IG Design Group plc (IGR) Earnings Call Transcript
November 24, 2020
Earnings Call Speaker Segments
We're here today with IG Design Group CEO, Paul Fineman; and CFO, Giles Willits, to discuss their 2021 interim results.
How did the business perform in the first half?
Well, we're undoubtedly pleased with our performance, which has shown the strength of our global business and strong levels of ongoing demand for our products and the value of our strategy. The results are certainly stronger than initially expected when COVID-19 hit. Our response to COVID-19 generally has been rapid. It's been comprehensive and reflects a collaborative approach together with our customers and suppliers. CSS, which we acquired in early March, has performed very well and already brought great value to the group. There's been robust performance from all geographies, all individually ahead of expectations. And ultimately and importantly, the desire to celebrate life's special occasions has not waned despite the circumstances. As Paul mentioned, the financial results for the first half, which we now report in U.S. dollars, have been stronger than expected and ahead of our internal forecast, which we revised in April as a result of the pandemic. In more detail, group first half revenues were up 41% year-on-year to $434.6 million with adjusted profit up 16%. The growth has been driven by the CSS acquisition. However, COVID-19 has negatively impacted our trading across the whole group, particularly during the first quarter. We now report in 2 segments, Americas and international, and both segments have performed ahead of our COVID-19 forecasts. And despite remaining cautious about the second half, we anticipate that our full year results will be ahead of market expectations.
Given the impact of COVID-19, what's your financial position like?
Our financial position is strong, which underpins our confidence in paying an interim dividend of 3p, the same level as last year. Net debt at the half year was reduced by $82.9 million on the prior year, thanks to careful working capital management across the group, helping deliver average leverage at 0.2x. We now expect average leverage at the full year will be less than 0.5x, which is a significant improvement on the prior year.
And how has the business responded to COVID-19 and the associated restrictions?
Our response to COVID-19 has shown strength and adaptability as we overcame numerous challenges in order to continue the delivery of hundreds of millions of units of products to our customers throughout the world. We've remained open and fully operational whilst ensuring that comprehensive health and safety measures are in place. While sales did fall in quarter 1, in line with retail closures, some categories did very well. For example, craft and creative play have grown very significantly and now represent 21% of group sales. In the seasonally more significant second quarter, we saw a strong sales recovery, with CSS actually up 2.4% and the rest of the group down just 2.8%. From a customer perspective, I'm happy to say that many of our customers are reporting good sell-through on seasonal as well as everyday lines. We have not only been focused on mitigating the impact of COVID but have also continued to capitalize on growth opportunities.
Can you provide an overview of the CSS acquisition and the general performance in your Americas business?
Design Group Americas in large business now accounts for nearly 3/4 of our business, with revenues in the region during the first half overall growing by 75% with a unified Design Group Americas leadership team swiftly being formed to leverage the collective knowledge and skills brought to us by the CSS team. Integration of CSS continues to proceed well, and delivery of synergies are ahead of schedule. CSS is an important contributor to profit. The craft product category has been an important addition and has also contributed to an increasing proportion of everyday nonseasonal revenues. Our Christmas product offering is in full swing as we approach December with strong levels of demand.
How is the non-Americas-based international business performed in the period?
International delivered a good performance with an increase in adjusted operating profit despite lower revenues. Revenue dropped by 10% as a result of the impact of COVID-19, particularly in the first quarter, when many stores were closed, but the bottom line benefited from variations in product mix alongside a focus on overhead expenditure. U.K. delivered a robust performance, with seasonal orders on or ahead of schedule, while Europe performed well, continuing to benefit from the working with the winners strategy. Our Australian business delivered a better-than-expected performance, maintaining good margins. Overall, a pleasing result.
What are your expectations for the balance of the year and beyond?
We're now tracking ahead of market expectations for the full year. However, with the status of COVID around the world as it is, we are still maintaining an appropriate level of caution. Our order book is in excess of 80% of full year revenue forecast, a higher level than at this time in the previous year. We will continue to focus on revenue growth initiatives, including building on cross-selling opportunities in the U.S., expanding our range of sustainable products and developing an increased e-commerce offering and capability. We are well placed to deliver continued growth in FY '22 and beyond.
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