Half-year Report

7 March 2018

ST IVES plc

Half Year Results for the 27 weeks ended 2 February 2018

St Ives plc, the international marketing services group, announces half year results for the 27 weeks ended 2 February 2018.

Financial Highlights

1 Adjusted results exclude Adjusting Items to enhance understanding of the ongoing financial performance of the Group. Adjusting Items comprise of redundancies, restructuring costs; gain or loss on disposal of properties; impairment or amortisation charges related to goodwill, tangible and intangible assets; contingent consideration required to be treated as remuneration; movements in deferred consideration and costs related to the St Ives Defined Benefits Pension Scheme.

2 Net debt as at 28 July 2017.

3 Continuing operations excludes the results of the four Marketing Activation businesses disposed of at the end of February 2018 (Note 8).

4 Like-for-like revenue is calculated by applying prior period exchange rates to local currency results for the current and prior periods.

· A positive six months, with encouraging growth in both Group revenue and adjusted profit before tax from continuing operations.

· Strategic Marketing, which lies at the centre of the Group's long term growth strategy, delivered like-for-like4 revenue growth of 23%, representing 85% of the Group's adjusted operating profit.

· Disposal of four businesses within the Marketing Activation segment significantly reduced Group exposure to commoditised print markets.

· Net debt reduced to £42.2 million from £54.6 million at 28 July 2017.

· Interim dividend maintained at 0.65 pence, to reflect both ongoing investment in organic growth of the Strategic Marketing segment and strengthening the balance sheet.

Matt Armitage, Chief Executive, said:

"This is an encouraging first half performance, with notable progress in our higher growth and higher margin Strategic Marketing segment, offsetting commercial pressures elsewhere in the Group.

"Strategic Marketing continues to go from strength to strength, and making a significant 85 percent contribution to adjusted operating profit during the period. Trading continues to be strong in this segment. We are encouraged by new projects won from both existing and new clients, and excited by the opportunities generated from increased collaboration between our businesses. 

"Having indicated our intention to remain focused on diversifying into other sectors, we are pleased to have recently announced the disposal of a significant element of our Marketing Activation segment. This significantly reduces the Group's exposure to the structurally challenged, commoditised print markets and the risk of further, potentially significant re-structuring costs.

"We remain confident in our long-term growth strategy to generate value for shareholders."

For further information, please contact:

https://www.st-ives.co.uk/investor-relations

The foregoing contains forward looking statements made by the Directors in good faith based on information available to them up to 7 March 2018. Such statements need to be read with caution due to inherent uncertainties, including economic and business risk factors underlying such statements.

Chief Executive's Review

Group Performance from Continuing Operations

The results for the Group's continuing operations for the 27 week period to 2 February 2018 show Group revenue of £146.5 million, 7% higher than the previous period.

Our Strategic Marketing segment delivered, for the twenty seven week period to 2 February 2018, like-for-like revenue growth of 23% (excluding the impact of currency movements) in comparison to the twenty six week period to 27 January 2017. This was partially offset by an 11% decline in our Marketing Activation segment and a 10% decline in our Books segment.

The Group's Adjusted profit before tax increased to £12.7 million (2017: £9.5 million) and Adjusted basic earnings per share increased by 34% to 7.06 pence (2017: 5.26 pence).

The Group's statutory loss before tax of £15.0 million (2017: £3.1 million) includes Adjusting Items of £27.7 million (2017: £12.6 million). The Adjusting Items include costs related to acquisitions made in prior periods of £23.4 million, impairment of intangible assets of £2.2 million, costs related to the St Ives Defined Benefits Pension Scheme (the "Scheme") of £0.9 million and other restructuring costs of £1.2 million. Adjusting items of £26.9 million have been recorded in the Strategic Marketing segment and £0.8 million has been recorded in the Books segment.

The half year reflects further significant progress in our higher growth and higher margin Strategic Marketing segment, offsetting pressures elsewhere. Strategic Marketing contributed 85% of Group Adjusted profit from operations during the period (2017 - 54%).

Discontinued Operations

On 2 March 2018, as part of the Group's continuing strategy to focus on its Strategic Marketing segment, we announced the disposal of a significant part of our Marketing Activation segment including Point-of-sale, Exhibitions and Events, and Field Marketing businesses. These businesses have been treated as discontinued operations and assets held for sale, with a non cash impairment of £14.0 million to the goodwill related to these businesses. The consideration of £6.0 million will be used to reduce Group debt.

Balance Sheet

Net debt as at 2 February 2018 was £42.2 million, down from the £54.6 million as at 28 July 2017, representing a net debt to adjusted EBITDA ratio of 1.2x (28 July 2017: 1.6x).

Dividend

The Board has declared a maintained interim dividend of 0.65 pence per share (2017 - 0.65 pence) which will be paid on 4 May 2018 to the shareholders on the register at 6 April 2018, with an ex-dividend date of 5 April 2018.

Pension Scheme

On an IAS 19 basis the net deficit on the Scheme decreased to £15.8 million (28 July 2017: £16.0 million). This is mainly due to a decrease in the discount rate used, which reduced the obligations of the plan.

Strategic Priorities

The Board remains confident in its long term strategy for further growth, which is built around our Strategic Marketing segment and remains centred around three key priorities:

Collaboration

We continue to make progress with our collaboration agenda with major clients including Tesco, Kraft Heinz, Jaguar Land Rover and Electrolux working with multiple businesses across the Group.

We continue to see a general increase in demand for integrated solutions from clients within our Strategic Marketing segment. Having seen the benefit of bringing a number of our Digital and Data businesses closer together, we are continuously looking to review and evolve our operating model in this segment to take advantage of further collaboration opportunities.

Internationalisation

Many of our businesses continue to deliver international solutions for clients with nine of our Strategic Marketing businesses servicing clients on an international basis.

Our strategy for developing St Ives' overseas footprint is client-driven and we will continue to open offices in those territories where we can identify client-led opportunities. However, we remain disciplined in our implementation of this strategy; the opportunities must be in large markets or in markets with the potential for significant and sustainable growth, and the offices need to be capable of generating appropriate returns within a reasonable time frame.

Acquisitions

In the longer term, the acquisition of further complementary marketing services businesses, which add value to our existing portfolio and operate in our chosen growth areas of digital, data and insight services, will continue to be an important element of the growth strategy of our Strategic Marketing segment. However we are currently prioritising organic growth, including leveraging the investments we have made in existing propositions and in new offices.

Segment Overview - Continuing Operations

Strategic Marketing

Our Strategic Marketing operations represent 63% of Group revenue for the half year (2017: 55%) and 85% of Group Adjusted operating profit (2017: 54%).

We have seen further encouraging progress within the Strategic Marketing segment- the core of the Group and key to our long-term growth strategy - with significant new client wins including NFU Mutual, Sun Life, Amgen, BMS and Brunswick.

As a result of an increase in client demand for more integrated solutions, we have continued to drive our collaboration agenda and to evolve our operating model accordingly. We continue to focus on the disciplines of Digital, Data and Insight although the strict distinctions between these disciplines are becoming less relevant as clients demand more integrated propositions from us.

Our Data businesses work increasingly with each other and also with our Digital businesses, where numerous joint propositions have been developed. We see further opportunities for collaboration between our Digital and Data businesses as data continues to be the driving force behind successful digital marketing and brand transformation activities. The short-term priority within our Data businesses is to ensure that our offering is fully compliant with and able to benefit from the new General Data Protection Regulation ("GDPR") which will apply from May 2018.

Synergies between our five Digital businesses continue to develop, resulting in shared resources, working practices, growth frameworks and data. During the period we brought the management of our five Digital businesses under J Schwan (previously the CEO of Solstice, our Chicago based mobile and emerging technology consultancy) to help drive our collaboration agenda and develop a broad-based technology proposition for our clients.

Our research consultancy Incite is performing in line with expectations. The core UK business has seen continued growth with strong performance in the pharma and finance sectors and robust sales in FMCG; bucking the trend in a highly challenging market. Meanwhile we continue to see both growth and improved profitability in our US businesses, with the new office in San Francisco quickly building a strong presence in the technology sector.

Our healthcare consultancy, Hive, despite a slow start to the year has had a number of new client wins during the period including Valeant, Vifor, HCA and Amgen. It has also expanded its international footprint particularly within the USA, with the Hive and Pollen Brands now in New York and Boston.

Pragma, our strategic consumer consultancy, has won several large new diligence projects in the last six months. Pragma's Airport and Commercial Spaces division has also won new large projects working with both airport investors and owners, while its Strategy division has invested in building its senior team in the areas of digital and operational improvement. Pragma continues to work closely with FSP, our specialist property consulting firm, with joint projects for property asset managers.

Marketing Activation

Our Marketing Activation segment represented 12% of Group revenue from continuing operations for the half year (2017: 15%) and 10% of Group Adjusted operating profit (2017: 21%).

As detailed above, subsequent to the end of the half year, we disposed of our Point-of-sale, Exhibitions and Events, and Field Marketing businesses which represented a significant portion of our Marketing Activation segment. As the disposal of these businesses was highly probable at the balance sheet date, the businesses have been treated as discontinued operations and assets held for sale. Further details on this can be found in note 8.

The remaining business within the segment, St Ives Management Services Limited, provides outsourcing and supply chain management solutions to a number of significant clients including Royal Mail, The Co-operative Group, Conservative Party, Akzo Nobel and Informa.

Books

Our market-leading Books business represented 25% (2017: 30%) of Group revenue for the half year and 5% of Group Adjusted operating profit (2017: 25%).

Revenue was 10% lower than the prior half year at £37.4 million (2016: £41.4 million).

The reduction in revenue was due to a previously announced contract loss. Aside from this, trading during the first half year was generally positive, particularly during the pre-Christmas period, and this has continued in the new calendar year.

We continue to adapt to suit the evolving needs of clients, leveraging our well-invested digital print technology to provide a broader product range, greater capacity to support fast lead-times, lower stock-holding and with continued focus on extending supply-chain solutions to reduce the overall cost of the books supply-chain.

Outlook

Trading across our Strategic Marketing segment was robust during the period. We are encouraged by the new projects being won from existing and new clients, and excited by the opportunities that increased collaboration between our businesses is generating. 

However, we recognise the need to continue to address the effect that our legacy businesses are having on the Group's overall performance and our ability to generate value for shareholders, which remains a top priority for the Board. 

Within our Books business we are continuing to take decisive action to ensure that the cost base reflects the future level of volumes we now expect.

Earlier this month, we were pleased to announce the disposal of a significant element of our Marketing Activation segment. This significantly reduces the Group's exposure to the structurally challenged, commoditised print markets and the risk of further, potentially significant re-structuring costs.

We remain confident in our long term growth strategy to generate value for shareholders. This is supported by the quality of the businesses within Strategic Marketing and illustrated by the major clients, international brands and significant contracts we continue to attract. 

Matt Armitage

Chief Executive

7 March 2018

Condensed Consolidated Income Statement

Adjusting Items comprise of redundancies, empty property and restructuring costs; gain or loss on disposal of properties; costs related to the acquisitions; impairment or amortisation charges related to goodwill, tangible and intangible assets; contingent consideration required to be treated as remuneration; movements in deferred consideration and costs related to the St Ives Defined Benefits Pension Scheme.

\* The comparative figures have been reclassified to show the Point-of-Sale, Exhibition and Events, and Field Marketing businesses, which lie within our Marketing Activation segment, as discontinued operations.

Condensed Consolidated Statement of Comprehensive Income

All income for all periods was attributable to shareholders of the parent company.

Condensed Consolidated Statement of Changes in Equity

^ Additional paid-in capital represents share premium, merger reserve and capital redemption reserve.

* Other Reserves comprises the sum of; additional paid in capital, treasury shares, share option reserve and hedging and translation reserve.

Condensed Consolidated Balance Sheet

These financial statements were approved by the Board of Directors on 7 March 2018.

Condensed Consolidated Cash Flow Statement

Notes to the Condensed Consolidated Financial Statements

1. Basis of preparation

The condensed financial statements have been prepared in accordance with IAS 34 "Interim Financial Statements" and in accordance with the Disclosure and Transparency Rules of the UK's Financial Conduct Authority ("FCA").

The financial information contained in these half year financial statements has been prepared in accordance with the accounting policies set out in the Group's Annual Report and Accounts 2017, prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union commission, and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. New accounting standards, amendments to standards, and IFRIC interpretations which became applicable during the period were either not relevant or had no impact on the Group's net results or net assets. The half year statements have not been audited but have been reviewed by the company's auditor.

The financial information for the twenty seven weeks ended 2 February 2018 and prior half year (twenty six weeks) and full year (fifty two weeks) comparatives do not comprise statutory accounts for the purpose of Section 435 of the Companies Act 2006. The abridged information for the fifty two weeks to 28 July 2017 has been extracted from the Group's Annual Report and Accounts 2017 which have been filed with the Registrar of Companies. The Auditor's report on the accounts of the Group for that period was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Sections 498(2) or (3) of the Companies Act 2006.

Going concern

The Directors, having made appropriate enquiries, consider that adequate resources exist for the Group to continue in operational existence for a period of at least twelve months from the date of approval of the condensed consolidated financial statements and that, therefore, it is appropriate to adopt the going concern basis in preparing the combined financial information for the twenty seven weeks ended 2 February 2018.

2. Segment reporting

The Group manages its business on a market segment basis, based on the Group's internal reporting to the Chief Operating Decision Maker ("CODM"). The CODM has been determined to be the Chief Executive Officer and Chief Financial Officer as they are primarily responsible for the allocation of resources to the segments and the assessment of performance of the segments.

The continuing operations comprise the Strategic Marketing, Marketing Activation and Books segments. The Strategic Marketing segment comprises of the Group's Digital, Data and Insight businesses. The Marketing Activation segment comprises of the Group's Print Management business. The Books segment comprises Clays.

The discontinued operations comprise Point-of-sale, Exhibition and Events, and Field Marketing businesses as detailed in note 8.

Corporate costs are allocated to revenue generating segments as this presentation better reflects their profitability.

Business segments

2. Segment reporting (continued)

Geographical segments

The Strategic Marketing, Marketing Activation and Books business segments operate primarily in the UK, deriving more than 78% of their revenue and results from operations and customers located in the UK.

3. Adjusting Items

Adjusting Items disclosed on the face of the Condensed Consolidated Income statement are as follows:

Following the changes in senior management teams within Digital and Data businesses, redundancy and restructuring costs of £0.9 million are recorded within the Strategic Marketing segment. In addition revenue of £0.1 million and costs of £0.4 million related to closure of the Shanghai office is also recorded within the Strategic Marketing segment. Restructuring costs of £0.1 million are recorded in the Books segment.

During the period, a charge of £2.2 million was recorded in respect of the proprietary techniques related to Hive; further details are available in Note 9.

The profit on disposal of property, plant and equipment of £0.1 million relates to the sale of a Group property at Bungay and is recorded in the Books segment.

4. Dividends

5. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following:

Number of shares

Basic and diluted earnings per share from continuing operations

Basic and diluted earnings per share from continuing and discontinued operations

Adjusted earnings is calculated by adding back Adjusting Items, as adjusted for tax, to the profit/(loss) for the period.

6. Retirement benefits

The net obligation in respect of the St Ives plc Retirement Benefits Pension Scheme of £15.8 million at 2 February 2018 has decreased compared to £16.0 million as at 27 July 2017. The decrease is primarily due to a decrease in the obligations of the plan, which is the result of a change in the discount rate used.

7. Notes to the condensed consolidated cash flow statement

Reconciliation of cash generated from operations

Analysis of net debt

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less. The effective interest rates on cash and cash equivalents are based on current market rates.

8. Discontinued Operations and Event after the balance sheet date

On 2 March 2018, the Group announced the disposal of a significant portion of its Marketing Activation segment for a total consideration of £6 million. The four subsidiaries disposed of were SP Group Limited (Point-of-sale), Service Graphics Limited (Exhibition and Events), Tactical Solutions UK Limited and Flare Limited (Field Marketing). As the disposals were considered highly probable at the balance sheet date each of these businesses has been classified as discontinued operations and as assets and liabilities held for sale in these interim statements and comparative figures have been restated accordingly.

Results of Discontinued Operations

Adjusted results from discontinued operations are analysed below:

Adjusting items from discontinued operations are analysed below:

The impairment charge of £14.0 million relates to assets held for sale in the Marketing Activation segment and was recorded in light of the reduction of the recoverable amount of these assets, which will be recovered principally through the sale of the subsidiaries outlined above. Other Adjusting items include a credit relating to the acquired intangibles of the Field Marketing businesses.

Statutory Results from discontinued operations are analysed below:

The assets and related liabilities of the discontinued operations are classified as held for sale on the face of the balance sheet at 2 February 2018, and are comprised as follows:

9. Goodwill and Intangibles

At 2 February 2018 the Group held goodwill of £15.1 million in relation to Hive. As previously reported in the Annual Report and Accounts 2017, the forecasts and projected growth rates for Hive are sensitive. The impairment model at the half year assumes a projected five year revenue growth rate of 5.6%, a long term growth rate beyond that period of 2.6%, and a pre-tax discount rate of 10%, and shows an excess of value-in-use over carrying value of £5.1 million following the impairment of intangible assets of £2.2 million. 

Sensitivity analysis on the key assumptions included in the impairment review indicates that a reasonably possible change in the key growth assumption, such as a cumulative 3.7% reduction in the five year revenue growth forecast or a reduction in forecast margin, will result in the recoverable amount of goodwill falling below its carrying value.

10. Risks and uncertainties

The Group's principal risks and key mitigating activities in place to address them, as at 28 July 2017, are set out in pages 24 to 27 of the Group's Annual Report and Accounts 2017, a copy of which is available on the Group's website: www.st-ives.co.uk.

The principal risks have been considered by the Board and no changes have been made, since the period ended 28 July 2017.

11. Related parties

The nature of related party transactions of the Group has not changed from those described in the Group's consolidated financial statements for the fifty two weeks ended 28 July 2017.

12. Responsibility statement

We confirm that, to the best of our knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS34 "Interim Financial Reporting";

· the half year management report includes a fair review of the information required by DTR4.2.7R (indication of important events during the first six months of the year and descriptions of principal risks and uncertainties for the remaining six months of the year); and

· the half year management report includes a fair review of the information required by DTR4.2.8R (disclosure of related parties' transactions and changes therein).

At the date of this statement, the directors are those listed in the Groups 2017 Annual Report and Accounts, with the exception of Ben Gordon who resigned on 30 November 2017.

By order of the Board

Matt Armitage

Chief Executive

7 March 2018

The foregoing contains forward looking statements made by the Directors in good faith based on information available to them up to 7 March 2018. Such statements need to be read with caution due to inherent uncertainties, including economic and business risk factors underlying such statements.

INDEPENDENT REVIEW REPORT TO ST IVES PLC

Report on the condensed consolidated interim financial statements

We have been engaged by the company to review the condensed set of financial statements in the half-year results for the twenty seven weeks ended 2 February 2018 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Cash Flow Statement and related notes to the Condensed Financial Statements. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-year results in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual report and accounts of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-year results for the twenty seven weeks ended 2 February 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

London

7 March 2018