Design Group Regulatory News (IGR)

9 August 2011

International Greetings PLC

Preliminary Results for the year ended 31 March 2011

International Greetings PLC ('International Greetings' or 'the Group'), one of the world's leading designers, innovators and manufacturers of gift wrap, crackers, cards, stationery and accessories, announces its Preliminary Results for the year ended 31 March 2011.

Financial highlights

Operational highlights

Paul Fineman, CEO commented:

"It has been another good year of progress and we are delighted to have grown both sales and profit whilst continuing to reduce debt. We have also restructured our funding to strengthen our balance sheet.

"Our continued focus on providing great value, innovative products and excellent standards of service to our global customer base means that we remain well placed to meet challenging market conditions.

"We continue to address further methods for improving efficiency and have created a solid platform for continued profitable growth. We are confident that the Group is now in a good shape to exploit further opportunities in the market."

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Chairman's statement

Continued progress and profits growth

Last year I was able to report that the actions taken over the recent past were bearing fruit and that the Group had both returned to profit and further reduced its indebtedness. I am pleased to say that upward trend has continued this year, resulting in further profit growth and strengthening of our balance sheet.

This has been achieved at a time when the Group has faced stiff competition in the market place and has had to cope with inflationary pressures on raw material and transport costs.

Revenues for the year ended 31 March 2011 were up 9.4% to £216.9 million (2010 restated: £198.2 million). Profit before tax and exceptional items was up 47% to £5.2 million (2010: £3.5 million). Taking into account exceptional items of £0.9 million (2010 restated: £1.1 million), tax credits of £0.7 million (2010 restated: £0.0 million), and a loss from discontinued operations of £0.1 million (2010 restated: £1.8 million), profit for the year was £4.9 million (2010: £0.7 million). The basic earnings per share was 7.5p (2010: 0.1p).

We made further progress during the year in bringing down the level of debt on our balance sheet. Net debt was reduced by 9.1%, and as at 31 March 2011 was £44.4 million (2010: £48.8 million), whilst the equity attributable to our shareholders grew 13% to £48.1 million (2010: £42.6 million).

The Board is not recommending the payment of a dividend but will keep this policy under review. Our focus continues to be on debt reduction.

During the year we concentrated on three things. Firstly we have improved the range and quality of our products and services. As a result we have not only retained the business of key customers but also gained important new ones with whom we hope to develop a long-term relationship. Secondly, we have harnessed the collaborative energies of our global business to maximise cross-selling opportunities and to better target areas for investment. The third area is cost control. Each year our management is charged with the task of improving our margins, not only by controlling the cost of raw materials but also improving our productivity across the business. Good progress has been made and further improvements are expected during the current financial year.

Our strategy remains unaltered, namely to concentrate on profitable organic growth.

In May I announced that I shall be retiring from the Board at the Annual General Meeting. I became a Director in 2004 and subsequently was appointed Chairman in 2006. I am impressed by the quality of people and products we now have. It is an exciting business that, following the actions taken by the Group over the past few years, is in good shape to exploit future opportunities in the market place.

I should like to thank all my colleagues for their hard work and for the help they have given me during my time as Chairman. As announced in May, John Charlton, who was appointed a Non-Executive Director in 2010, will succeed me as Chairman. I wish John and the team every success. I am confident that the progress we have made in the recent past will continue under his leadership of the Board.

Charles Uwakaneme, one of our Executive Directors, will also be retiring at the Annual General Meeting. Charles has worked with the Group for many years and latterly has played a pivotal role in reorganising and strengthening our business in the UK and on the continent of Europe for which we are very grateful. I am pleased to say that he has agreed to continue working with us as a consultant on a part-time basis.

Finally I should like to thank our shareholders, bankers, customers, suppliers, and of course our staff for their loyalty and continuing support of our business.

Keith James

Chairman

Business review

Operational review

Following the restructuring of the past few years, we are a leaner, fitter business and I am delighted to report that this has contributed to another good year of progress for the Group.

Since returning the business to profit last year, we have continued to focus on increasing sales and profitability, generating cash and reducing our debt. We have also invested in the business to ensure we have a solid platform in place to continue to deliver on our growth strategy.

Geographical highlights

UK and Asia

The UK businesses accounted for 54% (2010: 55%) of the Group's revenue for the year, seeing an increase in sales of 8%. We were pleased with our performance in the UK, in which market conditions remained challenging during the year.

The main growth areas were increased volumes of gift wrap, everyday greetings cards and licenced stationery. This was the first full year the Group produced single greetings cards, and we were delighted to supply everyday greetings cards to two of the UK's leading multiple grocery chains during the year. We also saw strong sales of Christmas crackers, supported by record breaking production from our factory in China, which enabled us to take a greater share of the market. This was against a backdrop of mitigating strong cost inflation.

The decision was made 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 have therefore now included Asia within the reporting of the UK operations, in line with our internal reporting framework.

Anker and Alligator benefitted from strong sales of licensed stationery, boosted by the success of Toy Story 3. We integrated the UK logistical requirements of Scoop into Anker during the year. Scoop grew its packaging business as the Company developed innovative packaging for confectionery gifts.

USA

The USA operations accounted for 19% (2010: 20%) of the Group's revenue for the year and, importantly, it returned to profit for the first time in four years. Sales were down slightly, as we focused our activities on profitable product categories and channels of distribution.

We grew our product offering in the area of School Fundraising (a market which provides income for schools via sales of consumer products), following the Group entering this sector last year. We experienced strong sales in the entry price point value market, where our market share and customers continued to grow.

Mainland Europe

Europe accounted for 15% (2010: 17%) of the Group's revenue for the year, and achieved like-for-like sales growth from continued operations of about 1%. More importantly, all our continuing European businesses were profitable, with particularly strong growth in Eastern Europe. The Group exerted considerable focus on expanding product offering in Europe, increasing in particular our supply of greetings cards and stationery. As announced last July, the Board took the difficult decision to close the Eick Pack counter rolls business in Germany.

Australia

Australia accounted for 12% (2010: 8%) of the Group's revenue for the year, and grew like-for-like sales by 21% in a buoyant market. In addition to creating its own commercially successful products targeted at the market in both Australia and New Zealand, Artwrap benefitted from increased utilisation of Group products, design formats and services, and continued to take market share, winning contracts with large volume retail chains.

New customers and licences

We continue to expand our customer base and licensed products business. Toy Story 3 was a fantastic performing licence for the Group, and was one of Disney's most successful franchises. We saw strong sales in both stationery and gift packaging products.

Our licensed products portfolio launched during the year include stationery and gift packaging ranges under the "Hello Kitty" and "Smurfs" licences in Europe and "Me To You" in the UK.

Post year end we were delighted to gain the National Geographic licence in the US. The brand was voted the "Most Desired Brand in America" by Forbes. It has the number one selling children's magazine in the world, and includes the website nationalgeographickids.com. As of summer 2011, we will supply branded greetings cards, magnets, stickers, novelty pens and activity books to retailers across the US, and this remains a global opportunity.

The use of the internet for providing services to our customers, and to their consumers, has significantly increased, enabling us to supply a myriad of information and services to all markets and territories cost-effectively. We are confident that profitable new activities will be facilitated through embracing this exciting technology.

Improving the efficiency of our Group

Across the Group, our challenges included combatting significant inflation in raw materials, as well as the impact of Chinese labour and freight costs. We responded well by finding new ways to engineer cost out of products and add value through design, innovation and service. In addition, we increased our utilisation of recycled materials and reduced our wastage. In IG UK we are seeking to flatten out production peaks and, by analysing the challenges and working in partnership with our major customers, we have implemented changes to reduce production costs for the coming year.

IG UK also successfully integrated its design and product innovation service into its South Wales operation and repatriated the former Far East based automated ribbon and bow manufacturing into Wales. The efficient ribbon and bow manufacturing processes in Wales combined with the saving in freight from China, especially applicable to this product category, has helped us to achieve a year-on-year 100% sales growth.

We successfully implemented new ERP computer systems in both Artwrap (Australia) and Hoomark (Holland), which have shown benefits in the level of analysis, warehouse management and accuracy as well as efficiency in those businesses.

Anchor BV in Holland relocated its Weltec business from Northern Holland to become fully integrated within the Anchor business.

Our team

We are grateful to our colleagues globally for helping us make good strides in operating as a leaner business that works and innovates more cohesively.

On behalf of the Board and all Group colleagues, I would like to sincerely thank our Chairman, Keith James for his years of service as a Director and Chairman, and in particular, his excellent stewardship during the restructuring of the Group and our return to profit. We also welcome John Charlton to the role of Chairman and look forward to a continued period of profitable growth.

The business today is one which sees our Group utilising and sharing resources in an intelligent way, while each business manages to retain its individuality and focus on the needs of its customers and markets.

Current trading and outlook

The year to date has started well and we are trading in line with expectations. Following the return to profit in the US, the Group is in good shape and, in addition, we have identified further opportunities to reduce manufacturing costs which we will see benefits of in the coming years.

While global market conditions remain challenging, we are confident in our ability to achieve our growth ambitions for the current year.

Paul Fineman

Chief Executive

Business review

Financial review

Group performance

The Board has continued its focus on cash management and increasing profit, and hence has further strengthened the financial position of the business.

Continuing operations

Revenues from continuing operations for the year to 31 March 2011 were up by 9.4% to £216.9 million (2010 restated to disclose discontinued operations: £198.2 million). The main growth areas were in the UK, which grew by 8%, and Australia. Part of the reported 67% sales growth against prior year in this segment is due to the Group only including Artwrap PTY as a subsidiary since 1 August 2009. If we had included Artwrap for the full year to March 2010, Group sales would have increased by 6.5%. The effect of US dollars and euro against sterling reduced revenue this year by 0.4%.

Gross profit margin from continuing operations and before exceptional items has increased to 17.4% (2010 restated: 17.0%) and reflects improved margin performance in USA and Europe, mitigated by a slightly reduced margin in Australia due to the high volume growth in sales. We have increased the margin despite our continued efforts to sell older stock and being subject to significant inflationary pressures from raw materials, sea freight and, in the Far East, from significant inflation in labour costs and the strengthening Chinese currency.

Whilst underlying overheads have reduced year-on-year by 2.2%, the full year inclusion of Artwrap and the effect of currency exchange gains means that, in total, overheads increased by 6% to £30.7 million (2010 restated: £28.9 million).

Operating profit before exceptional items increased by 25% to £8.1 million (2010 restated: £6.5 million). After exceptional items, our operating profit was £7.2 million (2010 restated: £5.4 million).

Exceptional items during the year amounted to £0.9 million before tax (2010: £1.1 million, excluding discontinued business). These relate to:

Finance expenses in the year remained at £2.9 million (2010 restated: £2.9 million) reflecting the overall debt reduction throughout the period, which mitigated the increased bank fees and margins.

Profit before exceptional items, and tax was up 47% to £5.2 million (2010 restated: £3.5 million).

Profit before tax from continuing operations was up 76% to £4.3 million (2010 restated: £2.4 million).

Discontinued operations

As disclosed last year, in July 2010 the Board took the difficult decision to close the Eick Pack business. The results of Eick Pack are now shown as a discontinued business, and the comparatives have been adjusted accordingly. Details are shown in note 7.

Taxation

The continued profits of the Group this year have enabled tax losses from previous years to be used both against profits for this year and provided against foreseeable profits in the future. In addition, a change in the US tax regulations has allowed losses to be carried back for three years, giving rise to a tax repayment during the year. With our European businesses now all under one Dutch holding company, IG Europe BV, we have this year also been able to secure tax repayments from losses carried back.

These have given an effective tax credit of 16% (2010 restated: 2% credit). The main segment able to use the brought forward losses is the UK. There are still £5.8 million of losses not recognised as an asset in the US and the UK.

Profit for the year

We are pleased to report that profit for the year was up to £4.9 million (2010: £0.7 million).

Earnings per share and dividends

The basic earnings per share was 7.5p (2010: 0.1p). The basic earnings per share from continuing operations was 7.7p (2010 restated: 3.6p). After removing the effect of exceptional items and discontinued business, the adjusted earnings per share increases to 8.9p (2010 restated: 4.4p).

No dividend was paid during the year (2010: £Nil) and the Board does not propose a final dividend for the year. Our core focus continues to be on growing the profitability of the business and reducing bank debt. Dividends will be recommended as soon as the Board considers it appropriate.

Balance sheet and cashflow

Net debt at 31 March 2011 reduced by 9.1% to £44.4 million (2010: £48.8 million) (see note 11).

Our year end net debt includes amounts denominated in US dollars of $21.4 million (2010: $18.9 million), and in euros of €14.9 million (2010: €18.1 million). The year end exchange rates were $1.61 (2010: $1.51), and €1.13 (2010: €1.12). Using the 2010 exchange rates our net debt at 31 March 2011 would have been £45.4 million, a reduction of 7.1% from 2010 (2010: 27.0% from 2009).

We have continued to focus attention on reducing our outstanding debtors, both to maximise cash but also to reduce our credit risk. Trade debtors fell from £17.6 million to £17.4 million (1%), despite the 9% increase in sales. The effect of currency translation on this reduction is minimal. Days' sales outstanding fell from 59 to 52 days.

Stock levels rose by 2% from £44.9 million to £45.6 million reflecting the success in obtaining some firm customer orders to begin factory production for the coming season ahead of the traditional summer peak, which should in turn enable more efficient use of resources in the coming year. Older stock (measured as over 15 months since last purchase) has continued to fall by 25%, so the mix of stock is now far more current.

Group cash generated from operations was £10.7 million (2010: £27.5 million). In the previous year we had been very successful in reducing stock and debtors to their current levels which had generated nearly £20 million cash.

There was no cash paid out in the year in respect of deferred consideration for acquisitions (2010: £0.8 million), and the final liability for deferred consideration for Glitterwrap was settled in September 2010 by issuing 1.5 million shares.

The Group has again maintained capital expenditure at a low level being £2.7 million for the year (2010: £1.8 million). It realised £0.1 million (2010: £0.3 million) from asset sales in the year. The Group also invested £0.7 million to purchase a property in the US to honour a guarantee given five years ago on behalf of a former CEO of the US business. It is intended to sell this property as soon as practicable. In the coming year it is intended to invest in new state of the art printing machinery in Europe which will further improve efficiency. In addition our planned relocation and re-organisation of our operations in China will further enhance our competitive portfolio of products and services.

Equity attributable to shareholders has increased from £42.6 million to £48.1 million

Risks and key performance indicators

We are focusing on reducing debt, reducing overheads and improving profits to regain our financial strength. On reducing debt, we are managing both working capital and our investments in fixed assets. All of these have been discussed above. Operationally we are increasing the spread of our revenue base across:

Treasury operations

The Board is delighted to announce that in July 2011 the principal bank of the Group has agreed to restructure its facilities as follows:

In addition, we are delighted to announce that a US bank has now agreed to provide a three year asset backed loan facility of up to $25 million, at a rate of 2.5% over US LIBOR.

These new facilities significantly change the balance between short term and longer term liabilities. The net current liabilities of £4.2 million would have been presented as net current assets of £25.8 million.

The covenants attached to these new facilities include:

Sheryl Tye

Finance Director

Consolidated income statement

year ended 31 March 2011

Consolidated statement of comprehensive income

year ended 31 March 2011

Consolidated statement of changes in equity

year ended 31 March 2011

Merger reserve

The merger reserve comprises premium on shares issued in relation to business combinations. This year, and last year, the additions are in relation to the final deferred consideration for the Glitterwrap business.

Capital redemption reserve

The capital redemption reserve comprises amounts transferred from retained earnings in relation to the redemption of preference shares. For ease of presentation the amount of £1.34 million relating to the capital redemption reserve has been included within the column of share premium and capital redemption reserve, in the balances at both the beginning and end of each year, with no movements.

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 have not yet occurred.

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 2011

These financial statements were approved by the Board of Directors on 9 August 2011 and were signed on its behalf by:

Consolidated cash flow statement

year ended 31 March 2011

Notes to the preliminary announcement

1 Accounting policies

International Greetings plc is a public limited company, incorporated and domiciled in England and Wales. The Company's ordinary shares are listed on AIM.

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group") and equity account for the Group's interest in associates prior to gaining control of the former associate during 2009/2010.

The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs").

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group financial statements. Prior year comparatives have been restated to remove the discontinued operation from continuing operations (see note 7).

Going concern basis

The financial statements have been prepared on the going concern basis, notwithstanding the net current liabilities of £4.2 million (2010: £10.5 million).

As in previous years, the Group has relied primarily on a short term facility for its working capital needs. In July 2011 the Group has negotiated with its principal bank more structured borrowings (split between US Dollars and Sterling) comprising a 5 year loan of £15.2 million with a bullet repayment on the 5th anniversary, a 4 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 backed 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. Details of the Group's facilities and borrowings in place at the year end are given in Note 12. Full details of the new facilities are included in Treasury Operations in the Financial Review.

The Board has prepared a working capital forecast which shows that the borrowing requirement of the Group increases steadily 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. Over this period due to production lead times the orders for pre Christmas delivery have largely been received and therefore the principal sensitivities considered in the forecasts relate to the exchange rate between the US dollar and Sterling for both trade and borrowing requirements. The working capital forecasts show the Group will operate within its facility limits for the foreseeable future.

The Directors have a reasonable expectation that the Group has 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.

Measurement convention

The financial statements are prepared on the historical cost basis except that financial instruments used for hedging are stated at their fair value.

Changes in accounting policies

The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 March 2010, except for the adoption of new Standards and Interpretations as of 1 April 2010, which did not have impact on the financial position of the Group.

2 Segmental information

The Group has one material business activity being the design, innovation and manufacture of gift wrap, crackers, cards, 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 have therefore now included 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.

(a) Capital expenditure consists of additions of property, plant and equipment, intangible assets and goodwill.

(b) No single customer accounts for over 10% of total sales.

(c) The assets and liabilities that have not been allocated to segments consist of deferred tax assets of £4,617,000 (2010: £3,501,000), and income tax payable of £162,000 (2010: £26,000). In addition the assets and liabilities have been grossed up for VAT of £315,000 (2010: £268,000) to reflect the net position of the Group.

(d) No operating segment has been aggregated in determining reportable segments.

(e) Central recharges are included within the result of the segment that takes the recharge. The balance of the central costs are not allocated to segments.

(f) The discontinued operation all relates to the Europe segment. See note 7 for results. The loss includes £26,000 (2010: £94,000) of finance expenses and £nil (2010: £135,000 credit) in respect of tax.

Geographical information

The Group's information about its segmental assets (non-current assets excluding deferred tax assets and other financial assets) and turnover by customer destination and product are detailed below:

Turnover by product

Turnover analysis by product

3 Other operating income

4 Finance expenses

5 Taxation

Recognised in the income statement

Reconciliation of effective tax rate

Included in the adjustments in respect of prior years above is a credit for £427,000 arising from a change in legislation in the US enabling the Group to utilise further tax losses carried back.

6 Exceptional items

Year ended 31 March 2010

7 Discontinued operations

In July 2010, the Board took the difficult decision to close the Eick Pack counter rolls business in Germany that it bought in 2007. It made losses since its acquisition, and despite investing extra management time, and further sales resource, there were insufficient indicators that a sustained improvement could be made.

As a result of the decision to close its German subsidiary, as at 31 March 2010 the Group impaired the fixed assets of that subsidiary, being printing equipment and fittings totalling £767,000 to the Directors' estimate of its fair value on sale less costs of sale which netted to £Nil. In addition the Group reviewed the carrying value of the related inventory and provided £631,000 against these.

8 Property, plant and equipment

9 Intangible assets

The aggregate carrying amounts of goodwill allocated to each unit are as follows:

10 Deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

The deferred tax asset in respect of tax losses carried forward at 31 March 2011 of £2,406,000 (2010: £2,250,000) is comprised of UK tax losses of £1,982,000 (2010: £2,250,000), and US losses of £424,000 (2010: £Nil). US tax losses carried forward will become irrecoverable in March 2027. UK tax losses may be carried forward indefinitely. The deferred tax assets have been recognised where the Board considers there is sufficient evidence that taxable profits will be available against which the tax losses can be utilised. The Board fully expects that all the tax losses will be recoverable against future profits but given the level of tax losses brought forward recoverability has been assessed on the basis of expected profits currently forecast on a prudent basis. Deferred tax assets in respect of taxable losses that are expected to be recovered outside this forecast period have not been recognised. This includes unrecognised deferred tax assets in respect of UK tax losses in the year of £Nil (2010: £20,000) and against brought forward UK losses of £480,000 (2010: £1,356,000), and in respect of US tax losses in the year of £Nil (2010: £650,000) and £5,336,000 (2010: £6,387,000) in respect of brought forward US tax losses.

11 Cash and cash equivalents/bank overdrafts

12 Loans and borrowings

The asset backed loans are secured on the inventory and receivables of the larger business units within the UK and European business segments.

Terms and debt repayment schedule

13 Earnings per share