Design Group Regulatory News (IGR)

11th December 2012

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 packaging and greetings, stationery and creative play products, announces its interim results for the six months ended 30 September 2012.

Financial highlights

Operational highlights

Paul Fineman, Chief Executive said:

"During the first half of the year we have focused on completing a number of operational improvements to drive efficiencies including the installation of our new "state of the art" printing press in Holland, our upgraded logistics facilities in Australia and further operational streamlining in the UK. The relocation of our manufacturing operation in China is also complete and by the end of 2012 we will have manufactured a record 65 million Christmas crackers during the year.

"The Group continues to trade profitably in all regions despite challenging market conditions. We remain focused on delivering earnings growth and debt reduction across our diverse geographical portfolio and identifying opportunities for further growth."

Chief Executive's Review

Overview

Sales and profit for the six months ended 30th September 2012 are overall in line with expectations.

Operational Review

The first half of this year has featured a number of key operational highlights including the first season of production following the relocation of our manufacturing facilities in China. Despite initial challenges we completed a substantial amount of the output in the period, with over 65 million Christmas crackers due to be manufactured during 2012.

Profits in the UK and Asia have grown during the period with further operational streamlining within the UK having been achieved. We are also pleased to report that our success in United States has continued to gain momentum with excellent sales and profit growth across all major categories. In this market we continue to see new consumer trends emerging including the increasing popularity of Christmas crackers. Growth of Everyday greeting cards averaged over 25% in these territories.

Record levels of giftwrap volumes continue to be sold, now supported by new high speed state of the art manufacturing equipment which was successfully installed in the Netherlands during the Spring. Whilst the market in continental Europe continues to be particularly challenging, the recent investment made in gift wrap production, amongst other factors, helped to ensure that our operations remained profitable. At Artwrap, our Joint Venture in Australia, we have upgraded logistics facilities including semi-automation in order to increase efficiencies. However, our Joint Venture in Australia is now experiencing some of the macroeconomic market conditions which the Group has successfully managed in recent years in the US, UK and European markets.

Financial Review

Revenue from continuing operations for the period increased by 4.5% to £115.2 million (2011: £110.3 million), with particularly good progress in the UK and USA where sales increased by 4% and 15% respectively. Together these more than compensated for continuing challenges in the European marketplace and signs of slowdown at our Joint Venture in Australia.

Inflationary pressures on costs continued with sea freight on average 24% higher than over the equivalent period last year but our efforts succeeded in mitigating this. Gross profit margins at 18.4% (compared to 19.1% in 2011 and 18.3% in H1 2010) were 0.7% lower as a result of the reducing contribution from our higher margin Australian Joint Venture.

At £16.6 million (2011 H1: £16.2 million), overheads as a percentage of sales continued to fall from 14.7% to 14.4%.

Operating profit before exceptional costs was flat at £5.2 million (2011 H1: £5.2 million) or up 1.3% at constant exchange rates. Profit before tax and exceptional items was up 2.2% to £3.3 million (2010 H1: £3.2 million) or 4% at constant exchange rates.

Profit before tax and after exceptional items was up 19% to £2.5 million (2011 H1: £2.1 million).

Finance expenses in the period were £1.9 million (2011 H1: £2.0 million). This overall reduction reflects the full year effect of higher borrowing margins and one-off charges associated with the refinancing and extension of the maturity of our facilities but has been significantly offset by lower debt levels throughout the period. Shorter dated facilities were renewed in the period for a further year with improved facility headroom and flexibility and the first 0.5% of a series of potential margin reductions was achieved as leverage fell to qualifying levels. Debt reduction remains a key focus and our programme for this is on-track.

The effective underlying tax rate was 26% (2011 H1: 27.5%) reflecting the mix of profits shifting slightly away from the higher tax jurisdictions and also lower UK rates. There are still unrecognised losses with a tax value of $6.2 million in the USA and £0.4 million in the UK which can be reflected in the balance sheet as US profitability progresses.

As recently announced and subsequent to the end of the period, a major customer of Artwrap, our Joint Venture in Australia, went into voluntary administration. This has placed the recoverability of the outstanding debt at risk and AUS$1.2 million has been provided as an exceptional adjusting item in the H1 accounts. As a result exceptional costs relating to the period were provided at £0.75 million (2011 H1: £1.1 million). However the effect on earnings will only be impacted by £0.3 million reflecting tax and the minority interest.

Stated before exceptional items, basic earnings per share were 3.9p (2011 H1: 3.4p), and 3.4p (2011 H1: 1.8p) after exceptional items. Diluted earnings per share before exceptional items were 3.7p (2011 H1: 3.2p), up 15.6% on the prior year. See note 6 of the interim financial statements.

Capital expenditure in the six months was £1.4 million (2011 H1: £1.4 million). Some surplus land in Wales and machines in Australia were sold in the period generating proceeds of £0.4 million in cash.

Cash used by operations was £39.1 million (2011 H1: £39.9 million), which reflects the seasonality of the business as 58% of the sales in the six month period occurred in the last two months.

Debtors and receivables at £69.3 million have reduced slightly from £69.4 million at H1 2011 and stock levels actually fell by 5.6% from £64.2 million (H1 2011) to £60.6 million (H1 2012) despite the sales increase of 4.5%.

Net debt at 30 September 2012 was down £4.0 million to £84.5 million (2011 H1: £88.5 million).

The Board will not be declaring an interim dividend and will keep this policy under review (2011 H1: nil).

Current Trading Outlook

Our Group continues to trade profitably in all regions with overall sales growth in the first half of 4.5%. At the same time our debt reduction programme remains on track and we have reduced debt by £4.0 million during the period. Driving strong earning per share growth also remains a core objective and this is underpinned by our encouraging performance in our major markets.

Our Joint Venture in Australia is now experiencing some of the macroeconomic market conditions which the Group has successfully managed in recent years in the US, UK and European markets and this may slow the pace of growth to headline profitability but the effect on earnings is much reduced after allowing for tax and the minority interest.

Our track record over recent years of prudent investment combined with the provision of innovative and competitive products has enabled us to combat competitive market dynamics across our global customer base. This underlines the importance of creating efficiencies across the Group, leveraging scale and continuing to balance the geography, product category and seasonality of our activities.

Paul Fineman

Chief Executive

Consolidated income statement

six months ended 30 September 2012

Consolidated income statement

six months ended 30 September 2012

Consolidated statement of comprehensive income

six months ended 30 September 2012

Consolidated statement of changes in equity

six months ended 30 September 2012

Consolidated statement of changes in equity

six months ended 30 September 2012

For the six months ended 30 September 2011

Consolidated statement of changes in equity

six months ended 30 September 2012

For the year ended 31 March 2012

Consolidated balance sheet

as at 30 September 2012

Consolidated cash flow statement

six months ended 30 September 2012

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 2012 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 £18.0 million (2011 H1: £23.3 million).

The borrowing requirement of the Group increases steadily over the period from July and peaks in September and October, 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 that 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. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements.

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 2012.

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 2012.

2 Segmental information

The Group has one material business activity being the design, manufacture and distribution of gift packaging and greetings, stationery and creative play products.

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 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 overseen by our UK operational management team and we therefore continue to include 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.

2 Segmental information continued

The six months ended 30 September 2011 comparatives have been amended to reflect revisions to the inter-segment reporting and eliminations between segments.

2 Segmental information continued

3 Exceptional items

(a) Provision for debtor now in voluntary administration relating to our Joint Venture in Australia

(b) Redundancies relate to the termination costs of key executives who left the business following a review of Board responsibilities and as a result of business re-organisation in the UK subsidiaries

(c) Loss on disposal of leasehold land and buildings in China as a result of the decision to move the China factory

(d) Costs associated with moving the China factory

4 Cash, loans and borrowing

5 Taxation

Taxation for the six months ended 30 September 2012 is based on the effective rate of taxation, which is estimated to apply in each country for the year ended 31 March 2013.

6 Earnings per share

The basic earnings per share is based on the profit attributable to equity holders of the Parent Company of £1,874,000 (2011: £993,000) and the weighted average number of ordinary shares in issue of 55,799,000 (2011: 54,103,000) calculated as follows:

Total number of options, over 5p ordinary shares, in issue at 30 September 2012 was 3,451,956.

Adjusted basic earnings per share excludes exceptional items charged of £375,000 (2011: £1,080,000) being the share of our Joint Venture attributable to shareholders, along with the tax relief attributable to those items of £112,000 (2011: £222,000). This gives an adjusted profit of £2,137,000 (2011: £1,851,000).