Interim Results

4th December 2013

International Greetings PLC ("the Company" or "the Group")

Interim Results

International Greetings PLC, one of the world's leading designers, innovators and manufacturers of gift packaging and greetings, stationery and creative play products, announces its interim results for the six months ended 30 September 2013.

Financial highlights

Operational highlights

Paul Fineman, Chief Executive said:

"The first half of the year has seen a number of positive operational developments across the Group and we are pleased to report that all regions traded profitably during the period, with notable improved performance in the UK and Europe and a strong order book in the USA.

"We are particularly pleased to note the record levels of gift wrap production and profitable sales growth in Europe following the investment in our new, high definition printing facilities, which underpinned this success. This bodes well for the recently commenced project to bring similar technology to our gift wrap plant in Wales. This exciting initiative is on track and on budget to be operational in the Spring of 2014.

"We are confident that the Group remains well placed to meet the needs of our customers, whilst continuing to provide excellent customer service and innovation. We have a strong order book and are on course to deliver targeted growth in underlying earnings per share, whilst continuing to remain focussed on reducing leverage."

Chief Executive Officer's review

Unwrapping progress

Paul Fineman

CEO

Key achievements

· Profit before tax and exceptional items up by 7.9% to £3.5 million (2012 H1: £3.3 million)

· Gross margin improved to 19.0% (2012 H1: 18.4%)

· Sales in line with expectations

· Christmas cracker manufacturing season in China successfully completed

· Gift wrap production efficiencies and volume gains yielded in Europe following investment last year

· Investment programme in Wales on track and on budget

· Re-negotiation of US banking facilities on improved terms

Overview

Sales and profit for the six months ended 30 September 2013 are overall in line with expectations.

Operational review

We are pleased to report that all regions traded profitably during the period, with notable improved performance in the UK and Europe, compared to the same period last year, and a strong order book in the USA. We are encouraged by the operational achievements, and, in particular, an excellent performance delivered by our manufacturing facilities throughout the Group.

In Europe, our investment during FY2013 in new state-of-the-art high-definition printing facilities, underpinned record levels of gift wrap production and profitable sales growth. This bodes well for the recently commenced project to bring similar technology to our gift wrap plant in Wales. This exciting initiative is on track and on budget and expected to be operational in the spring of 2014. In the meantime, our existing production facilities in the UK and also in the USA are delivering to plan and in line with annual forecasts.

We are also delighted with the performance of our relocated China-based Christmas cracker manufacturing operation, where we have produced on time and delivered in full, meeting targeted efficiencies whilst implementing initiatives for continued improvement.

The global nature of our business is demonstrated by the fact that during the period our products have been distributed to over 80 countries and are sold in excess of 100,000 retail outlets worldwide. Whilst providing our customers with a broad and flexible portfolio of products and brands, we are experiencing increased demand for the Group's generic brands, and, in particular, the Tom Smith™ range of products. The brand's profile was further enhanced by our participation in the Coronation Festival at Buckingham Palace in July, following which, we were proud to announce that the Royal Warrant granted to the Tom Smith™ brand now applies to gift wrap as well as to the long-established Christmas cracker category.

Financial review

Revenue from continuing operations for the period was in line with expectations at £113.6 million (2012 H1: £115.2 million), with particularly good progress in Europe where sales increased by 21%. The timing of sales at the half year merely reflects the phasing of deliveries to customer requirements, with several major international retailers now ordering deliveries later in the year, resulting in H2 weighting for FY2013.

Gross profit margins at 19.0% (2012 H1: 18.4%) were 0.6% higher with improved operational performance, particularly in China, being the main driver. Overhead costs were steady at £16.5 million (2012 H1: £16.5 million).

Operating profit before exceptional costs was up slightly at £5.3 million (2012 H1: £5.2 million) while profit before tax and exceptional items was up 7.9% to £3.5 million from £3.3 million in the equivalent period last year.

The planned exceptional charges of £1.8 million in respect of our new investment in Wales and associated accelerated amortisation of bank fees resulted in profit before tax and after exceptional items being down 32% to £1.7 million (2012 H1: £2.5 million). Of this charge, £0.6 million represents accelerated depreciation (non-cash) on assets that will no longer be required once the new machinery is operational and a further £0.8 million represents provisions for redundancy and decommissioning costs and associated costs that are only expected to flow out as cash in the next financial year. The remaining £0.4 million is included within finance expenses and relates to accelerated amortisation of bank arrangement fees as a result of renegotiation of banking facilities to accommodate the financing of the new investment.

Finance expenses before exceptional items in the period were £1.8 million (2012 H1: £1.9 million). The Group's borrowing costs are falling as certain qualifying leverage ratios are achieved, triggering reduced margins on our banking facilities. Our facilities with HSBC were increased and renewed in April 2013 on improved terms, providing the capacity for the Group to make an important capital investment at our manufacturing facilities in Wales. Furthermore our US banking facilities were also renegotiated and extended on favourable terms and at a reduced margin with SunTrust just after the period end in October 2013. Reduction of debt and the associated interest cost remains a key focus and our programme for this is on-track. Finance costs after exceptional items of £0.4 million (2012 H1: nil) were £2.2 million (2012 H1: £1.9 million).

The effective underlying tax rate was 25% (2012 H1: 26%). This rate has fallen again, reflecting reductions in the UK rate of taxation and our ability to recognise tax losses in the USA as profitable growth continues. There are still unrecognised losses with a tax value of $3.2 million in the USA and £0.7 million in the UK which can be reflected in the balance sheet as US profitability progresses.

Stated before exceptional items, basic earnings per share were in line with expectations at 3.8p (2012 H1: 3.9p), and 1.4p (2012 H1: 3.4p) after exceptional items. Our primary measure of fully diluted earnings per share before exceptional items was also in line with expectations at 3.7p (2012 H1: 3.7p). See note 6 of the interim financial statements.

Capital expenditure in the six months was £2.3 million (2012 H1: £1.4 million) reflecting the initial outlays on the investment in Wales. Provided certain criteria are met, a government grant is receivable against this investment and the first contribution of £0.1 million was received in the period slightly earlier than expected.

Cash used by operations was £38.9 million in line with the prior year (2012 H1: £39.1 million), which reflects the seasonality of the business as 53% of the sales in the six month period occurred in the last two months.

Debtors and receivables at £68.1 million were lower than at H1 2012 (£69.3 million) whereas stock levels were higher at £67.0 million (2012 H1: £60.6 million). Both reflect the variable phasing of deliveries to customer requirements in the current year and stock build including that associated with a stronger order book in Europe.

Net debt at 30 September 2013 was steady at £84.8 million (2012 H1: £84.6 million) despite the effect of exchange rates which increased debt by £0.2 million compared with the prior year, and capital investment in Wales amounting to £1.0 million at the end of H1.

The Board will not be declaring an interim dividend and will keep this policy under review (2012 H1: nil).

Current trading outlook

We have a strong order book and are well placed to meet the needs of our customers, whilst continuing to provide excellent service levels as demonstrated by acknowledgements and awards we are so pleased to receive.

Operational improvements, prudent investment in projects with early pay back and a focus on customer service and innovation continue to deliver margin and profit growth.

Sales achieved in the first half of the year reflect the changing platform of delivery phasing required by several of the world's major retailers.

We are on course to achieve targeted growth in underlying earnings per share and remain focused on reducing leverage through converting profit into cash.

Paul Fineman

CEO

Consolidated income statement

six months ended 30 September 2013

Earnings per ordinary share

Consolidated statement of comprehensive income

six months ended 30 September 2013

Consolidated statement of changes in equity

six months ended 30 September 2013

For the six months ended 30 September 2012

For the year ended 31 March 2013

Consolidated balance sheet

six months ended 30 September 2013

Consolidated cash flow statement

six months ended 30 September 2013

(a) In 2011/12 fixed assets of £1,764,000 shown as acquisition of property, plant and equipment were purchased, cash inflow from new finance leases represents proceeds received in respect of these assets which are now held by the Group under finance leases.

1 Accounting policies

Basis of preparation

The financial information contained in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 and is unaudited.

The Group interim report has been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRS"). The financial information for the year ended 31 March 2013 is extracted from the statutory accounts of the Group for that financial year and does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The auditor's report was (i) unqualified; (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under Section 498 (2) of the Companies Act 2006.

Going concern basis

The borrowing requirement of the Group increases steadily over the period from July and peaks between September and November before then reducing due to the seasonality of the business. This is due to the sales of wrap and crackers which are mainly for the Christmas market.

As with any company placing reliance on external entities for financial support, the Directors acknowledge that there can be no certainty that this support will continue although, at the date of approval of this interim report, they have no reason to believe that it will not do so.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements.

The interim report does not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements for the year ended 31 March 2013.

Significant accounting policies

The accounting policies adopted in the preparation of the interim report are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 March 2013.

2 Segmental information

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

For management purposes the Group is organised into four geographic business units.

The results below are allocated based on the region in which the businesses are located; this reflects the Group's management and internal reporting structure. The decision was made during 2011 to focus Asia as a service provider of manufacturing and procurement operations, whose main customers are our UK businesses. Both the China factory and the majority of the Hong Kong procurement operations are now overseen by our UK operational management team and we therefore continue to include Asia within the internal reporting of the UK operations, such that UK and Asia comprise an operating segment. The chief operating decision maker is the Board.

Intra-segment pricing is determined on an arm's length basis. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Financial performance of each segment is measured on operating profit. Interest expense or revenue and tax are managed on a Group basis and not split between reportable segments.

Segment assets are all non-current and current assets, excluding deferred tax and income tax receivable. Where cash is shown in one segment, which nets under the Group's banking facilities, against overdrafts in other segments, the elimination is shown in the eliminations column. Similarly inter-segment receivables and payables are eliminated.

3 Exceptional items

(a) Costs associated with major upgrade to manufacturing facilities in Wales and restructuring of UK operations.

(b) Accelerated amortisation of bank arrangement fees as a result of renegotiating banking facilities to fund the investment in Wales.

(c) Bad debt arising from a major customer entering administration.

(d) Cost associated with disruption caused by a strike in the China factory.

4 Cash, loans and borrowing

5 Taxation

Taxation for the six months ended 30 September 2013 is based on the effective rate of taxation, which is estimated to apply in each country for the year ended 31 March 2014.

6 Earnings per share

The basic earnings per share is based on the profit attributable to equity holders of the Parent Company of £792,000 (2012: £1,874,000) and the weighted average number of ordinary shares in issue of 57,215,000 (2012: 55,799,000) calculated as follows:

Total number of options, over 5p ordinary shares, in issue at 30 September 2013 was 2,128,685.

Adjusted basic earnings per share excludes exceptional items charged of £1,809,000 (2012: £375,000) along with the tax relief attributable to those items of £416,000 (2012: £112,000). This gives an adjusted profit of £2,185,000 (2012: £2,137,000).