‘Subdued customer demand’ for celebrations but hopes for second half of year
A drop in revenue has led to lower profits at IG Design Group, but the worldwide greetings, stationery party and wrap giant is expecting to return to form in the second half of the financial year, and has also revealed sustainability improvements.
The release today, 26 November, of the company’s unaudited results for the six months to 30 September, saw the share prices drop from yesterday’s 120.25p close, fluctuating between a 52-week low of 106.00p at 8am up to 113.00p around lunchtime, and currently hovering about 110.00p – the 52-week high level has been 240.00p.
The interim results show that revenue fell from £353.31million ($444.1m) in the first half of the 2024 financial year, to £312.77m ($393.1m) in this period, causing a drop in operating profit from £30.39m ($38.2m) down to £11.69m ($14.7m) – pre-tax profit went down from ££27.69m ($34.8m) to £10.58m ($13.3m).
Statutory operating profit, including one-off costs, fell 81% to £5.65m ($7.1m) after taking into account a £5.97m ($7.6m) charge related to the closure of its manufacturing site in China, and restructuring at the DG America business.
While aiming to reach its goal of creating a more resilient business model that can better withstand market challenges, the company said business model simplification, efficiency and cost-saving initiatives across the group, especially in DG Americas, will “drive profit recovery in the second half of the year such that we expect to deliver a profit in that period, compared to a loss in that period last year”.
It has also revealed that the recent UK budget means it anticipates an extra £0.56m ($0.7m) being added to the group’s annual operating costs due to the “not anticipated” reduction in the national insurance threshold and rise in employers’ NI rate.
Chairman Stewart Gilliland commented: “Our focus on our path to growth remains steadfast, being a strategy of winning with the winning retailers and reducing the complexity across our business. We have made good progress throughout our turnaround, particularly as we remain on track to return margins to pre-pandemic levels and, although the broader conditions have perhaps become more difficult, our ambition has not abated.
“The challenging macroeconomic backdrop has undoubtably impacted the confidence of retailers, but we are focused on navigating this landscape by prioritising the essentials of improved delivery, increased collaboration and price competitiveness, to a strong customer base with who we have longstanding relationships.
“While the economic landscape remains uncertain, we continue to strengthen our business model to better withstand market challenges and this, coupled with our strong customer relationships and the commitment of our team, continue to fill me with confidence that we will deliver profit growth.”
With its key products under the Celebrate banner including gift wrap, gift bags, cards, Christmas crackers, partyware, stationery, and branded bags, the Newport Pagnell-headquartered company, that has a major manufacturing plant in Hengoed, said the 11% sales drop was on the back of subdued customer demand “predominantly in the US, and somewhat in the UK and Australia”.
The report added that DG International, which contributes over a third of the group’s revenue, had experienced a 6% decline in revenue compared to the prior year, reflecting a continuation of the trends seen last year, “with growth from key customers in continental Europe helping to offset ongoing softness in the UK and Australian markets”. While volume was only slightly lower, pricing came under pressure.
It stated: “In the UK, following an extended period of high inflation, interest rates and the cost-of-living crisis, consumer spending has continued to be suppressed, particularly in more discretionary product categories such as party supplies.
“Retailers have adopted a cautious approach to ordering, focusing on managing inventory levels amid the weaker demand. In Australia, while the economy has begun to show signs of recovery, consumer confidence remains subdued due to household debt concerns and cost pressures, leading to similarly cautious ordering patterns in non-essential categories.
“Continental Europe, by contrast, has remained more resilient, driven by relatively resilient consumer sentiment and supported by our strategy of winning alongside the winning retailers.”
Rising raw material, manufacturing and freight costs put further pressure on profitability as the increases “could not be fully recovered through pricing given the market environment”.
The group is broadening its supplier base, including from Mexico for the Americas market, and is also establishing a sourcing team in India, and has made a strategic investment in bag making in Europe, “supporting customer demand for near-shoring solutions”. It has invested £1.4m (€1.7m) at its Hoogeveen site in the Netherlands in a new line which can handle a range of sizes, substrates and bag handle types, as well as multi-packs.
On the sustainability side, the roll-out of its Smartwrap solution which removes shrink wrap from giftwrap packaging has saved over 29tonnes of plastic so far, with over half of its continental European customers taking the product in FY2024 and now “with the rollout in DG UK progressing well, and trials underway in DG Americas”, the growth is expected to continue into the future.
The report added: “These innovations align with, and help deliver, our customers’ sustainability goals. During the period we have also initiated a PIMS (Product Information Management System) project to develop a Group-wide platform for capturing product information to better support traceability and provenance.
“Within Planet, we have made progress in managing climate-related risks and reporting scope 1 and 2 emissions, while collaborating with major customers to meet their initial environmental targets ahead of schedule.
“This marks a significant step in our commitment to sustainability, as we work toward a more sustainable future for both the business and the planet. Further to this, during the period, we have seen solar panelling introduced in our contract manufacturing sites in Mexico which make further progress on reducing greenhouse gas emissions.”
