Full Year Results 2019
Highlights Kevin Lyons ‐ Tarr, CEO Full Year Results 2019 1
Highlights Underlying* profit Underlying* Group revenue before tax basic EPS $ 860.84 m $ 54.68 m 154.41 c 17% 19% 20% Legacy pension Net cash Proposed total dividend commitments $ 41.14 m 84.00 c £7.5m (c.$10m) ‘lump sum’ deficit reduction 20% ($) contribution May 2020 25% (£) *Underlying is before defined benefit pension charges and exceptional items Full Year Results 2019 2
Coronavirus (COVID ‐ 19) update 4imprint’s Supply Chain – Reminder • Around 60% of blank products originate in China • Many factories in different provinces in China, each typically specialising in a product category • Chinese product factories effectively ‘supply our suppliers’; blanks imported in bulk by our domestic suppliers, who keep inventory • 4imprint customer orders imprinted by domestic suppliers and drop ‐ shipped Supply Chain Impact • Most domestic suppliers at peak inventory due to timing of Lunar New Year, therefore minimal impact so far • Potential supply disruption primarily linked to length of delay in resumption of production to allow for inventory replenishment as the year progresses • Production is resuming, but situation still very fluid, depending on: Geographical location o Workforce profile and requirements o Raw material availability o Transit restrictions (returning after New Year) o We are actively working with all parties in the supply chain to plan for, and where possible to mitigate, adverse supply effects at all levels. We are also closely monitoring the developing situation to prepare for other potential impacts caused by the spread of the virus globally. Full Year Results 2019 3
Financial Review David Seekings, CFO Full Year Results 2019 4
̶ ̶ ̶ ̶ ̶ ̶ Group Income Statement • Revenue +17% 2019 2018 US $839.3m; UK $21.5m H1 +16%; H2 +17% $'000 $'000 Growth all organic Revenue 860,844 738,418 17% Gross profit 275,320 236,188 17% • Gross profit % stable as expected Gross profit % 31.98% 31.99% • Marketing +18% Marketing costs (154,310) (131,232) 18% Integration and expansion of Selling costs (31,037) (27,850) 11% brand component (35,092) Admin & central costs (30,928) 13% Marketing mix evolving Share option related charges (949) (819) 16% Strong overall yield on marketing Underlying operating profit 53,932 45,359 19% • Operational gearing from: 6.27% Operating margin 6.14% − Selling costs (mainly payroll) Interest 751 227 − Admin (includes investment in Underlying profit before tax 54,683 45,586 management/other resource) 20% Exceptional items - (721) • Central costs: $3.5m (2018: $3.6m) Defined benefit pension admin costs (312) (316) Pension finance charges (378) (403) • Operating margin % stable and firmly within target range Profit before tax 53,993 44,146 22% Tax (11,276) (8,952) • 2018 exceptional item pension ‐ related Profit after tax 42,717 35,194 21% • Effective tax rate 21% (2018: 20%) Underlying basic EPS 154.41c 129.77c 19% • EPS increase mainly driven by operating performance Basic EPS 152.42c 125.61c 21% Full Year Results 2019 5
Cash Flow 2019 2018 $'000 $'000 30,767 At start of period 27,484 • 96% operating cash conversion Underlying operating profit 53,932 45,359 Share option non-cash charges 808 928 • IFRS 16 adopted; no cash implication Depreciation and amortisation 2,785 2,645 • Capital expenditure includes $5m for Amortisation of right-of-use assets - 1,499 Oshkosh DC expansion Change in working capital (3,184) 697 Capital expenditure (8,178) (2,855) • Working capital requirements remain modest 42,773 Operating cash flow 51,663 • DB pension contributions in line with Contributions to defined benefit pension (3,932) (3,593) current agreement Interest 227 751 • Tax paid is US Federal and State Net tax paid (10,318) (7,844) Own share transactions (2,567) (465) • Own share transactions relate to EBT Capital element of lease payments - (1,687) share purchases net of proceeds from Exchange and other (1,058) 62 options exercised 29,701 Free cash flow 34,311 • Supplementary dividend of 60c per share ($16.3m) paid May 2018 Dividends to Shareholders (20,659) (32,984) • Dividend cover 1.84x Net cash inflow/(outflow) in the period 13,652 (3,283) 27,484 At end of period 41,136 Full Year Results 2019 6
Balance Sheet 2018 2019 • Cash $41.14m; no debt $'000 $'000 • DC expansion cost of $5m in fixed Fixed assets 25,521 20,096 assets Right-of-use assets 1,985 - • Working capital profile flat as expected Deferred tax assets 4,338 5,636 25,732 31,844 • IFRS 16 ‘Leases’ implemented o Modified retrospective approach applied Inventories 11,456 9,878 o Minimal effect; ‘grossing ‐ up’ Receivables 52,899 46,228 Payables (59,209) (50,252) • ROCE 87% (2018: 84%) 5,854 5,146 • Pension update o Legacy defined benefit scheme; Current tax 144 140 closed to new members and future Deferred tax liabilities (931) (968) accruals for many years o 66% funded on IAS 19 basis Cash 27,484 41,136 o Significant developments in Lease liabilities - (2,045) regulatory environment Pension deficit (15,016) (12,305) o Buy ‐ out objective agreed ‐ 5 year timeframe 25,958 11,681 o New schedule of deficit recovery contributions agreed with Trustee Net assets 43,267 62,948 including £7.5m (c.$10.0m) ‘lump sum’ contribution in May 2020 Full Year Results 2019 7
Operational Review Kevin Lyons ‐ Tarr, CEO Full Year Results 2019 8
Market Beating Growth Growth History - 4imprint v Market 860.8 900 50 • North America revenue $839.3m, 850 738.4 +17% 800 45 4imprint US & Canada Revenue ($m) 750 700 627.5 40 • UK revenue £16.9m, ‐ 6%; orders 650 Market size $bn 558.2 497.2 600 35 flat 550 500 30 450 • Industry ~+5% (US) 28.8 28.1 400 25 26.8 26.0 350 25.4 300 20 • 1,587k total orders received, +14% 250 200 15 2015 2016 2017 2018 2019 • New customer orders +9%, (2018: +14%), more than 297k new No. of orders received ('000) customers acquired 457 • Existing customer orders +17% 420 369 351 New 332 1,130 969 Existing 816 703 613 2015 2016 2017 2018 2019 Full Year Results 2019 9
Marketing Effectiveness US and Canada Acquired and Retention % 50% 80,000 • Total marketing spend +18% at $154.3m, (2018: $131.2m) 45% 70,000 40% • Overall marketing mix evolving; 60,000 35% brand component growing rapidly, 50,000 30% online and print adjusted as a result 25% 40,000 20% 30,000 • Retention improvement driven by: 15% o Blue Box™ programme: >2.5 20,000 million pieces mailed in 2019 10% 10,000 o Quality of customers acquired 5% as a result of shift in marketing 0% 0 channels 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 • Revenue per marketing dollar in Comb % Retained 12 months % Retained 24 months line with our expectations Revenue/Marketing $ 2019 5.58 2018 5.63 2017 5.67 2016 5.77 2015 5.92 Full Year Results 2019 10
Investment in the business • DC expansion completed in August 2019, on time and within $5m budget • Entire facility now > 300,000 sq. ft. • Continued capital investment in apparel decorating capability: Apparel growth still outpacing other product categories o More than 100,000 embroidery orders in 2019; 4.7m units o in total • Apparel decoration investment will be extended in 2020 to include direct to garment (DTG) printing capability • Oshkosh office space requirements under review o Aim to confirm long ‐ term solution at half year o Existing facility available on ‘holdover’ lease; enough capacity to absorb growth until early 2021 • 2020 capex budget includes: o $4.7m for further embroidery/DTG equipment o $3.2m in infrastructure and equipment to support growth at Oshkosh office and distribution facilities Full Year Results 2019 11
Private Label Products Good progress with private label brands o ‘Outdoors’ brand o >$20m sales in 2019 o Cross ‐ category expansion from outerwear to: Blankets Coolers Drinkware Backpacks Accessories o Further products in 2020, including chairs, bags, garments o Brand began in drinkware – colourful, affordable o c. $4m sales in 2019 o Expansion plans, including: Metal drinkware (within category) Cooler bags (cross ‐ category) Planned launch of two more private label brands later in 2020 Full Year Results 2019 12
Outlook Trading results in the first two months of 2020 have been in line with the Board’s expectations. We have a clear strategy and a focused business model geared towards a market opportunity that remains highly attractive. We will continue to invest in the business to underpin further organic revenue growth towards and beyond our target of $1bn by 2022. Notwithstanding the fluid situation regarding COVID ‐ 19, the outlook for 4imprint is positive. Full Year Results 2019 13
Appendices Full Year Results 2019 14
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