Design Group Regulatory News (IGR)

6th December 2011

International Greetings PLC ("the Company" or "the Group")

Interim Results

International Greetings PLC, one of the world's leading designers, innovators and manufacturers of gift wrap, crackers, cards, stationery and accessories, announces its interim results for the six months ended 30 September 2011 (2011 H1).

Financial highlights

Operational highlights

Paul Fineman, Chief Executive said:

"We have achieved sales and profit growth despite the challenging market conditions and have continued to enjoy significant business with value and mass market retailers across the globe. This has included growth in Everyday greetings card activities, which is an exciting new growth area for the Group.

Having completed the Christmas season manufacturing in China, we have instigated our plans for the relocation of our facilities in good time to meet future production deadlines whilst maintaining our competitive position.

We have continued to benefit from streamlining processes throughout the Group, including our Board structure. These measures optimise our competitive position and increase our efficiency and future ability to generate profit growth.

In these difficult trading markets around the world, we have delivered results in line with our expectations in the first half, which gives us optimism for the future. Significant opportunities for International Greetings exist across the markets in which we operate."

Chief Executive's Review

Overview

We have achieved good progress in the first half of this year as we have continued to deliver on our strategy of driving profitable growth. Sales and profitability in the first half year have grown in line with management's expectations.

Operational Review

Our key focus has been on ensuring that our major revenue streams are delivered across a "balanced" portfolio of activity and we continued to achieve this in the period.

Profits in the UK and Asia have grown through greater collaboration between our manufacturing and sales operations. Additionally we have driven synergies in sourcing, having utilised the combined experience of our recently centralised team in the Far East.

We are relocating our manufacturing facility in China having completed Christmas season manufacturing requirements. This process remains on track and the efficiency gains will offset forecast inflationary pressures.

The first half has seen sales and profit meeting expectations in our businesses in the Netherlands and Poland. This is particularly pleasing given the challenging market conditions. However we anticipate that adverse conditions will continue in the period ahead and have planned accordingly.

Having re-established profitability in the USA, we are encouraged that positive momentum has been sustained with significant improvement in profitability on a growing sales base. Performance in Australia has also been strong with sales and profitability growing well.

A lot has been achieved through the business restructuring, and this continues. Our achievement was recently acknowledged through the Company being awarded Listed Company Turnaround 2011 Award by the Institute for Turnarounds.

As recently announced, Martin Hornung will step down from the Board during this month. The Board would like to take the opportunity to thank Martin for many years of service across many aspects of our business.

Financial Review

Revenue from continuing operations for the period increased by 6% to £110.3 million (2010 H1: £104.5 million). On a constant exchange basis, like-for-like turnover increased by 5% over the period, with growth across all geographic regions.

Despite significant inflationary pressures including rising raw materials prices and Chinese-based labour costs, together with the impact of the strengthening Chinese currency, we have achieved encouraging gross profit margins of 19.1% (2010 H1: 18.3%).

At £16.2 million (2010 H1: £15.9 million), our overheads as a percentage of sales continued to fall from 15.2% to 14.7%.

Operating profit before exceptional costs was up 38% to £5.2 million (2010 H1: £3.8 million) and profit before tax and exceptional items was up 50% to £3.2 million (2010 H1: £2.1 million).

Exceptional items during the period were £1.1 million (2010 H1: £nil) relating to senior management restructuring and provisions against leasehold assets in China in anticipation of our impending factory relocation. In particular, the management restructuring reflects synergies available at Board level as the Group simplifies the management control of its operational businesses in Asia, the UK and Europe. This is expected to generate future annualised savings of £0.6 million.

Finance expenses in the period were £2.0 million (2010 H1: £1.6 million) due to increased bank charges associated with the refinancing and extension of the maturity of our facilities and £0.2 million in respect of unrealised market movements on euro denominated interest rate swaps, which are not hedge accounted. A range of facilities are now available across UK, Europe, USA and Australia, matched to the working capital and currency needs of our respective businesses, with maturities on the majority of our core non-seasonal debt extended out to 2015/16. Debt reduction remains a key focus and our programme for this is on-track.

Net debt at 30 September 2011 was up 2% to £88.5 million (2010 H1: £86.4 million). With customer orders received earlier to optimise efficiency and production accelerated in China ahead of the move to our new factory, the usual seasonal working capital increase was entirely as expected. Details of the Group's new banking facilities are included in note 1 of the interim financial statements.

Profit from continuing operations before tax was level at £2.1 million (2010 H1: £2.1 million), including exceptional items of £1.1 million (2010: £nil).

The effective underlying tax rate was 27.5% (2010 H1: 6%) with the prior period benefitting from recognition of deferred tax assets. There are still tax losses of $15 million in the USA and £1.7 million in the UK not recognised as assets in the balance sheet.

Stated before exceptional items, and discontinued operations, basic earnings per share were 3.4p (2010 H1: 3.1p), and 1.8p (2010 H1: 3.1p) after exceptional items. See note 6 of the interim financial statements.

Capital expenditure in the six months was £1.4 million (2010 H1: £1.4 million). Our property asset held for resale was sold in the period, generating £0.5 million which was used to pay down debt.

Cash used by operations was £39.9 million (2010 H1: £34.7 million), which reflects the seasonality of the business as 59% of the sales in the six month period occurred in the last two months.

Debtors and receivables at £69.4 million are up 3% from £67.5 million at H1 2010 and 2% on like-for-like exchange rates with stock levels up by just 1% from £63.5 million (H1 2010) to 64.2 million (H1 2011) despite the sales increase of 6% and the effect of early production against customer orders and the move of our factory in China.

The Board will not be declaring an interim dividend and will keep this policy under review (2010 H1: nil).

Current trading/outlook

Our focus on providing our customers with excellent service and innovative products has enabled us to continue to enjoy profit growth and success across the globe. We expect conditions to remain challenging, particularly in Continental Europe, and we will manage the business accordingly, with a strong focus on tight cost control and continuing to drive further efficiencies throughout the business.

The overall quality of our earnings continues to improve. Notwithstanding difficult trading markets around the world, we have delivered results in line with our expectations in the first half, which gives us optimism for the future. Significant opportunities for International Greetings exist across the markets in which we operate.

Paul Fineman

Chief Executive

Consolidated income statement

six months ended 30 September 2011

Consolidated statement of comprehensive income

six months ended 30 September 2011

Consolidated statement of changes in equity

six months ended 30 September 2011

For the six months ended 30 September 2010

For the year ended 31st March 2010

Consolidated balance sheet

as at 30 September 2011

Consolidated cash flow statement

six months ended 30 September 2011

Notes to the interim financial statements

1 Accounting policies

Basis of preparation

The financial information contained in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 and is unaudited.

The Group interim report has been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs"). The financial information for the year ended 31 March 2011 is extracted from the statutory accounts of the Group for that financial year and does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The report of the auditors was (i) unqualified; (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) of the Companies Act 2006.

Going concern basis

The financial statements have been prepared on the going concern basis. Following the restructure of its principal banking facilities in July 2011 the Group now shows net current assets of £23.3 million (2010 net current liabilities H1: £7.3 million).

In previous years the Group relied primarily on a short-term facility for its working capital needs. In July 2011 the Group negotiated with its principal bank more structured borrowings (split between US dollars and sterling) comprising a five year loan of £15.2 million with a bullet repayment on the fifth anniversary, a four year amortising loan of £14.8 million, a one year revolving multi-currency credit facility of up to £33 million and a one year rolling multi-currency overdraft facility of up to £5 million, plus a two year asset back loan facility secured on the UK business inventory and debtors.

We have also secured a three year asset backed loan facility of up to £25 million with a US bank to assist in the funding of the US business and to mitigate the currency effect on our facility headroom.

The borrowing requirement of the Group increases steadily over the period from July 2011 and peaks in September and October 2011 due to the seasonality of the business, as the sales of wrap and crackers are mainly for the Christmas market, before then reducing.

As with any company placing reliance on external entities for financial support, the Directors acknowledge that there can be no certainty that this support will continue although, at the date of approval of this interim report, they have no reason to believe it will not do so.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing this interim report.

The interim report does not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 March 2011.

Significant accounting policies

The accounting policies adopted in the preparation of the interim report are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 March 2011.

2 Segmental information

The Group has one material business activity being the design, innovation and manufacture of giftwrap, crackers, card, stationery and gift accessories.

For management purposes the Group is organised into four geographic business units.

The results below are allocated based on the region in which the businesses are located; this reflects the Group's management and internal reporting structure. The decision was made during the last year to focus Asia as a service provider of manufacturing and procurement operations, whose main customers are our UK businesses. Both the China factory and the majority of the Hong Kong procurement operations are now managed by our UK operational management team and we are therefore now including Asia within the internal reporting of the UK operations, such that UK and Asia comprise an operating segment. The Chief Operating Decision Maker is the Board.

Intra-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 operating profit. Interest expense or revenue and tax are managed on a Group basis and not split between reportable segments.

Segment assets are all non-current and current assets, excluding deferred tax and income tax receivable. Where cash is shown in one segment, which nets under the Group's banking facilities, against overdrafts in other segments, the elimination is shown in the eliminations column. Similarly inter-segment receivables and payables are eliminated.

3 Exceptional items

(a) Redundancies relating to the termination expenses of three directors who have left the business following a review of Board responsibilities.

(b) Impairment of leasehold land & buildings in China as a result of the decision to move the China factory.

4 Cash, loans and borrowing

5 Taxation

Taxation for the six months to 30 September is based on the effective rate of taxation, which is estimated to apply in each country for the year ended 31 March 2012.

6 Earnings per share

The basic earnings per share is based on the profit attributable to equity holders of the Parent Company of £993,000 (2010: £1,563,000) and the weighted average number of ordinary shares in issue of 54,102,407 (2010: 52,371,295) calculated as follows:

Total number of options, over 5p ordinary shares, in issue at 30 September 2011 and during the period was 5,772,556.

Adjusted basic earnings per share excludes exceptional items charged of £1,080,000 (2010: nil), the tax relief attributable to those items of £222,000 (2010: nil) and the loss on discontinued operations (net of tax) of Nil (2010: £78,000), to give an adjusted profit of £1,851,000 (2010: £1,641,000).