Half Year Results Presentation 2019...IG Design Group plc HALF YEAR RESULTS PRESENTATION 2019 7...

Presented by

Paul Fineman, CEO and Giles Willits, CFO

Half Year Results Presentation 2019

HALF YEAR HIGHLIGHTS

Strong first half financial performance, in line to deliver full year expectations

Profit growth across our largest territories with Australia as previously signalled

Focus on creating value for shareholders through growth opportunities across all categories

Exciting pipeline of M&A opportunities

IG Design Group plc HALF YEAR RESULTS PRESENTATION 2019 2

Celebrations Stationery & Creative Play

Gifting 'Not-for-resale' Consumables

77%of revenue

£188.7m(H1 2019: 77%, £157.3m)

HELPING THE WORLD CELEBRATE LIFE'S SPECIAL OCCASIONS We operate in the following core product categories:

11%of revenue

£27.9m(H1 2019: 9%, £19.4m)

9%of revenue

£23.2m(H1 2019: 10%, £21.3m)

3%of revenue

£8.6m(H1 2019: 4%, £7.2m)


GLOBAL SCALE SUPPORTED BY WORLD CLASS MANUFACTURING/SOURCINGRevenues by:

Customer destination

USA

61%UK

19%Europe

12%Australia

7%ROW

1%

Sourced

74%Manufactured in-house

26%

Source

Everyday

36%Christmas

60%Minor seasons

4%

Season

£150.8m

£46.5m

£28.8m£16.7m

£5.6m

£185.0m

£63.4m

£150.5m

£88.3m

£9.6m

HALF YEAR RESULTS PRESENTATION 2019IG Design Group plc 4HALF YEAR RESULTS PRESENTATION 2019

Financial overview


SUMMARY HALF YEAR FINANCIAL RESULTS

Delivering growthAdjusted EPS (pence)(b)

(a) Adjusted profit is stated before tax, exceptional items, acquisition amortisation and LTIP charges. Profit before tax stated after exceptional charge of £1.5 million (H1 2019: £3.0 million), acquisition amortisation of £1.4 million (H1 2019: £0.4 million) and LTIP charges of £1.5 million (H1 2019: £1.5 million) is £17.1 million (H1 2019: £14.0 million).

(b) Adjusted EPS is stated before exceptional items, acquisition amortisation and LTIP charges. Reported diluted earnings per share 16.0p (H1 2019: 13.8p). We use both statutory reported and adjusted measures in our presentation. Adjusted measures in management’s view reflect the underlying performance of the business and provide a more meaningful comparison of how the business is managed and measured day-to-day. A full reconciliation between our reported and adjusted results is provided in our alternative performance measures section in the appendix to this document.

Improving returnsDividend (pence)

+2% on 2019 +20% on H1 2019

Revenue(£m)

+21% on 2019

Adjusted profit(£m)(a)

+14% on 2019

4.00

6.00

9.7

11.1

19.7 20.1

H1 2017 H1 2018 H1 2019 H1 2020

145.5

166.5

205.2

248.4

H1 2017 H1 2018 H1 2019 H1 2020

8.3

10.6

18.9

21.5

H1 2017 H1 2018 H1 2019 H1 2020

2.75

TBA

2017 2018 2019 H1 2020

2.001.75

2.503.00

IG Design Group plc 6HALF YEAR RESULTS PRESENTATION 2019

30 Sep 2019 30 Sep 2018 % £m £m change

Revenue 248.4 205.2 21

Gross profit 51.3 44.2

Overheads (27.7) (24.8)

Adjusted operating profit 23.6 19.4 21

Adjusted operating margin % 9.5% 9.5%

Finance charge (2.1) (0.5)

Adjusted profit before tax 21.5 18.9 14

Exceptional items (1.5) (3.0)

Acquisition amortisation (1.4) (0.4)

LTIP charges (1.5) (1.5)

Profit before tax 17.1 14.0 22

Tax (3.8) (3.7)

Profit after tax 13.3 10.3 29

STRONG REVENUE AND PROFIT GROWTH

• Revenue increase driven by organic growth and full year effect of Impact, on a constant currency basis increase was 18% compared to comparative period

• Adjusted operating profit up representing revenue increase with H1 group operating margins flat, on a constant currency basis the increase was 18%

• Finance charge up driven by change in average debt following the Impact acquisition and the effect of IFRS 16

• Exceptional costs primarily relate to ongoing costs associated with the integration of Impact in the US and the subsequent restructure of our US business

• Acquisition amortisation reflects full year effect of the Impact acquisition including the accelerated amortisation of trade names

• Effective tax rate of 22.5% (H1 2019: 24%) a result of weighted blend of statutory rates and recognition of previously unrecognised losses that are expected to be recovered against forecast taxable profits


Segmental revenue Adjusted operating profit(a) Adjusted margin H1 2020 H1 2019 Growth H1 2020 H1 2019 Growth H1 2020 H1 2019

60% Americas $m 183.8 131.6 40% 17.6 13.9 27% 9.6% 10.6%

22% UK £m 58.3 60.6 (4)% 5.4 4.9 9% 9.2% 8.1%

12% Europe €m 32.3 30.7 5% 4.3 3.8 13% 13.3% 12.3%

7% Australia AU$m 30.0 36.7 (18)% 2.9 4.1 (28)% 9.2% 11.1%

(1%) Elims/central costs £m (3.3) (3.8) — (1.7) (2.0) — — —

100% Total £m 248.4 205.2 21% 23.6 19.4 21% 9.5% 9.5%

• Adjusted operating profit increase driven by growth in Americas, UK and Europe

• Americas revenue up reflecting organic growth and full year effect of Impact Innovations, with operating profit growth. Operating profit in comparative period not on a like-for-like basis due to timing of Impact Innovation acquisition which drove a higher percentage margin than would have been achieved in a full six month trading period

• UK delivered profit growth in a challenging market benefiting from ‘not-for-resale’ bag growth and cost savings from UK unification initiative. Revenues broadly flat reflecting impact of Brexit on timing of customer shipments

• Europe continuing to deliver both revenue and profit growth with margin improvement driven by product mix and efficiency gains

• Australia revenue, as previously messaged, stepped back reflecting market challenges and reduced business with certain national retailers in the region

PROFIT GROWTH IN KEY TERRITORIES

(a) Segmental profit calculated as adjusted operating profit before management charges. The 2019 result includes the impact of operating IFRS 16.


As at As at 30 Sep 2019 30 Sep 2018 £m £m

Adjusted EBITDA 30.4 22.1

Change in trade and other receivables (116.2) (108.5)

Change in inventory (56.1) (32.3)

Change in creditors, provisions and accruals 61.6 43.9

Adjusted cash generated from operations (80.3) (74.8)

Exceptional items from operations (1.2) (1.1)

LTIP (0.4) (0.6)

Cash generated from operations (81.9) (76.5)

Proceeds from sale of property, plant and equipment — 0.5

Net capital expenditure (4.1) (3.6)

Business acquired — (67.1)

Tax paid (2.3) (2.2)

Interest paid (including exceptional item) (1.7) (0.6)

Payments of lease liabilities (3.1) —

Equity dividends paid (4.7) (2.6)

Proceeds from issue of share capital — 48.3

Other (5.5) (0.6)

Movement in net debt (103.3) (104.4)

Opening net cash 17.1 4.4

Closing net debt (86.2) (100.0)

CASH FLOW IN LINE WITH SEASONAL WORKING CAPITAL CYCLE

• Net debt (excluding IFRS 16 lease liabilities) at half year £13.8 million lower than prior year comparative reflecting improved opening net cash position

• Movement in net debt in period in line with planned seasonal working capital cycle with cash outflow from operations at £80 million reflecting the full effect of working capital outflow for Impact compared to prior year which only included one month working capital movement. Excluding Impact, working capital movement consistent with the previous half year

H1 2020 H1 2019 Impact Existing Impact Existing £m £m £m £m

Receivables (30.1) (86.1) (20.9) (87.6)

Inventory (27.5) (28.6) 4.5 (36.8)

Creditors 31.0 30.6 12.2 31.7

(26.6) (84.1) (4.2) (92.7)

Working capital analysis


As at Restated as at 30 Sep 2019 30 Sep 2018 £m £m

Intangibles 86.6 80.5

Fixed assets 41.3 45.2

Right-of-use assets 35.6 —

Stock 128.2 110.2

Trade and other receivables 163.6 183.9

Net cash (86.2) (100.0)

Trade and other payables (138.0) (139.8)

Deferred income and provisions (4.4) (3.2)

Lease liability (40.3) —

Taxation (2.6) (4.3)

Net assets 183.8 172.5

Attributable to shareholders 179.5 168.2

• The Group adopted IFRS 16 from 1 April 2019 on a modified retrospective basis

• Reduction to adjusted profit before tax was £0.2 million, EBITDA increased by £3.8 million due to rental costs no longer charged to the income statement. This is offset by increased depreciation of £3.2 million and finance charges of £0.8 million

• Impact on net assets is a £4.7 million reduction with non-current assets increasing by £35.5 million and gross liabilities by £40.3 million (excluding the effect of deferred tax and capital contributions)

BALANCE SHEET REFLECTS ADOPTION OF IFRS 16

IFRS 16

(a) Return on capital employed is calculated as adjusted operating profit divided by monthly average net capital employed (excluding cash and intangibles).

Return on capital employed(a)

22.5%

17.2%

24.3% 25.4%

FY 2017 FY 2018 FY 2019 H1 2019


Average leverage(a)

NEW FACILITIES TO SUPPORT ORGANIC AND M&A GROWTH

Lender Renewal Facility Margin Covenant

Club facilities Corporate revolving credit facility and overdraft 2022 $80m 1.05% Leverage Working capital revolving credit facility 2022 £85m 1.05% Stock and unfunded debtorsHSBC Asia receivables financing 2022 $18m 1.30% ReceivablesWestpac Biscay loan 2023 AU$9m 1.80% Capital ratio Overdraft Annual AU$10m 1.95% Capital ratio

1.0x

2.6x

1.3x

1.9x

(20) Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

-

70

100

130

Net debt FY 2019

Net debt H1 2019

£47.7m

£45.9m

12 month averageto 30 Sep 19

12 month averageto 30 Sep 18

£m

40

10

Net debt

2020201920182017

(a) Average leverage is 12 month average debt divided by adjusted EBITDA.

Excluding IFRS 16 effect, average leverage is 1.1 times


MANAGING OUR CHALLENGES

• No significant trading flows with European customers or suppliers

• Mitigating potential impact through:

• moving to UK-based suppliers

• re-routing imports to western ports

• limited inventory build of raw material paper supplies

• Negotiating terms with suppliers and customers

• Redirecting the supply of goods from other countries, such as Vietnam, Indonesia, India and South America

• Re-engineering products with customers to reduce costs

• Moving production to the US

• Managed with long term customer opportunities in mind

Brexit US-China tariffs


FUTURE TARGETS

Working with the winners

EPSThree-year CAGR

double digit growth

Leverage1-2x average debt

DividendTrending to 2.5x cover

Design & innovation

Efficiency & scale

Financial KPI targets

Strategic drivers Shareholder commitmentsAnnual organic revenue growth 3-5%

Operating cash conversion in excess

of 75%

EBITDAGrowth of 8-10%

ROCETarget 24% and above


Creating value


Working with the winners

• Growth opportunities to expand across territories, regions and adjacent related product categories with long established customers

• Mass and discount retailers also growing through diversifying channels including e-commerce and convenience stores

• 2020 will see increased investment in design resource and the establishment of an Innovations Hub in the US

• Sustainable sourcing and environmental responsibility will continue to be a focus of attention

• Benefiting from investment in all our manufacturing sites including the second production line for 'not-for-resale' bags in the UK and the new state-of-the-art printing press in the US

• In Europe, investment in further automation on wrap conversion will further improve efficiency

Design & innovation Efficiency & scale

CREATING VALUE – OUR STRATEGY


CREATING VALUE THROUGH OUR EXPERIENCED DECENTRALISED TEAM

Lance BurnMD – UK & China

Shane TimmermanCEO – Australia

Gideon Schlessinger CEO – Americas

John DammermannCEO – Décor

Joost BogersMD – Europe – Celebrations

Ron VroegindeweijMD – Europe – Gifting

Giles WillitsGroup CFO

Paul FinemanGroup CEO


Geographicdiversity

Lowcost

Award winning service

Strongoffering

Customerrelationships

Design & innovation

Auditedcompliance

A broad portfolio

CREATING VALUE FOR CUSTOMERS

CUSTOMER SERVICE INNOVATION

DESIGN SUSTAINABILITY


Wrap

Crackers

Décor

Partyware

Gift bags

Ribbons/Bows etc

Cards

Stationery

Creative Play

EXTENSIVE OPPORTUNITIES BY CATEGORY AND BY GEOGRAPHY

Size of growth opportunity

Small Medium Large

AMERICAS UKEUROPE AUSTRALIA

Gifting

'Not-for-resale' Consumables

Art & Craft


CREATING VALUE FOR SHAREHOLDERS – BY ACQUISITION

Identifying winning teams Leveraging scale and expertise to drive synergyDelivering great customer service

Tangible operational synergies

Adjacent and related product categories

A compelling propostion for our customers

Earnings enhancing

Demonstrably advantageous compared to organic alternative

Supported and sponsored by Group Executive

Key Criteria


Ongoing ‘roll out’ of the new IT platform in the US

Continuing to progress operational and commercial integration of Impact Innovations within the Americas and throughout the Group

Accelerating the momentum in securing non-China based fully compliant product sources

Volume growth and increasing brand application for ‘not-for-resale’ bags

Reduction in year-on-year leverage with improved forecast positive year-end net cash position

SECOND HALF FOCUS

Fulfilling customer orders and servicing new business in 2020/21 and beyond


WHY INVEST?

We will continue to drive organic growth, through our diversified business operating across regions, categories, channels, seasons and brands

We will continue to drive innovation, deliver excellent service and remain our customers’ ‘Partner of Choice’

We will enhance net margins through investment – driving efficiency, streamlining processes and attracting best talent

We will discerningly pursue M&A opportunities supported by our strong balance sheet to deliver incremental growth

We will continue to convert profit into cash and deliver dividend growth through earnings progression


Appendix


MAJOR INVESTMENTS

Adjusted EPS

2020

March 2012Printing press, Netherlands

March 2014Major investment in Wales completed

July 2016Acquisition of Lang

June 2016Anker Play Products

established, USA

September 2017Investment bag

machine, UK

April 2015Paper conversion

machine, USA

Capital expenditure

M&A

July 2014Acquisition

of Enper, Netherlands

August 2018Acquisition of

Impact Innovations, USA

January 2018Acquisition ofBiscay, Australia

March 20182nd printing press operational, Netherlands

2012 2013 2014 2015 2016 2017 2018

6.7p 7.8p 8.4p 11.5p 13.2p 18.6p 22.1p

2019

29.3p

January 2020Printing Press, USAPaper conversion, Netherlands2nd Bag Machine, UK


LARGEST SHAREHOLDERS(a)

Hedlund family(b)

27.72%Octopus Investments

9.98%

Close Brothers AM

4.23%

Liontrust Investments

5.03%

Schroders Plc

4.48%Paul Fineman(c)

3.22%Polar Capital

3.34%

BlackRock

5.00%

(a) Shareholdings as at 30 September 2019.(b) In addition to the Hedlund family’s beneficial interest set out above, the Hedlund family is also interested in a further 1,150,790 ordinary shares, representing a further 1.47% of the current issued share capital of the Company.

These ordinary shares are held by West Coast Trust, a trust for the benefit of Anders Hedlund’s adult children, which holds 900,790 ordinary shares. In total the Hedlund family is interested in 22,818,994 ordinary shares, representing 28.86% of the current issued share capital of the Company.

(c) This includes a non-beneficial interest in 174,608 ordinary shares at 5p each.


ALTERNATIVE PERFORMANCE MEASURES

A full reconciliation between our adjusted and reported results is provided below: 30 Sep 2019 30 Sep 2018

£m £m

Adjusted EBITDA 30.4 22.1



EBITDA 27.4 17.6

£m £m

Adjusted operating profit 23.6 19.4




Reported operating profit 19.2 14.8

£m £m

Adjusted profit before tax 21.5 18.9




Reported profit before tax 17.1 14.0

£m £m

Adjusted profit after tax 16.7 14.3




Reported profit after tax 13.3 10.3

pence pence

Adjusted EPS 20.1 19.7

Exceptional items (including tax effect) (1.4) (3.6)

Acquisition amortisation (including tax effect) (1.2) (0.4)

LTIP charges (including tax effect) (1.5) (1.9)

Reported diluted EPS 16.0 13.8


The following table summarises the impact of adopting IFRS 16 on the Group's key metrics: Pre-IFRS 16 Impact of As reported Sep 2019 IFRS 16 Sep 2019

Adjusted operating profit (£m) 23.0 0.6 23.6

Finance expenses (£m) 1.3 0.8 2.1

Adjusted profit before tax (£m) 21.7 (0.2) 21.5

Adjusted EBITDA (£m) 26.6 3.8 30.4

Adjusted diluted earnings per share (pence) 20.3 (0.2) 20.1

Average leverage (times) 1.1 (0.1) 1.0

ROCE (%) 24.7 0.7 25.4

Net debt excludes IFRS 16 lease liabilities.

IFRS 16 – IMPACT ON FINANCIAL STATEMENTS


IG Design Group plcNo 7 Water End Barns

Water EndEversholt MK17 9EA

T +44 (0)1525 887 310

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