Half Yearly Report

10 March 2015

ST IVES plc

Half Year Results for the 26 weeks ended 30 January 2015

St Ives plc, the international marketing services group, announces half year results for the 26 weeks ended 30 January 2015.

Financial Highlights

* Non-underlying items comprise acquisition costs; restructuring costs; operating results of non-continuing sites; net profit on disposal of property, plant and equipment; profit on disposal of subsidiary; consideration required to be treated as remuneration; amortisation or impairment of acquired intangibles; remeasurement of deferred consideration and other one-off items.

** Net debt as at 1 August 2014.

Business Highlights

· Revised corporate structure with three segments, reflecting new strategic positioning:

- Strategic Marketing: focused on high growth marketing segments of data, digital and consulting;

- Marketing Activation: delivering marketing communications through print and in‐store marketing services;

- Books: representing the UK's market leading book printing business, Clays.

· Good progress in the first half of the year to drive growth:

- Increased collaboration across the Group, with over 90 of our clients now working with more than one Group business;

- Further internationalisation, with over 25% of Strategic Marketing revenues now derived from clients outside UK;

- Realise and Hive, acquired in March and May 2014 respectively, both integrated successfully and performing well.

· 74% of Group underlying operating profit generated by marketing services businesses (Strategic Marketing and Marketing Activation).

· Recent agreement with Penguin Random House, the UK's largest trade publisher, helps to secure approximately 80% of the Books segment's workload for next 3-6 years.

· Strong financial position provides scope for further acquisition of Strategic Marketing businesses.

· Current trading in line with management's expectations.

Matt Armitage, Chief Executive, said:

"This has been a very productive six months for St Ives. We have generated healthy revenue growth through increased collaboration between our businesses, further investment in new service offerings and, of course, through the continued entrepreneurial drive of our individual management teams.

 We have a very clear view of the growth opportunities that exist for us in our chosen marketing services disciplines, and we have the financial strength to take advantage of them.

Trading in the second half has started well and in line with our expectations and, with an improving economic climate allowing clients to increase their marketing spend, we remain confident of a positive outcome for the full year."

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Notes to Editors

St Ives is an international marketing services group, made up of a number of successful and dynamic businesses serving leading brands internationally, with offices in the UK, North America, China and Singapore.

We operate not as a single entity but as a group of market leading businesses, each with its own unique value proposition, offering complementary services and collaborating closely with each other wherever this adds value to clients. We work with a large number of leading, international consumer-facing brands across all major sectors - including retail & FMCG, healthcare & pharma, financial services, media, technology, automotive and charity - helping them determine strategic direction, and designing and delivering world-class solutions to match their specific requirements.

Our industry-leading Strategic Marketing businesses have strong capabilities across three specialist high growth areas: data, digital and consulting.

Our Marketing Activation businesses, which deliver marketing communications through a combination of print and in-store marketing services, complement our Strategic Marketing offering and collaborate with them where this adds value to clients.

The Group's strategy for further growth for the marketing services businesses is centred around three key priorities:

· organic growth through collaboration and investment in our existing brands;

· internationalisation, often client-led, into large and high growth markets; combined with

· further acquisitions of complementary, ambitious and growing Strategic Marketing businesses that share our common attributes and ethos.

Our long standing Books business, which is the UK market leader, represents another valuable source of profit and cash generation as we pursue our overall growth strategy.

St Ives employs more than 3,000 people in the UK, North America and Asia, and is listed on the London Stock Exchange (SIV) with a market capitalisation of c£240m.

Chief Executive's Review

Results

The Group once again recorded a strong financial performance for the half year.

Underlying Group revenue of £175.0 million was 6% higher than the previous half year. Group underlying profit before tax grew to £14.9 million (2014: £12.9 million), an increase of 15%, and underlying operating margin increased from 8.3% to 9.3%.

Net debt rose marginally to £43.0 million (2014 year end: £42.7 million) and remains at a very manageable level of approximately one times EBITDA.

The Board has declared an interim dividend of 2.25 pence per share (2014: 2.15 pence), an increase of 5%, which will be payable on 8 May 2015 to shareholders on the register at 10 April 2015.

Corporate Structure

In order to better reflect the way in which the business is managed and also to reflect the future strategic direction and positioning of the Group, we have introduced some changes to the way in which the Group is structured. The Group is now operating and reporting as three segments: Strategic Marketing, Marketing Activation and Books.

Our industry-leading Strategic Marketing businesses have strong capabilities across three specialist high growth areas: Data (Occam and Response One), Digital (Amaze, Branded3 and Realise) and Consulting (Hive, Incite and Pragma).

Our Marketing Activation businesses, which deliver marketing communications through a combination of print (Service Graphics, SP Group and SIMS) and in-store marketing services (Tactical Solutions), complement our Strategic Marketing offering and collaborate with them where this adds value to clients.

Our separate, longstanding Books business, Clays, is the market leader in the UK book printing industry and represents a valuable additional source of profit and cash generation as we pursue our overall growth strategy.

The comparatives for the prior periods have been restated to reflect the new corporate structure.

Strategy

Our strategy for further growth is centred around three key priorities:

· organic growth through collaboration and investment in our existing marketing services businesses;

· internationalisation, often client-led, into large and high growth markets; combined with

· further acquisition of complementary, ambitious and growing Strategic Marketing businesses, which share our common attributes and ethos.

We have continued to make progress across all three in the half year:

Collaboration

Our approach is based on cross-thinking as opposed to cross-selling and where collaboration is facilitated and supported rather than forced. Over 90 of our clients currently work with more than one business across the Group, compared to approximately 80 in the previous financial year. In the half year we started work for Johnson & Johnson, which is a collaboration between our print management business, SIMS, and our search and digital agency, Branded3. In addition, through our newly acquired digital marketing agency, Realise, we have further extended our relationship with HSBC. HSBC now work with five businesses across the Group. As detailed below, investments have also been made in Occam and Amaze with the launch of the digitally-led CRM offering 'AmazeOne'.

Internationalisation

We have continued to expand our headcount in both the US and Asia to meet client demand and recently opened an office in Shanghai for Incite, our consumer and market research consultancy. Over 25% (2014: 23%) of our Strategic Marketing revenue came from clients based outside of the UK. In addition to Incite, Pragma, Hive, Amaze, Realise and Branded3 all service clients on an international basis.

Acquisitions

In 2014 we made two strategically important acquisitions - the digital marketing agency Realise and the healthcare communications consultancy Hive - and both have been integrated successfully into St Ives and are performing well, benefitting from and contributing to collaboration opportunities within the Group.

Divisional Review

Strategic Marketing

Our Strategic Marketing operations are organised around three pillars: Data, Digital and Consulting, and represented 29% (2014: 24%) of Group revenues in the first half of the year at £50.7 million (2014: £40.3 million).

Data

Our Data businesses - Occam and Response One - represented 33% of Strategic Marketing revenue at £16.7 million (2014: £19.9 million).

Revenue within Data reduced compared with the previous half year due to two factors: a significant one-off software sale within Occam in the previous half year and a change in work mix in Response One. While these factors have caused revenue to decline, they have also led to a significant increase in margin during the period.

Within Occam we recently launched our cloud-based, data management product 'Accelero' and have clients including Mitsubishi Motors and Northern Rail live on the platform. We see such product-led solutions (in addition to our current service-led propositions) as a key area of future growth for the business.

Response One has further developed its service offering to provide end to end communications strategy and planning and has also launched an entry-level version of 'Reciprocate', the UK's largest donor data pool, to further strengthen their work within the Charity sector.

Digital

This sector - made up of Amaze, Branded3 and Realise - performed well and contributed £17.9 million (2014: £11.2 million), or 35% of Strategic Marketing revenue.

Amaze continued to grow its e-commerce capabilities with a number of new business wins. Recognising that e-commerce provides a significant opportunity for future growth at Amaze, we are committing to specific investment in this business to grow and develop a dedicated e-commerce practice. In addition, we have launched a digitally-led CRM practice, 'AmazeOne', combining the digital and creative skills of Amaze with the data expertise of Occam.

Branded3 continued to perform well and has had a number of significant business wins including growing the online presence of Travelex and driving customer engagement for a number of Bauer Media brands.

Realise, which was acquired in the previous financial year, has integrated well into the Group and has delivered a strong performance since acquisition, including wins for the World Tourism and Travel Council, the design and build of a number of websites for Rothschild and transforming the online and offline experience for Greyhound in the US.

Consulting

Our Consulting businesses - Incite, Pragma and Hive - represented 32% of the Strategic Marketing segment revenue at £16.1 million (2014: £9.2 million).

Incite, our consumer research consultancy, delivered significant revenue growth in the period due, primarily, to the continuing successful expansion of the business into overseas markets. In addition to the offices in New York and Singapore, we recently opened our office in Shanghai and plan to begin trading in the second half of the financial year.

Pragma, our retail and brand consultancy, also delivered significant growth in the half year, driven through the continued expansion of its Airports practice, with major projects for clients including London Luton Airport, in addition to a number of international client engagements including working with Vivarte, the largest non-food retailer in France.

Hive, our healthcare consulting and communications business and our most recent acquisition, has integrated into the Group well and is performing in line with expectations.

Marketing Activation

Our Marketing Activation segment represented 50% (2014: 54%) of Group revenue for the first half of the year at £88.0 million (2014: £88.2 million).

Marketing Print

Our Marketing Print businesses comprise our Exhibitions and Events business, Service Graphics, our Point-of-Sale (POS) specialist, SP Group, and our Print Management business, St Ives Management Services (SIMS).

Revenue from the Marketing Print businesses was in line with the prior half with growth in Service Graphics and SIMS, due to new business wins including Pernod-Ricard, Johnson & Johnson, Toni and Guy and Metro Bank, more than offsetting a decline in SP Group, caused by the ongoing pressures within the grocery retail sector.

Field Marketing

Our Field Marketing business - Tactical Solutions - also continues to face pressure within the grocery retail market. We continue to invest in new data and technology capabilities and expect to bring these to market in the second half of the year. By bringing the business into the same management structure as the Marketing Print operations, we aim to improve the operational effectiveness of, and promote collaboration across, the Marketing Activation segment.

Books

Our Books business, Clays, accounted for 21% of the Group's revenue. Books revenue was in line with the first half of the prior year, at £36.2 million (2014: £36.3 million).

Clays is the market leader in UK monochrome book production services and continues to extend its range of added-value services to the publishing market through digital and supply chain related investment.

Sentiment within the physical book market has improved, with eReader penetration appearing to have levelled off within the UK and the US and with physical book volumes stable for the first time in a number of years.

We have reached agreement with Penguin Random House, the UK's largest trade publisher, to provide 100% of their UK monochrome book production under a new multi-year contract. This represents a significant market share gain for the business and, along with a number of other recent contract wins and extensions, secures approximately 80% of Clays' workload for the next three to six years.

Outlook

We have a very clear view of the growth opportunities that exist for us in our chosen marketing services disciplines, and we have the financial strength to take advantage of them.

Trading in the second half has started well and in line with our expectations. An improving economic climate, allowing clients to increase their marketing spend, makes us confident of a positive outcome for the full year.

Matt Armitage

Chief Executive

10 March 2015

Condensed Consolidated Income Statement

* Non-underlying items comprise: acquisition costs; restructuring costs; operating results of non-continuing sites; net profit on disposal of property, plant and equipment; profit on disposal of subsidiary; consideration required to be treated as remuneration; amortisation or impairment of acquired intangibles; remeasurement of deferred consideration and other one-off items.

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Changes in Equity

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

Condensed Consolidated Balance Sheet

These financial statements were approved by the Board of Directors on 10 March 2015.

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 2014, 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. The half year statements have not been audited or reviewed.

The financial information for the twenty six weeks ended 30 January 2015 and prior half and full year 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 1 August 2014 has been extracted from the Group's Annual Report and Accounts 2014 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 the foreseeable future and that, therefore, it is appropriate to adopt the going concern basis in preparing the combined financial information for the twenty six weeks ended 30 January 2015.

As reported in the Annual Report and Accounts 2014 the Group has commenced the renegotiation of its existing bank facility that expires on 31 October 2015. The Group is at an advanced stage in these negotiations and expects to conclude them satisfactorily prior to the year end.

Risks and uncertainties

The Board continuously assesses and monitors the key risks of the business. The key risks that could affect the Group's medium term performance and the factors that mitigate those risks have not substantially changed from those set out in pages 24 and 25 of the Group's Annual Report and Accounts 2014, a copy of which is available on the Group's website: www.st-ives.co.uk. The key financial risks are liquidity risk, interest rate risk, foreign exchange risk, credit risk and the volatility of the defined pension scheme net surplus or deficit.

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.

As a result of the reallocation of resources and a change in the Group's internal reporting, the segments have been redefined as Strategic Marketing, Marketing Activation and Books.

The Strategic Marketing segment comprises all the businesses that were previously reported under the Marketing Services segment other than the Field Marketing business which is now reported under the Marketing Activation segment.

The Marketing Activation segment includes the Field Marketing business, and all the Group's Marketing Print businesses that were previously reported under the Print Services segment.

The Books segment comprises Clays that was previously reported under the Print Services segment.

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

Comparatives have been restated to reflect the reclassification of reporting segments for 26 weeks to 31 January 2014 and 52 weeks to 1 August 2014.

Business segments

Geographical segments

The Strategic Marketing, Marketing Activation and Books business segments operate primarily in the UK, deriving more than 92% of their revenue and results from operations and customers located in the UK.

3. Non-underlying items

Non-underlying items disclosed on the face of the Condensed Consolidated Income Statement are as follows:

The restructuring items in the current period include redundancies of £178,000, other restructuring costs of £89,000 and costs relating to the empty properties of £388,000 recorded within the Marketing Activation segment. Redundancy and restructuring costs of £87,000 were recorded in the Strategic Marketing segment.

Profit on disposal of property, plant and equipment includes £409,000 relating to the sale of a property recorded within the Books segment, offset by a £40,000 loss from the sale of properties in Blackburn, Leeds and Plymouth relating to the Marketing Activation segment.

Charges related to amortisation of acquired customer relationships, proprietary techniques and software intangibles of £3,225,000 and £341,000 were recorded in the Strategic Marketing and Marketing Activation segments respectively. Contingent consideration of £3,744,000 in respect of acquisitions required to be treated as remuneration rather than consideration and additional deferred consideration in respect of the past acquisitions of £3,068,000 are both recorded within the Strategic Marketing segment.

The impairment charge of £1,470,000 relates to an impairment of goodwill of £296,000; and to customer relationship assets of £1,174,000, where there has been a higher level of customer churn in the Field Marketing business.

Costs associated with the acquisition of subsidiaries and other investments of £225,000 is recorded within Strategic Marketing 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

Underlying earnings is calculated by adding back non-underlying items, as adjusted for tax, to the profit/(loss) for the period.

6. Retirement benefits

The net obligation in respect of retirement benefit obligations of £33,069,000 at 30 January 2015 has increased compared to 1 August 2014 (£9,833,000) primarily due to a lower discount rate partially offset by an increase in investment performance of plan assets.

7. Acquisition

On 1 May 2014, the Group acquired 100% of all the issued share capital of the Health Hive Group Limited ("Hive"), a consultancy business. Deferred consideration for Hive will be payable in three tranches, based on the EBITDA achieved for the calendar year 2014, 2015 and 2016. The basis of estimated EBITDA for the calendar year 2014 was reviewed in the period resulting in an increase in the estimate of the deferred consideration payable. The increase in the fair value of the consideration payable of £1,219,000 has been recorded in the period as an addition to the goodwill. Further adjustments decreasing the fair value of current assets at acquisition by £193,000 was recorded as an addition to the goodwill.

The final allocation of the purchase price payable for Hive is as follows:

The fair value of the components of the total consideration payable are as follows:

The acquisition has no impact on investing cash outflows in the current period.

The adjustments made in the current period to the fair value of consideration payable and to the allocation of consideration to acquired assets are summarised as follows:

8. 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.

9. 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 1 August 2014.

During the period, the company purchased 633,900 of its own shares at the market value.

10. 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).

By order of the board

Matt Armitage

Chief Executive

10 March 2015

The foregoing contains forward looking statements made by the Directors in good faith based on information available to them up to 10 March 2015. Such statements need to be read with caution due to inherent uncertainties, including economic and business risk factors underlying such statements.