Full Year Results Presentation 2019 · (a) Adjusted EPS is stated before exceptional items, acquisition amortisation and LTIP charges. Reported diluted earnings per share 16.0p (2018:

Presented by

Paul Fineman, CEO and Giles Willits, CFO

Full Year Results Presentation 2019

ANOTHER YEAR OF SIGNIFICANT PROGRESSSuccess delivered through:

Innovationdriving sales of over 50,000 SKUs in the year

Growthorganic growth across all regions

Acquisitionof Impact Innovations, Inc. in August 2018 and a successful initial phase of integration

Investmentin capital, equipment, processes and people

Financialrecord revenues, profits, EPS and cash generation

IG Design Group plc FULL YEAR RESULTS PRESENTATION 2019 2

OUR CUSTOMER FOCUSED BUSINESS

SourcedManufactured in-house

30% 70%

Source

EverydayMinor seasonsChristmas

56% 39% 5%

Season

Stationery(a) NFR(b)GiftingCelebrations

77% 11% 8% 4%

Product

Europe AUS ROWUKUSA

53% 22% 15% 8% 2%

Customer destination

Revenues by:

(a) Stationery and creative play.

(b) 'Not-for-resale' consumables.

Customers

Being their Partnerof choice

Product design& development

& sou

rcin

g

M

anufa

ctur

ing&

fulfilment

Distribution


OUR COMMITMENT TO SHAREHOLDERS

Continue to deliver double digit three-year compound annual growth

Delivering growthAdjusted EPS (pence)(a)

(a) Adjusted EPS is stated before exceptional items, acquisition amortisation and LTIP charges. Reported diluted earnings per share 16.0p (2018: 20.5p). 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.

Sustain long term average leverage between 1.0x and 2.0x

Generating cashAverage leverage

Improving returnsDividend (pence)

Trend upwards until 2.5x covered (40% pay out)

+33%on 2018

2015 2016 2017 2018 2019

11.513.2

18.6

22.1

29.3

+33%on 2018

2015 2016 2017 2018 2019

11.513.2

18.6

22.1

29.3

2015 2016 2017 2018 2019

4.1x

3.2x

2.3x

1.5x1.3x

+13%improvementon 2018

2015 2016 2017 2018 2019

4.1x

3.2x

2.3x

1.5x1.3x

+13%improvementon 2018

2015 2016 2017 2018 20191.0

2.5

4.5

6.0

8.5 +42%on 2018

2015 2016 2017 2018 20191.0

2.5

4.5

6.0

8.5 +42%on 2018


Financial overview


Revenue (£m)

(a) Adjusted profit is stated before tax, exceptional items, acquisition amortisation and LTIP charges. Profit before tax stated after exceptional charge of £8.4 million (2018: £0.5 million gain), acquisition amortisation of £1.6 million (2018: £0.4 million) and LTIP charges of £3.0 million (2018: £2.2 million) is £17.3 million (2018: £19.7 million).

237.0229.0

311.0327.5

448.4

2015 2016 2017 2018 2019

+37% on 2018

Adjusted profit(£m)(a)

10.89.2

16.6

21.8

30.3

2015 2016 2017 2018 2019

+39% on 2018

Net cash/(debt) (£m)

+£12.7m on 2018

(17.5)

17.1

4.4

(29.4)

3.0

2015 2016 2017 2018 2019

FINANCIAL HIGHLIGHTS


31 March 31 March 2019 2018 % £m £m change

Revenue 448.4 327.5 37

Gross profit 84.6 70.0 21

Overheads (52.0) (46.8) 11

Adjusted operating profit 32.6 23.2 41

Adjusted operating margin % 7.3% 7.1%

Finance charge (2.3) (1.4) 67

Adjusted profit before tax 30.3 21.8 39

Exceptional items (8.4) 0.5

Acquisition amortisation (1.6) (0.4)

LTIP charges (3.0) (2.2)

Profit before tax 17.3 19.7 (12)

Tax (4.0) (5.4)

Profit after tax 13.3 14.3 (8)

SUMMARY OF FULL YEAR RESULTS

• Revenue increased 37% of which 9.8% organic growth, balance (27%) relating to Impact acquisition

• Adjusted operating margin increased to 7.3% (2018: 7.1%) driven by:

• gross profit margin at 18.9% (2018: 21.4%) down year-on-year reflecting Impact acquisition and product mix

• improved overheads to revenue ratio, at 11.7% compared to 14.4% in the prior year

• Adjusted profit before tax is stated before the amortisation charge associated with acquisition intangibles reflecting the significance of the Impact transaction in the year

• Effective tax rate at 23.4% was lower than prior year reflecting the full year effect of the reduction in US federal tax rate

• Exceptional costs at £8.4 million primarily reflect the costs associated with the Impact acquisition and subsequent restructuring in the US in line with guidance. Breakdown of costs are acquisition costs £2.4 million, US restructuring £5.6 million and UK unification £0.4 million

• Net cash outflow of exceptional costs equal to £0.3 million which includes £4.8 million relating to the sale of Midway


Sales Adjusted operating profit Adjusted margin Group revenue 2019 2018 Growth 2019 2018 Growth 2019 2018

50% Americas $m 289.9 158.8 83% 20.0 12.7 57% 6.9% 8.0%

28% UK £m 127.1 123.3 3% 8.1 7.9 3% 6.4% 6.4%

14% Europe €m 73.0 58.5 25% 10.0 7.5 33% 13.7% 12.9%

9% Australia AU$m 70.3 63.1 11% 7.7 5.0 54% 10.9% 7.9%

(1%) Elims/central costs £m (5.5) (4.8) (4.1) (4.0)

100% Total £m 448.4 327.5 37% 32.6 23.2 41% 7.3% 7.1%

• Adjusted operating profit increased 41% to £32.6 million driven by progress across all regions

• Adjusted margin up 0.2 percentage points to 7.3% reflecting product mix weighted toward higher margin product categories

• Americas revenues and profit boosted by Impact acquisition on 31 August 2018. Impact revenues of $114.9 million, along with organic revenue growth of 10% with significant progress from Creative Play product category

• UK delivered growth in a challenging market, benefiting from ‘Not-for-resale’ bags growth and UK business unification

• Europe increased adjusted margin to 13.7% with strong revenue growth and well executed efficiency gains

• Australia benefited from full integration of the Biscay business acquired in 2018. Current market challenges will impact on 2020 performance

ON TRACK TO DELIVER GROUP MARGIN TARGETS


Year ended Year ended 31 March 2019 31 March 2018 £m £m

Adjusted EBITDA 38.7 28.0Change in trade and other receivables 25.6 (9.1)Change in inventory 4.3 0.4Change in creditors, provisions and accruals (18.1) 3.3

Adjusted cash generated from operations 50.5 22.6Exceptional items from operations (5.0) (0.5)LTIP (0.7) (0.4)

Cash generated from operations 44.8 21.7Proceeds from sale of property, plant and equipment 5.3 2.6Net capital expenditure (7.9) (9.4)Business acquired (66.8) (5.1)Cash acquired with acquisition 1.2 —Tax paid (3.7) (3.1)Interest paid (including exceptional items) (2.1) (1.5)Dividends paid to non-controlling interests (1.1) (0.6)Equity dividends paid (4.6) (3.0)Proceeds from issue of share capital 48.3 0.1Other (0.7) (0.3)

Movement in net cash 12.7 1.4Opening net cash 4.4 3.0

Closing net cash 17.1 4.4

Net cash reconciliation 2019

STRONG CASH CONVERSION FUNDING GROWTH INVESTMENT

£17.1m

Net cash 31 March

2019Net cash 31 March

2018

£4.4m

(£0.2m)

Other reasons

(£0.9m)

Exceptionals and LTIP

£38.7m

EBITDA

(£4.6m)

Equity dividend paid

Acquisitions

(£65.6m)

(£7.9m)

Capex

£11.8m

Working capital

Tax, interest, NCI

(£6.9m)

Proceeds from issue of

shares

£48.3m

130.5% driven by working capital inflows from Impact acquisition

£m

Impact Innovations 24.8

Inventory/growth (13.0)

11.8

Cash conversion

Working capital


As at As at 31 March 2019 31 March 2018 £m £m

Intangibles 83.7 36.5

Fixed assets 39.8 35.5

Stock 69.6 49.3

Trade and other receivables 45.5 37.5

Net cash 17.1 4.4

Trade and other payables (75.0) (59.2)

Deferred income and provisions (4.6) (2.4)

Taxation (0.5) (1.1)

Net assets 175.6 100.5

Attributable to shareholders 171.5 96.9

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

• Estimated reduction of adjusted profit is up to £1 million – EBITDA increase up to c.£6 million offset by increased depreciation c.£5 million and finance charges c.£2 million

• Estimated impact on net assets is up to £4 million reduction with non-current assets expected to increase by £31 million and gross liabilities by £35 million

BALANCE SHEET

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)

17.2%15.0%

12.8%

22.5%24.3%

20162015 2017 2018 2019


Average leverage/interest cover Average net debt (£m) Adjusted EBITDA (£m)

16.317.4

22.4

28.0

38.7

2015 2016 2017 2018 2019

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

3.2x

4.9

4.1x

4.4

2.3x

14.5

1.5x

16.7

1.3x

14.1

2015

Interest cover

2016 2017 2018 2019

66.3

55.151.1

41.9

48.8

2015 2016 2017 2018 2019


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


Strategy and outlook


Top 10 customers Sales by channel(%)

Growing revenue through organic growth with both existing and new customers, suppliers and product areas.

STRATEGY IN ACTIONWorking with the winners

• The top 10 customers represent 48% of overall sales, up from 39% in the prior year, and sell our products in over 60,000 out of the more than 210,000 stores selling our product around the world

• In 2019, organic revenue growth with our top 10 customers averaged 17%

• Our focus on working with mass and discount retailers such as Action, Aldi, Costco, Dollar Tree, Lidl, Tesco and Walmart has delivered significant growth with sales up 71% to £277 million, representing 62% of the Group's revenues

Mass and discount retailers Other

2019

2018

38%

50%

62%

50%


Design & innovation

Efficiency & scale


Develop opportunities in new channels and adjacent product categories while expanding our presence in the growing market for celebration events throughout the year

STRATEGY IN ACTIONDesign & innovation

• A near doubling of revenues of ‘Not-for-resale’ consumables to nearly £20 million including over 10 million 100% biodegradable bags

• A 67% revenue growth in Creative Play products in US with plans to extend to other regions in 2020

Environmental focus: creating competitive advantage from sustainable sourcing


Design & innovation

Efficiency & scale


Increasing margins through investments in process, people and accretive M&A. We are focused on unlocking synergies and strengthening our ‘one-stop-shop’ position with customers

STRATEGY IN ACTIONEfficiency & scale

• The acquisition of Impact in August 2018 not only doubled the scale of our business in the USA but was transformational for the overall Group

• Investing in our fifth high speed ‘state-of-the-art’ printing press to become operational in early 2020

Design & innovation

Efficiency & scale



IMPACT INNOVATIONS – ON SCHEDULE TO DELIVER $5M OPERATIONAL SYNERGY

• In December 2018, we consolidated the manufacturing operations of the combined US business into one facility in Memphis

• We closed our production facility and sold the freehold property in Midway

• A new ‘state-of-the-art’ high speed printing press is on track for delivery in winter 2019 (operational early 2020)

• We are fully engaged with our customers and suppliers in identifying opportunities to leverage the combined expertise of our US businesses, including cross-selling opportunities

Synergy driver Synergy timings Comment Status

2019

Sell Midway, Georgia facility

Completed December 2018

✔

2020 2021Combine manufacturing in Memphis

Consolidation to Memphis announced on time in Q3 of 2019 financial year✔ ✔ ✔

Catalogue business relocation

As part of Midway sale, lease back portion of site at lower relocation costs✔ ✔ ✔

Headcount reduction

On track to deliver planned back-office and management savings✔ ✔ ✔

Operating efficiencies

Est. synergy (cumulative $m) 0.5 2.5 5.0

New press ordered in time for delivery Q4 2019 to support 2020/21 manufacturing requirements

✔ ✔


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 and India

• Re-engineering products with customers to reduce costs

• Moving production to the US

Brexit US-China tariffs


2020 OUTLOOK

Working with the winners • Growth opportunities to expand across territories and regions with long established customers

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

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

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

Efficiency & scale • We shall benefit from investment in all our manufacturing sites including the second production line for ‘Not-for-resale’ bags and the new state-of-the-art printing press in the USA

• In Asia, we have invested to further leverage our overall purchasing activities from third-party suppliers

• We continue to focus on our active pipeline of M&A opportunities


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

2012 2013 2014 2015 2016 2017 2018

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

2019

29.3p

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, Holland

August 2018Acquisition of

Impact Innovations, USA

January 2018Acquisition ofBiscay, Australia

March 20182nd printing press operational Netherlands


LARGEST SHAREHOLDERS(C)

Hedlund family(a)

27.97%Octopus Investments

8.15%

Close Brothers AM

3.97%

Miton Group

5.05%

BlackRock

3.99%Paul Fineman(b)

3.25%Polar Capital

3.37%

Schroders Plc

4.52%

(a) 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 29.12% of the current issued share capital of the Company.

(b) This includes a non-beneficial interest in 174,608 ordinary shares at 5p each.(c) Shareholdings as at 31 March 2019.


Customers

Being their Partnerof choice

& sourcingManufacturing

Dis

trib

utio

n&

fulfi

lmen

tProduct design

& development

Working withthe winners

inno

vatio

n

Desig

n &

& scale

Efficiency

Our strategy is built on leveraging our core strengths and focusing on market opportunities

STRATEGY

• Developing in new channels and adjacent product categories

• Expanding in the growing number of events celebrated throughout the year

• Driving margins through investment in process and people

• Accretive M&A opportunities to unlock synergies and strengthening our ‘one-stop-shop’ position with customers

Design & innovation

Efficiency & scale


• Increasing revenue through organic growth with both existing and new customers, suppliers and product areas

Strategic drivers


MANAGING OUR CHALLENGES

Supply chain

integrity

Customer and

competition

Economic uncertainty

Margin headwinds

Currency and

liquidity

Leadership and

people

• Clear procedures and policies to maintain continuity of supply

• Carefully selected suppliers where performance is monitored

• Regular supply chain audits

• Leveraging our global scale and sourcing expertise in Asia

• Ongoing development of supplier network

• Focus on design, product quality and service

• Maintain diversified product portfolio across customer base

• Ongoing investment in key customer relations

• Continued investment in efficiency to maintain competitiveness

• Close management of costs and margin by product and customer

• Focus on resilient product categories

• Balance business across multiple categories

• Regular monitoring and appropriate action in response to changing circumstances

• Development of impact response plans as required

• Operating in local currencies

• Natural dollar hedging• Active hedging policy• Rolling cash

forecasting and monitoring

• Working with banking partners to deliver necessary funding to support business cash cycle and capacity for new investment requirements

• A portfolio of responses:• leverage overall scale• innovation• re-engineering

products• product mix• negotiation (suppliers

and customers)• selling category

solutions• channel diversity• selective price

increases albeit on a phased basis

• Give our people the knowledge and tools they need

• Build teams to support growth opportunities adding strength and depth where needed

• Maintain appropriate policies and packages to attract and retain top talent

• Develop cross learning programmes to enhance experience for individuals across the Group

Challenge

Response

Current status – our view


ALTERNATIVE PERFORMANCE MEASURES

A full reconciliation between our adjusted and reported results is provided below: 31 March 2019 31 March 2018 £m £m

Adjusted EBITDA 38.7 28.0



EBITDA 27.4 26.3

£m £m

Adjusted profit before tax 30.3 21.8




Reported profit before tax 17.3 19.7

£m £m

Adjusted profit after tax 23.2 15.6




Reported profit after tax 13.3 14.3

pence pence

Adjusted EPS 29.3 22.1

Exceptional items (including tax effect) (8.6) 1.4

Acquisition amortisation (including tax effect) (0.9) (0.3)

LTIP charges (including tax effect) (3.8) (2.7)

Reported diluted EPS 16.0 20.5


IG Design Group plcNo 7 Water End Barns

Water EndEversholt MK17 9EA

T +44 (0)1525 887 310

thedesigngroup.com

Documents

Full Year Results Presentation 2019 · (a) Adjusted EPS is stated before exceptional items, acquisition amortisation and LTIP charges. Reported diluted earnings per share 16.0p (2018: