simplifying the business model and better managing working capital delivered results ahead of our expectations. I thank our teams across the Group for their extraordinary efforts. Our aspiration to return to pre-pandemic operating margins by the end of FY2025 remains, and we hope to continue growing profits and margins in FY2024 despite the continuing tough market back-drop and the uncertainty it is creating for our customers and our consumers.

We have made good progress in strengthening our leadership teams, both at Board and local level, and especially so in the US. We have been able to attract high calibre individuals as well as promote talent from within. With more stability in future leadership, we are able to outline a new strategy designed to return the Group to more sustainable and profitable growth, building on the recovery that is underway. We have a refreshed team, scale that we can leverage, very strong customer relationships, and have recently secured longer-term financing, all of which gives us a stronger foundation from which to build a more resilient business."

EXECUTIVE REVIEW

Overview

Twelve months ago, as we looked at the coming year, it was expected to be a year where our focus would be on stabilising the Group's falling profitability. It is therefore pleasing to report that during the year ended 31 March 2023 we have stabilised profitability, delivering a significant improvement in adjusted profit before tax ($9.2 million up from $1.3 million loss in the prior year). This highlights a good start in the journey to turnaround performance, growing profitability and margins as a result.

Whilst FY2023 was not without its challenges, as consumer demand weakened in the last quarter in some markets and paper and energy-driven costs continued to rise, the Group has delivered adjusted profit growth ahead of our earlier expectations. The adjusted operating profit more than quadrupled to $16.1 million, with the reported operating loss at $12.0 million which includes a non-cash $29.1 million impairment of goodwill. Adjusted operating profit margins similarly more than quadrupled to 1.8%. The Group remains on track to meet its aspiration to return to pre-pandemic operating profit margins by FY2025.

The two main drivers behind this result were stronger than anticipated trading within DG International, notably in continental Europe, and benefits coming from the turnaround initiatives underway in the DG Americas division which resulted in the division returning to profitability. During the year we have strengthened the DG Americas leadership team and are currently in the process of doing the same in DG international. These improvements more than offset a weakening in the UK market in the last quarter of the year, predominantly driven by lower consumer demand, and will have consequences for the outlook for the year ahead. It has also led to a significant non-cash write-down of historically acquired goodwill in that market. Adverse currency movements and softening of demand in some of our markets are reflected in the year's revenue performance. Group revenue was down 4% in constant currency (8% in reported terms) versus prior year. Much of the revenue decline was experienced in DG Americas, where revenue was 10% lower. This resulted from a combination of the strategic decision to exit loss-making business, as well as lower volume in the second half of the year. DG International, though down 3% in reported revenue, grew 10% in constant currency with growth in all markets on a full-year basis.

The improved profit generation has been complemented by better than expected cash generation, with the Group ending the year with a net cash balance of $50.5 million, a year-on-year improvement of over $20.0 million. Improving working capital management has been a focus for the year, and this should continue to deliver further benefits in the year ahead. We have just completed a re-financing of the Group, which secures the funding of our working capital cycle for at least 3 years. Further details of the new arrangements are set out in note 15.

As previously anticipated, in light of the Group's current position on the path to profit recovery and the challenges around reduced consumer demand, the Board is not proposing a dividend in respect of the year ended 31 March 2023.

Board changes

Paul Bal was appointed Group Chief Financial Officer (CFO), joining the Board in May 2022. Giles Willits, the outgoing CFO left at the end of June 2022.

In November 2022, following an extensive selection process involving internal and external candidates, Paul Bal was appointed Group Chief Executive Officer (CEO), effective from April 2023 when the Chair of the Board, Stewart Gilliland, stepped down from the Interim Executive Chair role that he had assumed in June 2022.

Rohan Cummings will be joining the Board in July 2023 as the new Group CFO. Rohan joins the Group from Devro Limited (formerly Devro plc which was listed on the LSE), a global leader in the supply of collagen casing and films, where he has been the group's CFO since 2020. Rohan has extensive PLC experience, as well as significant commercial and strategic capabilities having worked in complex global operations.

Lance Burn, Interim Chief Operating Officer (COO), stepped down from the Board at the end of March 2023, and will stay with the Group to the end of October 2023. The Board is very grateful for his dedication and contribution to the business for over a decade, and especially as it navigated the various challenges of the past eighteen months. The leadership team of DG Americas, which Lance had been supporting since March 2022, has been strengthened with the appointment of a new DG Americas CEO and CFO. The DG International leadership team is also being strengthened, and this will remove the requirement for a COO.

Claire Binyon joined as a Non-Executive Director in June 2022.

Incentive schemes

The Value Creation Scheme (VCS) was terminated in June 2022 as it was no longer aligning the interests of shareholders and employees, and all awards were cancelled.

Awards under a new Long-Term Incentive Plan (2022-2025 LTIP) were granted on 11 August 2022. This incentive plan is considered a more appropriate and standard mechanism to align interests and reward sustained future financial delivery and value creation. Further details are set out in note 23.

Our strategy

The challenges experienced in FY2022 caused the Board to revisit its priorities, plans, strategy and aspirations. The sheer speed and scale of the impact required an immediate pivot toward quickly making the Group's operations more resilient. This was done with a 5-point focus on:

· reducing complexity and better leveraging expertise and scale, and improving mix,

· improving margins,

· a more resilient supply chain,

· lowering working capital levels, and

· strong leadership and management teams at all levels of the Group.

Good overall progress has been made in these areas, ahead of our expectations. This is witnessed through the delivery of the improved profit margins, stronger cash generation in the year, and strengthening leadership. The current difficult economic environment, with pressure on consumer spend, dictates that we must continue to concentrate on these areas for now.

Nevertheless, given the long planning cycles associated with our business, we must look beyond our current goal of recovering to pre-pandemic operating profit margins, and chart a course that will also grow the business. To that end, in late 2022, the Board commissioned a strategic exercise using professional external support. The output from that exercise has been articulated into a high-level strategy aimed at returning the Group to profitable growth over the coming 3 to 4 years.

In summary, the new strategy concentrates on two areas:

· being the partner of choice for our customers, by strengthening and better leveraging our unique business model, particularly where there is opportunity for competitive advantage, and

· winning together with our customers, through better execution and developing sustained category value

The strategy is being rolled-out across the business units over the summer and will be driven through a combination of centrally co-ordinated as well as local initiatives. At the half-year, we hope to share with shareholders further details of our progress as well as sharing case studies further down the line to highlight some of the initiatives underway. Further details on the new strategy are set out in the Annual Report and Financial Statements for 2023.

Outlook

FY2023's financial performance exceeded our aspirations for the year. Not only was the profit decline stabilised, but it was also turned around. This performance puts us ahead in our journey to restore pre-pandemic operating profit margins in FY2025. The Board does however now expect FY2024 to present continued demand and pricing challenges given the depressed consumer demand experienced in several of our markets since Christmas 2022. This may temper some of our progress during FY2024, but we still anticipate further operating profit growth and margin improvement over the full year. Within the year, we anticipate a return to a more normalised H1/H2 split, reversing the accelerated ordering experienced in H1 FY2023. The Board remains encouraged by the enduring strength of our longstanding customer relationships, which has already generated an orderbook representing 62% of FY2024's budgeted revenues (71% at this stage last year). We still believe our FY2025 operating profit margin aspiration to be achievable. Additional support to deliver this will come from the new strategy as initiatives get underway.

The combination of continued improvements in cash generation and management, as well as the terms of the new financing arrangements should limit the rise in financing costs being driven by higher market interest rates. Over the coming year average net debt should continue to reduce from the current levels of c$17.0 million. This means that operating profit gains in the year ahead should substantially pass through to improved adjusted profit before tax.

The Board still aspires to return to paying dividends, but based on the immediate outlook, and the need to strengthen the business model, the Board does not expect to be in a position to do so during FY2024.

Summary FY2023 results

Revenue at reported rates fell by 8%, due in part to adverse currency effects. The decline in constant currency terms was 4%, with a 10% decline in DG Americas more than offsetting the 10% growth in the smaller DG International division. The decline resulted from a combination of softer consumer demand in the later stages of the year in some markets more than offsetting growth in others, coupled with a conscious exit from unprofitable or very low margin business in DG Americas.

The Group's adjusted operating profit margin rose 140 basis points, to 1.8%, with the growth coming from DG Americas returning to profitability, as the various restructuring and turnaround initiatives gained traction and delivered benefits. Consequently, DG Americas' adjusted operating profit margin rose 230 basis points to 0.5%. Some slippage in the DG International adjusted operating profit margin predominantly reflected the adverse foreign exchange effects and the tougher UK market. The improved operating profits, helped by better cash generation, kept interest costs below expectation and resulted in an adjusted profit before tax of $9.2m, versus last year's loss of $1.3m. Taking into account the tax charge, this resulted in a small adjusted diluted loss per share of 0.2 cents versus last year's loss of 7.7 cents.

The year's adjusting items are a net cost of $28.1 million (FY2022: $3.5 million credit). This mainly results from the non-cash write-down of the goodwill allocated to the UK and Asia Cash-Generating Unit (CGU); offset by insurance receipts related to a prior acquisition, net proceeds from surplus site disposals and other business restructurings, some minor prior year provision releases; and the amortisation of acquired intangibles.

The goodwill write-down results in an enlarged reported loss before tax of $18.9 million (FY2022: $2.2 million profit). The effective tax rate for the year is largely distorted by the mix of profits and losses generated across the jurisdictions in which the Group operates and certain loss making units not realising a tax benefit due to restrictions on recognition of deferred tax assets. The diluted reported loss per share of 28.6 cents (FY2022: loss of 3.3 cents) reflects the reported loss, driven by the goodwill write-down.

The Group ended the year with a net cash balance of $50.5 million (FY2022: $30.2 million), reflecting our focus on cash generation and management, especially through working capital improvements. Correspondingly, average leverage for the year has improved to 0.6 times (FY2022: 1.0 times), also benefitting from the improved (both pre-IFRS 16 basis and post) EBITDA.

As the Group is still on a path to profit-recovery and given the challenging retail outlook in a number of markets, the Board is not recommending a dividend in respect of the year end 31 March 2023.

Regional highlights

Overall, there was a reduction in Group revenue of 8% with adjusted operating profit up to $16.1 million (FY2022: $3.8 million) as the Group benefits from the execution of the turnaround in DG Americas. The split between our DG Americas and DG International segments is as follows:

Design Group Americas

Our business in the US, which makes up about two-thirds of the Group's total revenues, saw revenue decline 10% to $593.0 million (FY2022: $659.0 million). This was driven by a combination of softer demand for certain categories in the second-half of the year, as well as the conscious decision to exit loss-making, marginally profitable, and unduly onerous business. Categories particularly impacted by these factors were Celebrations and Craft & creative play, the latter having benefitted from the Covid-19 lockdowns in recent years. These declines more than offset the benefits that came from catch-up pricing through two waves in order to recover margins lost in the previous year.

Despite the decline in revenues, DG Americas returned to profitability, and delivered an adjusted operating profit of $2.9 million (FY2022: loss of $11.7 million). The drivers behind this turnaround are benefits coming from the various initiatives set in motion last year following the collapse in the division's profitability. The initiatives focused on delivering pricing, cost-savings and simplifying our commercial proposition. They delivered benefits of c$56 million at an adjusted operating profit level in the year. The initiatives included: the closure of 4 surplus sites; sale of the Manhattan, Kansas site in April 2022 for net proceeds of $6.7 million, yielding a profit on disposal of $4.6 million; further utilisation of Mexican facilities for near-shoring; more effective procurement and shipment; and a net headcount reduction of 100. In addition, our category teams were reorganised and underpinned with additional support for product development, design, sales and account management. New initiatives and opportunities continue to be identified, and the Design Group Americas team expects further value to be generated from these activities in FY2024 and beyond. Capabilities are also being developed and strengthened to support future profitable revenue growth. This is being complemented by further reorganisation, investment in technology, and training and development of our commercial organisation to streamline our product cycles and improve execution in the retail environment.

Good progress was also made with working capital reduction, especially with inventory levels and trade receivables.

On 23 May 2022, the Group purchased the remaining 49% interest in Anker Play Products LLC (APP), bringing our total ownership to 100%. This was completed pursuant to the exercise of a put option by the holder of the 49%, which the Group was legally obliged to purchase under a 2017 agreement. APP develops and sources craft products, toys and games for the US retail market. The transaction, made through DG Americas, was satisfied by a cash payment of $3.0 million funded from existing banking facilities. 

Design Group International

This division largely comprises the Group's businesses in the United Kingdom, continental Europe, the Far East and Australia. It saw a 3% revenue year-on-year decline at reported rates, to $299.6 million. The main driver of this decline was adverse foreign currency impacts due to the strength of the US dollar versus all of the other key currencies transacted by the businesses in the segment. At constant exchange rates, revenues were up 10%, with increases experienced in all key markets. The second half of the year saw marked softening in DG UK, and a slight reduction in our DG Australia joint venture as the economic environment deteriorated and put pressure on consumer discretionary spend.

Adjusted operating profit at $19.8 million (FY2022: $20.8 million) was down 5%. However at constant currency rates adjusted operating profit was up 10%. This result was driven by the strong trading performance from our businesses operating in continental Europe, which did not experience the same degree of softness in the second half of the year. Consumer sentiment in Europe was more resilient, and our key customers emerged as "winners" in the current value-focused retail environment. The weakness in the UK market in the second half of the year was volume-driven and meant DG International's adjusted operating profit margin retreated slightly by 20 basis points to 6.6%.

DG UK's revenue for the year grew just over 5%, but the second half was challenging as demand declined after Christmas. As a result, the business only delivered a small operating profit with continued inflation in paper and energy costs largely offsetting improved pricing. Our key brands in the UK have continued to perform well with Eco NatureTM sales and profits growing 10% and 11% respectively, with more details set out in the section on sustainability in the Annual Report and Financial Statements for 2023. Our premium Tom Smith® brand celebrated the 175th birthday of the Christmas cracker, holding a Royal Warrant for the supply of Christmas crackers to the Royal Household since 1906. Recently DG UK was proud to receive Tesco's supplier innovation award for our collaborative work on category development. Looking ahead, in response to the demand challenges experienced in the second half, we have recently undertaken a restructuring of the UK business, which represents c15% of the Group's FY2023 revenues. The intention is to develop a more competitive and agile business model that is better suited to today's UK retail environment. Whilst this has regrettably involved a net headcount reduction of 31, the leadership team is being strengthened. The business has also formed a creative collaboration with the University of Northampton to leverage their capabilities as well as foster relationships with up and coming design talent.

DG Europe benefitted from strong demand from our more value-orientated key customers which are winning in the current economic climate. The business enjoyed very strong revenue growth of 18%, which included improved pricing to recover continued inflation in paper and energy prices. Adjusted operating profit grew 41%, and margins improved further, as the team continues to adopt a continuous improvement approach, combined with high automation.

Similarly, DG Australia saw revenue growth of 5% as its Independents customer channel grew market share. The business continues to be active in new product development, developing a compelling assortment. Unfortunately, labour shortages and cost inflation in that market reduced adjusted operating profits by 10%.

Our products, brands and channels

The Group continues to aspire to be our retail customers' "partner of choice" for our categories, and our diverse product portfolio is a good demonstration of this.

The 12% decline in the Celebrations category was driven by the sales performance in DG Americas, with declines in most product-types, but especially giftwrap and ribbons & bows. This more than offset the growth in these product types in all DG International markets and the progress with cards in DG Americas. Whilst stationery remained stable, giftware gains were driven by photo frames in DG International. The decline in 'not-for-resale' consumables came from reduced demand for floral packaging in DG Americas. The Craft & creative play category continued to normalise from Covid-pandemic lockdown highs.

The Value & mass channel saw a small decline of 7% driven by the adverse DG Americas dynamics. This more than offset good progress in all of the DG International businesses where this channel benefitted from recent consumer-driven focus on value. Similarly, the 17% decline in Specialists is largely driven by DG Americas, where we consciously exited unprofitable business, offsetting the progress in continental Europe. Overall, our top 20 customers represent 68% of our sales (FY2022: 68%).

The reversal of the trend seen in recent years towards more Everyday business reflects the pressures experienced in certain markets post-Christmas 2022, particularly in DG UK. There was also a general reduction in DG Americas revenues, offsetting strong progress in DG Europe, with photo frames in particular.

The reduction in DG branded sales reflects the adverse DG Americas revenue dynamics, which more than offset the gains in all DG International markets.

Sustainability

The Board launched the Group's sustainability framework 'helping design a better future' in FY2021, 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 sustainability indicators (KPIs). We report our performance against these and the progress the Group has made during the year as seen in the Sustainability report in the Annual Report and Financial Statements for 2023. We recognise that we are on a sustainability journey so as we move forward, we'll seek to further enhance the metrics we monitor whilst also looking to set targets by which to measure our success.

In the year we have made more progress in our journey towards compliance with Taskforce for Climate-related Financial Disclosures (TCFD) through the completion of a risk assessment exercise to identify the Group's climate-related risks and opportunities over the short, medium and long term. In future this will be integrated into our wider risk management processes.

People - Our people are key to the success of our business, and in the challenging times we are facing it is even more important to ensure that we are recognising performance and loyalty, and investing in the many talented individuals and teams across the Group. Given the "cost of living crisis" being experienced across the world, we took various additional steps in our businesses, over and above the normal, to try and mitigate the impact on our employees and their families.

This year saw the launch of the first Group-wide employee engagement survey: "Your Voice, Our Future". There was a pleasing 78% participation rate, and it was encouraging to learn that despite the significant changes taking place across the business, our teams remain positive about their roles, Design Group as a place to work, and its future. The survey has also provided management with areas for further improving the working environment, and these are now being followed-up.

Other notable achievements in FY2023 include the launch of the "DG Bravo" recognition programme in DG Americas, 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. Extending beyond leadership, the DG Europe Academy has had another successful year with internal training programmes available for our employees to develop their knowledge and skills across a range of topics. DG UK has trained mental health first aiders across the business and run a monthly health programme focused on both mental and physical wellbeing with 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 solutions and collections to promote to our customers and theirs. A notable achievement is the continued development of our shrink-free wrapping paper, which eliminates plastic waste through the use of recyclable paper labels, with the launch of Smartwrap™ in continental Europe this year. This complements our Eco NatureTM ranges already established in the UK which have continued to perform well. We will look to further improve our sustainable solutions in these markets where there is traction with consumers. Numerous other initiatives are underway finding innovative solutions with both customers and external specialists and academic institutions to continue to reduce the environmental impact of our products. For example, in DG Europe, all plastic frames now have 100% recycled frames.

Planet - The Group has formally incorporated Climate Change as a principal risk (formerly an emerging risk) acknowledging our responsibility to protect and preserve our planet and its environment, as well as the sustainability of our business. Notable achievements in FY2023 include DG Europe being awarded Ecocert's climate neutral status on their giftwrap collections following investment in innovative Smartwrap™ technology to provide next-generation shrink-free solutions. 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. In the area of sea freight, DG Europe is seeking to achieve carbon neutrality on half of its shipments. Finally, also testament to our efforts was DG Americas achieving Walmart's Giga-Guru status, recognising our collaboration with our biggest customer in the area of supply chain carbon reduction.

Detailed financial review

The Group's financial results are summarised below, setting out both the reported and the adjusted results.

Revenue for the year ended 31 March 2023 reduced by 8% to $890.3 million (FY2022: $965.1 million) driven by combination of adverse foreign exchange movements in DG International, the strategic decision to exit loss-making business in DG Americas, and lower volume in the second half of the year in a number of our markets. Constant currency Group revenues reduced by 4% year‑on‑year.

Adjusted operating profit saw an increase year-on-year to $16.1 million (FY2022: $3.8 million) and adjusted gross margin increased to 14.9% (FY2022: 12.4%), reflecting stronger than anticipated trading within DG International particularly continental Europe, benefits from the turnaround initiatives in DG Americas and some catch-up pricing to offset some of the inflation continuing in our inputs. Inventory provisions made in the year were $19.3 million (FY2022: $18.3 million) and inventory provision releases were $6.3 million (FY2022: $5.0 million). Adjusted overheads as a percentage of revenue increased to 13.1% (FY2022: 12.0%). Adjusted operating margin at 1.8% (FY2022: 0.4%) was up year-on-year, reflecting the higher gross margins and cost management. Overall adjusted profit before tax was $9.2 million (FY2022: loss before tax $1.3 million). The Group finished the year with a reported loss before tax of $18.9 million (FY2022: profit before tax of $2.2 million). This is significantly adverse to the improvement in adjusted profit before tax reflecting the (largely non-cash) adjusting items in the current year of $28.1 million compared to a net credit of $3.5 million in the prior year. Further details of the adjusting items are detailed below.

Adjusted profit after tax was $1.4 million (FY2022: adjusted loss after tax of $4.6 million) with loss after tax for the year at $26.5 million (FY2022: $0.3 million).

Finance charges

Finance costs were higher than the prior year at $6.9 million (FY2022: $5.5 million), resulting from higher financing costs at $4.0 million (FY2022: $2.0 million) which reflected the significant increase in interest rates during the year. The IFRS 16 related lease liability interest was marginally lower than the prior year at $2.9 million (FY2022: $3.5 million), of which $0.4 million was treated as an adjusting item in the prior year.

Adjusting items

Adjusting items are material items or 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 2023 result in a (largely non-cash) net charge of $28.1 million compared to a net credit of $3.5 million in the prior year. Details of all adjusting items are included below:

Goodwill impairment - $29.1 million charge

In the year an impairment of $29.1 million has been recorded to write down the goodwill from historical acquisitions in the UK and Asia CGU.

Following the deterioration of the result experienced in UK and Asia CGU already referred to, especially in the second half of FY2023, the longer-term impacts on the forecasts for future cash flows have resulted in an impairment. The calculation was further exacerbated by the significant increase in the discount rate, mainly as a result of higher interest rates. Further details of this impairment are set out in note 9.

(Gains)/losses and transaction costs relating to acquisitions and disposals of businesses - $1.5 million credit (FY2022: $3.7 million charge)

In the year $1.5 million of insurance income was received relating to the Impact Innovations, Inc acquisition Representations & Warranties insurance settlement relating to accounting and tax issues present at acquisition.

Acquisition integration and restructuring (income)/costs - $2.0 million credit (FY2022: $1.7 million credit)

In order to realise synergies from acquisitions, or existing businesses, integration and restructuring projects are respectively undertaken that aim to deliver future savings and efficiencies for the Group. These are projects outside of the normal operations of the business and typically incur one-time costs to ensure successful implementation. As such it is appropriate that costs associated with projects of this nature be included as adjusting items. The costs incurred in the year relate to the reorganisation, business simplification and impairment expenses in DG Americas and the reorganisation of the DG UK businesses as follows:

Site closures - In April 2022, the Manhattan, Kansas property was sold for proceeds of $6.7 million resulting in a profit on disposal of $4.6 million recognised as an adjusting item. In March 2023, a decision was made to exit a surplus site in Clara City, Minnesota. This resulted in an impairment of the right-of-use asset associated with the underlying lease of $0.8 million. Additional costs of $0.3 million were incurred in relation to the relocation and closure of these sites, as well as the consolidation of other US sites.

DG America and DG UK business reorganisation - In the year further restructuring costs, relating to staff, of $0.8 million have been recognised in DG Americas following the announcement of further business reorganisation. Similarly, in March 2023 the UK business internally announced a business simplification in light of the downturn of the UK market outlook, resulting in the recognition of one-off restructuring costs of $0.7 million.

Reversal of impairment of assets - $0.2 million credit (FY2022: $2.6 million credit)

At the onset of the Covid-19 pandemic a review of inventory, trade receivables and fixed assets was undertaken. Inventories were assessed at 31 March 2020 for the net realisable value and an impairment of $7.4 million was recognised. Trade receivables were assessed for their expected credit loss in line with IFRS 9 and an impairment of $3.8 million was recognised. The UK's bag-line machines were impaired by $0.3 million based on expected future cash flows associated with the 'not-for-resale' consumables business.

In the year a credit of $0.2 million has been recognised relating to reversal of impairments no longer required. There are no remaining provisions relating to these costs.

IT security incident income - $0.1 million credit (FY2022: $5.7 million credit)

The IT security incident which occurred in DG Americas in October/November 2020 resulted in one-off costs of $2.2 million being incurred during the year ended 31 March 2021. This did not include the lost profits incurred as a result of downtime in the business for which an insurance claim was made. In the year final insurance income was received of $0.1 million in relation to this incident.

Amortisation of acquired intangibles - $2.8 million charge (FY2022: $2.8 million charge)

Under UK IFRS, as part of the acquisition of a company, it is necessary to identify intangible assets such as customer lists and trade names which form part of the intangible value of the acquired business but are not part of the acquired balance sheet. These intangible assets are then amortised to the income statement over their useful economic lives. These are not operational costs relating to the running of the acquired business and are directly related to the accounting for the acquisition. These comprise mainly trade names and brands acquired as part of the acquisition of Impact Innovations Inc. (Impact) and CSS Industries Inc. (CSS) in the USA.

Taxation

The Group aims to manage its tax affairs in an open and transparent manner, with the objective of full compliance 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 $7.8 million (FY2022: $3.3 million) against an adjusted profit before tax of $9.2 million (FY2022: loss of $1.3 million). Deferred tax assets relating to the entities in the UK (both UK trading and PLC) are not being recognised as the assessment of future taxable profits shows insufficient future taxable profits against which to utilise the deferred tax assets. Consequently, the absence of tax relief on current year tax losses significantly inflates the effective tax charge for the Group. The profits in DG Europe and Australia, which are the main contributors to adjusted profit before tax, are taxed at higher statutory tax rates (25.8% and 30% respectively). In DG Americas, the impact of movements in uncertain tax positions together with permanent items adds to the tax charge. Further details of this tax charge are set out in note 11.

Tax paid in the year was $7.3 million (FY2022: $5.2 million). This is $2.1 million higher than the prior year, reflecting higher profits in the Group's tax-paying jurisdictions.

Loss per share

Diluted adjusted loss per share at 0.2 cents (FY2022: 7.7 cents) is improved year-on-year driven by the significantly higher adjusted earnings attributable to equity holders of the Company. Diluted loss per share at 28.6 cents (FY2022: 3.3 cents) is significantly lower than adjusted, reflecting the adjusting items charge in the FY2023 year. Further details are set out in note 21.

Dividend

In light of the Group's current position on the path to profit and margin recovery, and the challenges due to forecast reduced consumer demand in certain markets, the Board are not recommending a final dividend (FY2022: nil). As a result, the full-year dividend is nil (FY2022: 1.68 cents (1.25 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 as well as the Group overall. The Group saw the return on capital employed increase year-on-year to 5.6% (FY2022: 1.3%), reflecting the improved profitability and our efforts to reduce our working capital requirements.

Cash flow and net cash

The Group ended the year with its net cash balance at $50.5 million (FY2022: $30.2 million). The significant increase in the cash balance year‑on‑year is a direct result of the higher EBITDA contribution and the improved working capital management resulting in adjusted cash generated from operations significantly higher at $60.4 million (FY2022: $5.8 million).

Working capital

The working capital cash flow improved from a $31.7 million outflow in the prior year to a $11.2 million inflow. This was driven primarily by improved working capital management across the Group. The lowering of working capital levels will remain a focus of the Group.

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 0.1% of revenue (FY2022: 0.2%), reflecting our continued proactive approach to mitigating credit risk exposure.

Capital expenditure

Capital expenditure in the year reduced in relation to the prior year at $5.8 million (FY2022: $8.3 million). There were no significant capital projects in the year to 31 March 2023. Capital expenditure in FY2024 is expected to be higher with investment in new ERP and manufacturing capabilities.

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 2023 average leverage was 0.6 times, improved from 1.0 times in the prior year. This reflects the improvement in adjusted EBITDA compared to the prior year and stabilised average debt at $17.1 million (FY2022: $17.2 million).

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

On 1 June 2022 the Company amended and extended the term of its revolving credit facility, and operated under revised covenants during the financial year. The Group operated well within these covenant requirements with excess headroom throughout the year.

On 2 June 2023, the Group announced the successful negotiation of a $125.0 million three-year refinancing with HSBC and NatWest banks. The new facility is structured as an Asset Backed Lending (ABL) arrangement secured with an all-assets lien in the USA and an all-assets security in the UK. The Group has also extended its overdraft facility provided by HSBC. This facility replaces the previous revolving credit facilities originally agreed in 2019.

The new facility carries an initial bank margin of 1.75% to 2.25%, based on average excess availability (plus 0.1% spread adjustment) over the forward-looking term rate based on the US Secured Overnight Financing Rate (SOFR) which is lower than the margins on the 2019 facilities.

The Board believes that the new ABL facility, which flexes in line with the receivables in the USA, provide more than sufficient headroom to fund the Group's working capital needs over the period of the facility.

Further details are set out in note 15.

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 dollars. The constant currency results recalculate the prior year based on the exchange rates of the current year to enhance the comparability of information between reporting periods. The overall impact on revenue and profits from currency movements in FY2023 when compared to FY2022 is significant relative to the balances. The increase in revenue would have been $36.4 million higher if FY2022 revenues are translated at FY2023 foreign currency exchange rates, and the growth in adjusted loss before tax would have been $2.4 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 $35.3 million to $334.4 million at 31 March 2023 (FY2022: $369.7 million), primarily reflecting impairment of goodwill in the current year.

As at the 31 March 2023 balance sheet date, in light of the FY2023 results and the outlook for FY2024, 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 $50.5 million.

The Directors of the Group have performed an assessment of the overall position and future forecasts for the purposes of going concern. The going concern assessment has been performed using the Group's FY2024 and FY2025 budgets and plans. These forecasts have been reviewed in detail by the Board and take into account the seasonal working capital cycle of the business. They have been sensitised to reflect severe but plausible adverse downturns in the current assumptions including the potential impact of a significant disruption in one of our major customer's business, as well as increased inflationary pressures in the DG International and DG Americas business segments, beyond those risks already factored into the budgets and plans. The base forecasts and additional sensitivity analysis have been tested against the ABL facility limits and covenants. The analysis demonstrated that the Group has sufficient 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 UK 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 UK 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 or of an unusual or non-recurring nature.

The APMs and the definitions used are listed below:

● Adjusted EBITDA - Profit/(loss) before finance charges, tax, depreciation, amortisation, impairment (EBITDA) and adjusting items

● Adjusted gross profit - Gross profit 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 tax - Tax before adjusting items

● Diluted adjusted earnings/(loss) per share - Diluted earnings/(loss) per share before adjusting items and associated tax effect

● Adjusted overheads - Selling costs, administration expenses, other operating income, profit/(loss) on disposal of property, plant and equipment (overheads) before adjusting items

● Adjusted cash generated from operations - Cash generated from operations before the associated cash impact of those adjusting items

● Net cash - Cash and cash equivalents, bank overdraft and loan arrangement fees

In terms of these APMs, a full reconciliation between our adjusted and reported results is provided in the detailed financial review above, from which the following key performance metrics have been derived:

● Adjusted gross margin - Adjusted gross profit divided by revenue

● Adjusted operating margin - Adjusted operating profit divided by revenue

● Adjusted EBITDA margin - Adjusted EBITDA divided by revenue

● Cash conversion - Adjusted cash generated from operations divided by adjusted EBITDA

In addition, the Group calculates the following key performance measures using the above APMs:

● Return on capital employed - Adjusted operating profit divided by monthly average net capital employed (where capital employed is net assets excluding net cash and intangible assets)

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

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

Paul Bal

Director

19 June 2023

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 UK‑adopted international accounting

standards 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 UK‑adopted international accounting standards 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 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 also 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

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 2023

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 MARCH 2023

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 MARCH 2023

In line with the Group's accounting policies, 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 translation reserve.

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 $1.7 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 (2022: $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.

CONSOLIDATED BALANCE SHEET

AS AT 31 MARCH 2023

The consolidated financial statements were approved by the Board of Directors on 19 June 2023 and were signed on its behalf by:

Paul Bal

Director

CONSOLIDATED CASH FLOW STATEMENT

YEAR ENDED 31 MARCH 2023

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 MARCH 2023

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. The consolidated financial statements have been prepared in accordance with UK-adopted international accounting standards 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 financial information set out in this document does not constitute statutory accounts for IG Design Group plc for the year ended 31 March 2023 but is extracted from the Annual Report and Financial Statements. The Annual Report and Financial Statements 2023 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).

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.

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 distribution. 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

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 twelve 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.

On 5 June 2023, the business entered into a new banking facility with HSBC and NatWest bank as part of a three-year deal to meet the funding requirements of the Group. This facility comprises an Asset Backed Lending (ABL) arrangement with a maximum facility amount of $125.0 million. Cash balances, borrowing and the financial covenants applicable to the facility are detailed in notes 14 and 15.

In addition to the above facility, the Group has also increased its unsecured overdraft facility provided by HSBC to £16.5 million, which reduces to £8.5 million from August 2023. As such, after making appropriate enquires, 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.

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. As the new ABL arrangement is linked to trade debtors, any withdrawal of these facilities would be largely offset as the borrowing base under the facility would increase.

The Directors have assessed detailed plans and forecasts up to 30 September 2024. These forecasts reflect the fact that the Group has now returned to profitability and continues the journey to more robust performance, growing profitability and margins as a result. They also reflect the seasonal operating cycle of the business and further 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:

· the potential impact of a significant disruption in one of our major customer's business, reflected in a c$20-$25 million reduction in sales performance and related cash and working capital impacts; and

· the potential impact over peak periods by of the effects of inflation on disposable incomes and demand for products in the DG International and DG Americas business segments, reflected in a c$40 million reduction of sales.

In the severe but plausible scenario modelled, there remains sufficient headroom in our forecast liquidity, and sufficient headroom under the covenant requirements.

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:

· Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16

· Onerous contracts - Costs of Fulfilling a Contract - Amendments to IAS 37

· Annual Improvements to IFRS Standards 2018-2020

· Reference to the Conceptional; Framework - Amendments to IFRS 3

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. Specifically, the Groupcontrols an investee if, and only if, the Group has power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee), exposure, or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect its returns. The financial statements of subsidiaries which we consider the Group to have control are included in the consolidated 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.

Share capital, share premium, capital redemption reserve, merger reserve are denominated in pounds sterling, the Parent Company's functional currency. They are translated into US dollars at the rates of exchange at each balance sheet date and the resulting cumulative exchange differences are included in translation reserve.

(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:

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;

· 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:

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') in August 2018.

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 inventory on hand relating to sales orders already attached to the acquired inventory. 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 majority of sales are made with credit terms of 30‑120 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 when deferred tax assets are recognised in that territory.

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) is 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 deferred income on the balance sheet 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 are appropriately classified as adjusting items and that the values assigned are appropriate. Adjusting items relate to impairments of assets, costs associated with acquisitions or disposals, and significant items by virtue of their size or incidence. Adjusting items are approved by the Board. Further details on the rationale for classification are disclosed in note 3.

(ii) Goodwill impairment assessment

In reaching the conclusion that the Fair Value less Costs to Sell (FVLCTS) model does not yield a higher recoverable amount than the Value in Use (VIU) model, management considered various factors, including current market conditions, observable market prices, and assumptions related to potential buyers' perspectives. The judgment was applied in assessing the relevance and reliability of the market-based approach, immediate sale perspective, and market participant assumptions within the FVLCTS model. Additionally, management considered the associated costs and time required for the sale process, considering a conservative and realistic assumption.

The conclusion was reached based on management's experience, market knowledge, and the assessment of available data and information. While the judgments exercised by management were made in good faith and believed to be reasonable, actual results may differ from these judgments due to inherent uncertainties and external factors affecting market conditions.

The assessment of the future impacts of climate change is undoubtedly another area where judgement must be applied. The evolving and dynamic nature of climate change, along with the uncertainties surrounding future regulatory frameworks, technological advancements, and market dynamics, make it difficult to precisely predict the medium and long-term effects on our financial performance, assets, and liabilities.

While the judgments exercised by management were made in good faith and believed to be reasonable, actual results may differ from these judgments due to inherent uncertainties and external factors affecting climate change.

The disclosures in Note 9 provide further details regarding the key assumptions and judgments made by management in determining the recoverable amount of goodwill related to the CGUs of the Group.

Accounting estimates

(i) Intangible assets - Goodwill

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. An estimate is 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. Tests for impairment are based on discounted cash flows and assumptions (including discount rates and growth prospects) which are inherently subjective. They involve a degree of uncertainty, and changes in these estimates could have a material impact on the financial statements in future periods. The Group performs various sensitivity analyses in respect of the tests for impairment, as detailed in note 9.

(ii) Taxation

Estimates are required in determining the Group's tax assets and liabilities. Deferred tax assets have been recognised to the extent that management believe that they are recoverable based on profit projections for future years. These forecasts are consistent with those used elsewhere in the financial statements (including impairment). Note 11 provides information on the gross temporary differences and unused tax losses on which deferred tax assets have not been recognised. 

Included within current tax liabilities are estimations related to uncertain tax positions. These calculations are based on management's best estimates of potential tax liabilities that could arise in the future. These estimates are reassessed when facts and circumstances change.

(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 DG Americas integration. 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 early termination agreed with the landlord.

The decision was made to exit Clara City, Minnesota in the year, resulting in a lease impairment of $757,000. In the year to 31 March 2022, there was a $2.5 million impairment reversal. As at 31 March 2023, for the remaining impaired 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 2023, if there was a reversal of the remaining impaired right-of-use assets, the right‑of-use assets would increase by $4.7 million (2022: $6.5 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 inventory for those time frames. This is not a precise estimate and is based on best data at the time of recognition. Regular monitoring of inventory levels, the ageing of inventory 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 2023, inventory provisions were $36.5 million against a gross inventory value of $243.2 million (2022: $38.4 million provision, $269.3 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.

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 businesses in the UK, Asia, Europe and Australia.

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.