st ives plc half year results for the 26 weeks ended 27 ... · half year results for the 26 ......

1

This announcement contains inside information

7 March 2017

ST IVES plc

Half Year Results for the 26 weeks ended 27 January 2017

St Ives plc, the international marketing services group, announces half year results for the 26 weeks

ended 27 January 2017.

Financial Highlights

26 weeks to 27 January

2017


2016 %age

change

Revenue £195.1m £185.7m 5%

Adjusted profit before tax* £9.8m £16.1m (39)%

Adjusted basic earnings per share* 5.45p 9.70p (44)%

Interim dividend 0.65p 2.35p (72)%

Statutory loss before tax £(26.8)m £(2.8)m -

Net debt £70.4m £80.8m

£10.4m

less**

* Adjusted Results exclude Adjusting Items to enhance understanding of the financial performance of the Group. Adjusting Items comprise of redundancies, empty property and restructuring costs; impairments, gain or loss on disposal of properties; costs related to the acquisitions or setting up of new subsidiaries; impairment or amortisation charges related to goodwill, tangible and intangible assets; contingent consideration required to be treated as remuneration; movements in deferred consideration and costs related to the St Ives Defined Benefits Pension Scheme.

** Net debt as at 29 July 2016.

Key points

Very challenging six months, reflected in our financial performance

Strategic Marketing segment, which lies at the centre of our long term growth strategy, represents 39%

of Group revenue and 55% of Adjusted operating profit

Revenue growth of 5% driven by our Strategic Marketing segment which delivered growth of 9%.

Revenue in Books 15% ahead of the previous half year, partially offset by a 3% decline in Marketing

Activation

Further progress made against key strategic priorities – collaboration and internationalisation

- Over 160 of our clients currently working with more than one business across the Group

(2016:130) including Unilever, Standard Life Investments, Microsoft and Bosch

- Over 45% of our Strategic Marketing revenue now comes from clients based outside of the UK

(2016: 40%). Nine of our Strategic Marketing businesses are servicing clients on an

international basis

Net debt reduced to £70.4 million (29 July 2016: £80.8 million), with further debt reduction initiatives

being pursued in H2

Interim dividend of 0.65 pence (2016: 2.35 pence) recognises the importance of dividends to

shareholders whilst reflecting the importance of investing in the further organic growth of the Strategic

Marketing segment, and the strengthening of the balance sheet

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Matt Armitage, Chief Executive, said:

“While recent months have proved very challenging, these results mask further encouraging underlying

progress within our core Strategic Marketing segment, with a number of exciting new projects being won from

existing and new clients as we continue to develop our unique offering. We remain confident in the quality and

strength of our Strategic Marketing businesses and in the long term growth strategy for this segment.

“However, we recognise the effect that the legacy businesses are having on our overall performance and on our

ability to generate value for shareholders. We are reviewing strategic options for both our Marketing Activation

and our Books segments whilst taking decisive action to improve efficiencies and reduce costs and to diversify

our Marketing Activation sector focus. This is a priority for us in the months ahead and we will continue to report

on its progress.”

For further information, please contact:

St Ives plc 020 7928 8844

Matt Armitage, Chief Executive

Brad Gray, Chief Financial Officer

MHP Communications 020 3128 8139

John Olsen, Giles Robinson, Gina Bell

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Chief Executive’s Review

Introduction

Recent months have been very challenging for the Group as a whole, and this is reflected in the reported

results for the first six months of the current financial year. It has also been a very disappointing period for

shareholders, something of which the Board is acutely aware.

The challenges reside primarily within our legacy Marketing Activation and Books segments. In both cases, and

despite their strong market positions, competition is becoming ever more intense and is leading to relentless

downward pressure on margins. We are taking immediate action to reduce the cost base of both segments to

reflect the new market realities and, at the same time, we are reviewing the strategic options for both.

These issues, and their impact on the results, mask further encouraging underlying progress within our core

Strategic Marketing segment. This segment lies at the centre of our long term growth strategy and now

represents some 39% of Group revenues and 55% of Adjusted operating profit. We have seen important

progress in our pursuit of organic growth here, particularly through collaboration between our various

businesses.

Group Performance

Group revenue of £195.1 million was 5% higher than the comparable period in the previous year. Our Strategic

Marketing segment delivered growth of 9% - primarily acquisition growth. Revenue within our Books Segment

was 15% ahead of the previous half year. These performances were partially offset by a 3% decline in our

Marketing Activation segment, due to continued pressure within the grocery retail sector.

The Group’s statutory loss before tax of £26.8 million (2016: £2.8 million) includes Adjusting Items of £36.6

million (2016: £19.0 million), of which £35.7 million relates to non-cash items. The non-cash Adjusting Items

include an impairment charge of £23.9 million in the Marketing Activation segment and £3.0 million in the Books

segment.

The Group’s adjusted profit before tax declined to £9.8 million (2016: £16.1 million) and adjusted basic earnings

per share decreased by 44% to 5.45 pence (2016: 9.70 pence).

The half year saw further growth in our Strategic Marketing segment although, as previously reported, we

experienced a number of project cancellations and deferrals in the last quarter of the previous financial year,

which have also impacted revenue growth and operating margin within the first half of the current financial year.

We remain encouraged by the progress that has been made to replace the cancelled work. However, this

process is taking longer than previously anticipated, and it is unlikely that we will see the full benefit of the new

work we have won until the final quarter of the current financial year.

Balance Sheet Net debt as at 27 January 2017 was £70.4 million, down from the £80.8 million as at 29 July 2016, representing a net debt to adjusted EBITDA ratio of 2.0x (29 July 2016: 2.0x). Further reducing the Group’s indebtedness, including a focus on cash generation and the disposal of certain non-core properties currently held for sale, is a priority for the Board.

Dividend The Board has reviewed the Group’s near-term dividend policy to reflect the impact of the issues experienced in

the legacy businesses and the costs involved in the ongoing cost-reduction initiatives (more details of which are

set out in the Segment Overview below). In doing so it has balanced the importance of dividends to

shareholders, the importance of investing in the further organic growth of the core Strategic Marketing segment,

and the strengthening of the balance sheet. Against that background the Board has declared an interim

dividend of 0.65 pence per share, a decrease of 72% against last year’s interim dividend of 2.35 pence. The

Board will re-evaluate the Group’s longer-term dividend policy in due course.

The interim dividend of 0.65 pence will be paid on 5 May 2017 to the shareholders on the register at 7 April

2017, with an ex-dividend date on 6 April 2017.

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Pension Scheme On an IAS 19 basis the net deficit on the St Ives Defined Benefits Pension Scheme (the “Scheme”) has reduced

to £18.5 million (29 July 2016: £26.4 million). Scheme assets performed well increasing by £8.9 million over the

period. Scheme liabilities increased by £1.0 million to £371.5 million, where an increase in the discount rate

used to calculate the liabilities was offset by an increase in the inflation rate.

Strategic Priorities

We are confident in our long term strategy for further growth, which is built around our Strategic Marketing

segment and which remains centred around three key priorities:

Collaboration We continue to make progress with our collaboration agenda with over 160 of our clients currently working with

more than one business across the Group (2016: 130). These include Unilever, Standard Life Investments,

Microsoft and Bosch.

We are seeing a general increase in demand for integrated solutions from clients within our Strategic Marketing

segment, which, while aligning to our collaboration agenda, has lead us to review and evolve our operating

model within the segment, and resulted in us bringing a number of our Digital and Data businesses closer

together.

Internationalisation Many of our businesses now deliver international solutions for clients. Over 45% of our Strategic Marketing

revenue now comes from clients based outside of the UK (2016: 40%). Nine of our Strategic Marketing

businesses are servicing clients on an international basis.

Our strategy for developing our overseas footprint is client-driven; we will open offices in those territories where

we can identify client-led opportunities. However, we will be disciplined in our implementation of this strategy;

the opportunities must be in large markets or in markets with the potential for significant and sustainable growth,

and the offices need to be capable of generating appropriate returns within a reasonable period of time.

Acquisitions In the longer term, the acquisition of further complementary marketing services businesses, which add value to

our existing portfolio and operate in our chosen growth areas of digital, data and insight services, will continue

to be an important element of the growth strategy of our Strategic Marketing segment.

Given the recent challenges however, we are currently prioritising organic growth, including leveraging the

investments we have made in existing propositions and in new offices.

Segment Overview

Strategic Marketing

Our Strategic Marketing operations represent 39% of Group revenue for the half year (2016: 37%) and 55% of

Group Adjusted operating profit.

2017 £’m

2016 £’m

Digital 41.6 32.2

Data 16.7 19.9

Insight 17.5 17.3

Revenue 75.8 69.4

Adjusted operating profit 6.2 9.7

We have seen further encouraging underlying progress within the Strategic Marketing segment, the core of the

Group and of our long term growth strategy.

One of our priorities has been to replace the work lost in the last quarter of the previous financial year, and we

have had a number of significant new client wins and contract renewals including long term agreements to be

the digital partner of Rockwell Automation and DuPont Pioneer. We are encouraged by these successes

although it is taking longer than previously anticipated to replace the lost revenues; revenue growth and

operating margin were therefore subdued in the half year.

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As a result of an increase in client demand for more integrated solutions, we have continued to drive our

collaboration agenda and to evolve our operating model accordingly. We continue to focus on the disciplines of

Digital, Data and Insight although the strict distinctions between these disciplines are becoming less relevant as

more integrated propositions are provided to clients.

During the half year we announced some senior management changes within our Digital and Data businesses.

Our three Digital businesses (Amaze, Realise and Branded3) are now under the management responsibility of

a single individual, Tony Murphy, who was previously the CEO of Realise. We have also announced that our

two Data businesses (Occam and Response One) will be managed by a single individual, Damian Coverdale

(previously MD at Response One). These changes will ensure that we offer a coherent proposition combined

with the breadth and scale of services to support our clients’ expanding digital and data requirements.

Our Data businesses work increasingly with each other and also with our digital marketing businesses, where

numerous joint propositions have been developed. We see further opportunities for collaboration between our

Digital and Data businesses as data continues to be the driving force behind successful digital marketing and

transformation activities.

Synergies between Solstice, our Chicago-based mobile and emerging technology business, and TAB continue

to result in both businesses sharing resources, working practices, growth frameworks and data. The two are

working together to develop innovative connected digital experiences using Voice, Virtual Reality and Internet of

Things technology for clients. New wins in the half year have included projects for clients including Ford, BMW,

Bosch and Electrolux.

Within our research consultancy, Incite, we have seen growth of our UK and US businesses through a

significant number of new client wins in the technology, FMCG, finance and pharma sectors, although client

spend and sentiment in Asia has been less robust. We continue to support our overseas offices in order to

provide an international offering to clients – a growing number of Incite’s clients are serviced by more than one

Incite office - and to drive long-term growth, although this continues to affect short-term profitability.

Our healthcare consultancy, Hive, has experienced a number of new client wins including Roche, Leo Pharma,

Ipsen, Gilead and Almiral. The business has also expanded its offering and client base in the US, delivering

significant growth (albeit from a low base) through a number of client wins including Pfizer. We see the US, and

further international expansion, as a significant contributor to future growth.

Our retail consultancy, Pragma has undertaken a number of large advisory projects, including strategic reviews

and commercial due diligence of multinational consumer businesses. A growing number of such projects

involve collaboration with FSP, our specialist property consulting firm, particularly where catchment analysis or

location planning forms a key part of the investment decision.

The progress outlined above underscores the quality of our individual Strategic Marketing businesses and the

potential for further profitable growth that they offer, both individually and, more importantly, through

collaboration. They offer differentiated, value added services to clients and we are confident that the segment’s

margins can and will return to levels achieved in previous years.

Marketing Activation

Our Marketing Activation segment represented 40% of Group revenue for the half year (2016: 43%) and 17% of

Group Adjusted operating profit.

2017 £’m

2016 £’m

Revenue 77.9 80.2


Trading conditions within this segment continue to be very challenged, due in large part to the ongoing

pressures within the grocery retail market. Whilst our expertise in grocery retail remains an important strength,

diversification of the client base beyond this sector continues to be a priority.

The segment has had a number of new wins and project extensions during the half year for clients including

Royal Mail, Innocent, Superdry, AkzoNobel, ESPA and OfficeTeam. While we have been successful in securing

this work, the market remains extremely price competitive in all areas.

6

We will continue to focus on protecting margins through driving efficiency improvements and cost reductions,

the benefits of which are expected to come through in the final quarter of the current financial year. A

consultation has commenced with employees to reduce employee numbers in SP Group, our point-of-sale

business. The cash cost, in addition to other restructuring costs, will be approximately £1.0 million and will be

recorded in the second half of the year. In addition a non-cash impairment charge of £23.9 million has been

incurred relating to SP Group, which is heavily dependent on the grocery retail market. At the same time, we

are focusing on growth opportunities in markets that value service and innovation to further reduce the over-

reliance on grocery retail.

Books

Our market-leading Books business represented 21% (2016: 20%) of Group revenue for the half year and 28%

of Group Adjusted operating profit.

2017 £’m

2016 £’m

Revenue 41.4 36.1


Revenue was 15% higher than the prior half year at £41.4 million (2016: £36.1 million).

Trading during the first half year was generally positive, particularly during the pre-Christmas period, and this

has continued in the new year. Sales of printed books in the UK as reported by Nielsen were up 5% on 2016.

Following the end of the half year and as announced on 8 February, we were informed by HarperCollins that

our contract for the production of monochrome books in the UK would not be renewed. The contract ends on

30 June 2017. As a result of the non-renewal, significant re-structuring and cost reductions are underway. We

expect the mitigating actions to result in a one-off cash cost of £1.5 million, the majority of which will now impact

the second half of this financial year and a £3.0 million non-cash impairment charge that has impacted the first

half of the current financial year.

We continue to adapt to suit the evolving needs of clients, leveraging our well-invested digital print technology

to provide a broader product range, greater capacity to support fast lead-times, lower stock-holding and with

continued focus on extending supply-chain solutions to reduce the overall cost of the books supply-chain.

Outlook

Trading across our Strategic Marketing segment is recovering. We are encouraged by the new projects being

won from existing and new clients, and excited by the opportunities that the increased collaboration between

our businesses is generating.

Trading conditions within our Marketing Activation segment continue to be very challenging, due in large part to

the ongoing pressures within the grocery retail market, but we are taking decisive action to increase efficiency

and reduce costs and remain focused on diversifying into other sectors.

Similarly, within our Books business we are taking decisive action to ensure that the cost base reflects the

future level of volumes we now expect.

Overall, we remain confident in the long term growth strategy currently being pursued in Strategic Marketing,

and in the quality of the businesses within that segment, as illustrated by the clients and contracts they continue

to attract. However, we recognise the need to address, decisively, the effect that the legacy businesses are

having on the Group’s overall performance and on our ability to generate value for shareholders. This, together

with further strengthening of the balance sheet, is a priority for the Board and we will report further to

shareholders on this in the months ahead.

Matt Armitage

Chief Executive

7 March 2017

Condensed Consolidated Income Statement

7

26 weeks to 27 January 2017


2016 (Restated

Note 6)

52 weeks to 29 July

2016 (Restated

Note 6)

Note

Adjusted Results

£'000

Adjusting Items (Note 3)

£'000

Statutory Results

£'000

Statutory Results

£'000

Statutory Results

£'000

Revenue 2 195,127 – 195,127 185,706 367,546

Cost of sales (144,746) – (144,746) (131,973) (262,468)

Gross profit 50,381 – 50,381 53,733 105,078

Selling costs (13,599) – (13,599) (12,945) (25,011)

Administrative expenses (25,621) (36,781) (62,402) (40,055) (80,304)

Share of results of joint ventures 122 – 122 (104) (122)

Other operating (expense)/income (7) 457 450 (1,669) (1,484)

Profit/(loss) from operations 2 11,276 (36,324) (25,048) (1,040) (1,843)

Net pension finance charge – (323) (323) (494) (972)

Other finance costs (1,472) – (1,472) (1,313) (2,899)

Profit/(loss) before tax 9,804 (36,647) (26,843) (2,847) (5,714)

Income tax (charge)/credit (2,031) 893 (1,138) (2,347) (2,391)

Net profit/(loss) for the period 7,773 (35,754) (27,981) (5,194) (8,105)

Basic earnings/(loss) per share (p) 5 5.45 (25.08) (19.63) (3.96) (5.93)

Diluted earnings/(loss) per share (p) 5 5.45 (25.07) (19.62) (3.88) (5.89)

Adjusting Items comprise of redundancies, empty property and restructuring costs; impairments, gain or loss on disposal of properties; costs related to the acquisitions or setting up of new subsidiaries; impairment or amortisation charges related to goodwill, tangible and intangible assets; contingent consideration required to be treated as remuneration; movements in deferred consideration and costs related to the St Ives Defined Benefits Pension Scheme.

Condensed Consolidated Statement of Comprehensive Income

8


2017 £'000


2016 £'000

52 weeks to 29 July

2016 £'000

Loss for the period (27,981) (5,194) (8,105)

Items that will not be reclassified subsequently to profit or

loss:

Remeasurement of the net retirement benefits obligation 7,335 5,873 83

Tax charge on items taken directly to equity (1,320) (1,057) (545)

6,015 4,816 (462)

Items that may be reclassified subsequently to profit or

loss:

Transfers of (profits)/losses on cash flow hedges to hedged

items (109) 127 127

Profits/(losses) on cash flow hedges 163 (235) (302)

Profit on foreign exchange 759 – 409

813 (108) 234

Other comprehensive income/(expense) for the period 6,828 4,708 (228)

Total comprehensive expense for the period (21,153) (486) (8,333)

All income for all periods was attributable to shareholders of the parent company.

Condensed Consolidated Statement of Changes in Equity

9

Share capital

£'000

Additional paid-in

capital^ £'000

ESOP reserve

£'000

Treasury shares

£'000

Share option

reserve £'000

Hedging and

translation reserve

£'000

Other reserves

£'000

Retained earnings

£'000

Non- controlling

interest £'000

Total £'000

Balance at 1 August 2015 13,089 55,521 – (820) 6,773 427 61,901 57,892 – 132,882

Loss for the period – – – – – – – (5,194) – (5,194)

Other comprehensive (expense)/profit for

the period – – – – – (108) (108) 4,816 – 4,708

Comprehensive expense for the period – – – – – (108) (108) (378) – (486)

Dividends – – – – – – – (7,515) – (7,515)

Issue of share capital 115 – (115) – – – (115) – – –

Acquisitions 260 1,062 – 658 – – 1,720 (527) 5,116 6,569

Recognition of shared-base contingent

consideration deemed as remuneration – – – – 2,240 – 2,240 – – 2,240

Transfer of contingent consideration

deemed as remuneration – – – – (933) – (933) 986 – 53

Purchase of own shares – – (395) – – – (395) (35) – (430)

Exchange differences – – – – – (1,060) (1,060) – – (1,060)

Recognition of share-based payments – – – – 446 – 446 – – 446

Settlement of share-based payments 13 119 302 – (980) – (559) 740 – 194

Balance at 29 January 2016 13,477 56,702 (208) (162) 7,546 (741) 63,137 51,163 5,116 132,893


Other comprehensive income/(expense)

for the period – – – – – 342 342 (5,278) – (4,936)

Comprehensive income/(expense) for the

period – – – – – 342 342 (8,189) – (7,847)

Dividends – – – – – – – (3,419) – (3,419)

Issue of share capital 660 12,716 (20) – – – 12,696 – – 13,356

Acquisitions 105 272 – (1) – – 271 (1) (5,116) (4,741)




deemed as remuneration – 97 – – (2,362) – (2,265) 2,396 – 131

Exchange differences – – – – – 1,060 1,060 – – 1,060

Purchase of own shares – – – – – – – 35 – 35

Recognition of share-based payments – – – – (682) – (682) – – (682)

Settlement of share-based payments 2 8 228 – (451) – (215) 128 – (85)

Deferred tax on share-based payments – – – – (231) – (231) 255 – 24

Balance at 29 July 2016 14,244 69,795 – (163) 6,723 661 77,016 42,368 – 133,628


Other comprehensive income for the

period – – – – – 813 813 6,015 – 6,828

Comprehensive income/(expense) for the

period – – – – – 813 813 (21,966) – (21,153)

Dividends – – – – – – – (7,777) – (7,777)




deemed as remuneration – – – – (371) – (371) 393 – 22

Settlement of share-based payments 44 395 – – (123) – 272 124 – 440

Recognition of share-based payments – – – – (54) – (54) – – (54)

Balance at 27 January 2017 14,288 70,190 – (163) 9,003 1,474 80,504 13,142 – 107,934

^ Additional paid-in capital represents share premium, merger reserve and capital redemption reserve.

Condensed Consolidated Balance Sheet

10

Note

27 January 2017 £'000

29 January 2016 £'000

29 July 2016 £'000

Assets

Non-current assets

Property, plant and equipment 29,022 44,929 35,559

Investment property 6,203 – 6,203

Goodwill 115,332 156,191 135,633

Other intangible assets 48,618 42,956 53,234

Available for sale 3 3 3

Investment in joint venture 206 – 94

Deferred tax assets 232 139 232

Other non-current assets 14 750 374

199,630 244,968 231,332

Current assets

Inventories 6,467 7,097 7,482

Trade and other receivables 95,656 86,940 90,761

Income tax receivable – – 1,246

Asset held for sale – – 1,481

Cash and cash equivalents 18,486 14,005 11,835

120,609 108,042 112,805

Total assets 320,239 353,010 344,137

Liabilities

Current liabilities

Trade and other payables 86,392 75,601 76,486

Derivative financial instruments 226 124 535

Income tax payable 2,047 932 –

Deferred consideration payable 2,367 9,607 1,772

Deferred income 6,801 6,666 6,206

Provisions 9 342 31

97,842 93,272 85,030

Non-current liabilities

Loans payable 88,906 96,149 92,595

Retirement benefits obligations 7 18,469 21,145 26,394

Deferred consideration payable – 3,384 –

Other non-current liabilities 790 790 814

Provisions 2,240 1,905 2,185

Deferred tax liabilities 4,058 3,472 3,491

114,463 126,845 125,479

Total liabilities 212,305 220,117 210,509

Net assets 107,934 132,893 133,628

Equity

Capital and reserves

Share capital 14,288 13,477 14,244

Other reserves 80,504 63,137 77,016

Retained earnings 13,142 51,163 42,368

Attributable to shareholders of the parent company 107,934 127,777 133,628

Non-controlling interests – 5,116 –

Total equity 107,934 132,893 133,628 These financial statements were approved by the Board of Directors on 7 March 2017.

Condensed Consolidated Cash Flow Statement

11

Note


2017 £'000


2016 £'000

52 weeks to 29 July

2016 £'000

Operating activities

Cash generated from operations 8 18,862 13,472 23,650

Interest paid

(1,472) (1,313) (2,899)

Income taxes received/(paid)

1,500 (2,832) (6,286)

Net cash generated from operating activities

18,890 9,327 14,465

Investing activities

Purchase of property, plant and equipment

(1,762) (4,698) (7,124)

Purchase of other intangibles

(226) (194) (488)

Proceeds on disposal of property, plant and equipment

1,947 2,965 3,315

Acquisition of subsidiaries, net of cash acquired

– (16,163) (20,937)

Deferred consideration paid for acquisitions made in prior

periods

(144) (1,105) (5,790)

Net cash used in investing activities

(185) (19,195) (31,024)

Financing activities

Proceeds on issue of shares

439 – 13,356

Purchase of treasury shares

– (395) (395)

Dividends paid 4 (7,777) (7,515) (10,934)

(Decrease)/increase in bank loans

(5,000) 15,000 10,000

Net cash (used in)/generated from financing activities

(12,338) 7,090 12,027

Net increase/(decrease) in cash and cash equivalents 6,367 (2,778) (4,532)

Cash and cash equivalents at beginning of the period 11,835 16,392 16,392

Effect of foreign exchange rate changes 284 391 (25)

Cash and cash equivalents at end of the period 8 18,486 14,005 11,835

Notes to the Condensed Consolidated Financial Statements

12

1. Basis of preparation

The condensed financial statements have been prepared in accordance with IAS 34 “Interim Financial

Statements” and in accordance with the Disclosure and Transparency Rules of the UK’s Financial

Conduct Authority (“FCA”).

The financial information contained in these half year financial statements has been prepared in

accordance with the accounting policies set out in the Group’s Annual Report and Accounts 2016,

prepared in accordance with the recognition and measurement principles of International Financial

Reporting Standards as adopted by the European Union commission, and those parts of the

Companies Act 2006 applicable to companies reporting under IFRS. The half year statements have

not been audited or reviewed.

The financial information for the twenty six weeks ended 27 January 2017 and prior half and full year

comparatives do not comprise statutory accounts for the purpose of Section 435 of the Companies Act

2006. The abridged information for the fifty two weeks to 29 July 2016 has been extracted from the

Group’s Annual Report and Accounts 2016 which have been filed with the Registrar of Companies.

The Auditor’s report on the accounts of the Group for that period was unqualified, did not draw

attention to any matters by way of emphasis and did not contain a statement under Sections 498(2) or

(3) of the Companies Act 2006.

Going concern

The Directors, having made appropriate enquiries, consider that adequate resources exist for the

Group to continue in operational existence for the foreseeable future and that, therefore, it is

appropriate to adopt the going concern basis in preparing the combined financial information for the

twenty six weeks ended 27 January 2017.

Notes to the Condensed Consolidated Financial Statements continued

13

2. Segment reporting

The Group manages its business on a market segment basis, based on the Group’s internal reporting

to the Chief Operating Decision Maker (“CODM”). The CODM has been determined to be the Chief

Executive Officer and Chief Financial Officer as they are primarily responsible for the allocation of

resources to the segments and the assessment of performance of the segments.

The Strategic Marketing segment comprises of the Group’s Digital, Data and Insight businesses. The

Marketing Activation segment comprises of the Group’s Exhibitions and Events, Point-of-Sale, Print

Management and Field Marketing businesses. The Books segment comprises Clays.

Corporate costs are allocated to revenue generating segments as this presentation better reflects their

profitability.

Business segments

26 weeks to 27 January 2017

Strategic Marketing

£'000


£'000 Books

£'000

Total £'000

Revenue

External sales 74,748 78,218 42,161 195,127

Group sales 1,822 5,763 58 7,643

Eliminations (793) (6,038) (812) (7,643)

Total revenue 75,777 77,943 41,407 195,127

Result

Operating profit before Adjusting Items 6,174 1,894 3,208 11,276

Adjusting Items (8,717) (23,726) (3,881) (36,324)

Statutory loss from operations (2,543) (21,832) (673) (25,048)

Net pension finance charge (323)

Other finance costs (1,472)

Statutory loss before tax (26,843)

Income tax charge (1,139)

Statutory net loss for the period (27,982)


14

2. Segment reporting (continued)

26 weeks to 29 January 2016 (restated)

Strategic Marketing

£'000


£'000 Books £'000

Total £'000

Revenue

External sales 66,429 83,057 36,220 185,706

Group sales 3,587 4,501 6 8,094

Eliminations (657) (7,331) (106) (8,094)

Total revenue 69,359 80,227 36,120 185,706

Result


Adjusting Items (13,059) (5,145) (257) (18,461)

Statutory (loss)/profit from operations (3,375) (1,174) 3,509 (1,040)






52 weeks to 29 July 2016 (restated)

Strategic Marketing

£'000


£'000 Books £'000

Total £'000

Revenue

External sales 138,745 159,694 69,107 367,546

Group sales 6,987 10,411 17 17,415

Eliminations (1,577) (15,298) (540) (17,415)

Total revenue 144,155 154,807 68,584 367,546

Result


Adjusting Items (18,140) (15,752) (1,231) (35,123)

Statutory profit/(loss) from operations 1,214 (7,668) 4,611 (1,843)






Geographical segments

The Strategic Marketing, Marketing Activation and Books business segments operate primarily in the

UK, deriving more than 18% of their revenue and results from operations and customers located in the

UK.


15

3. Adjusting Items

Adjusting Items disclosed on the face of the Condensed Consolidated Income statement are as

follows:


2017


2016

52 weeks to 29 July

2016

Expense/(income) £'000 £'000 £'000 £'000 £'000 £'000

Restructuring items

Redundancies and other charges 359 817 1,612

Costs associated with empty properties 19 771 976

Impairment of tangible assets 5,800 – –

6,178 1,588 2,588

St Ives defined benefits pension scheme costs

Administrative costs 435 325 582

Curtailment credit – (198) (198)

Other 409 130 327

844 257 711

Costs relating to acquisitions made in current

and prior periods

Amortisation of acquired intangibles 5,047 4,079 9,237

Impairment of goodwill and acquired intangible

assets 21,130 2,520 12,712

Costs associated with the acquisition and setup of

subsidiaries – 172 785

Contingent consideration required to be treated as

remuneration 3,616 5,237 8,220

(Decrease)/increase in deferred consideration (34) 2,939 (781)

29,759 14,947 30,173

Adjusting Items in expenses 36,781 16,792 33,472

(Profit)/loss on disposal of property, plant and

equipment (457) 1,669 1,651

Adjusting Items before interest and tax 36,324 18,461 35,123

Net pension finance charge in respect of defined

benefits pension scheme 323 494 972

Adjusting Items before tax 36,647 18,955 36,095

Income tax credit (893) (1,036) (3,931)

Adjusted results 35,754 17,919 32,164 Redundancy and restructuring costs of £167,000 and costs relating to Burnley of £19,000 were

recorded within the Marketing Activation segment. Redundancy costs of £153,000 were recorded in

the Strategic Marketing segment. Restructuring costs of £39,000 were recorded in the Books

segment.

As a result of the non-renewal of the HarperCollins contract, the Group recorded an impairment

charge of £3,000,000 relating to tangible assets in the Books segment.

A non-cash impairment charge of £23,930,000 was recorded in respect of SP Group’s goodwill and

tangible assets. This is primarily as a result of the dependency on the grocery retail sector and

declining margins.

The gain on disposal of property, plant and equipment of £457,000 relates to the sale of the Group’s

property at Burnley. This item was recorded in the Marketing Activation segment.


16

4. Dividends

per share


2017 £'000


2016 £'000

52 weeks to 29 July

2016 £'000

Final dividend paid for the 52 weeks ended 31 July 2015 5.55p – 7,515 7,515

Interim dividend paid for the 26 weeks ended

29 January 2016 2.35p – – 3,419

Final dividend paid for the 52 weeks ended 29 July 2016 5.45p 7,777 – –

Dividends paid during the period 7,777 7,515 10,934

Declared interim dividend for the 26 weeks ended

27 January 2017 (2016 – 2.35p per share) 0.65p 928 – −

5. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following:

Number of shares


2017 '000


2016 '000

52 weeks to 29 July

2016 '000

Weighted average number of ordinary shares for the purposes

of basic earnings per share 142,541 131,225 136,633

Effect of dilutive potential ordinary shares:

Share options: 96 2,456 930

Weighted average number of ordinary shares for the purposes

of diluted earnings per share 142,637 133,681 137,563

Basic and diluted earnings per share

26 weeks to

27 January 2017 26 weeks to

29 January 2016 52 weeks to 29 July 2016

Earnings

£'000

Earnings per share

pence Earnings

£'000

Earnings per share

pence Earnings

£'000

Earnings per share

pence

Earnings/(loss) and basic

earnings/(loss) per share

Adjusted earnings and adjusted basic

earnings per share 7,773 5.45 12,725 9.70 24,059 17.61

Adjusting Items (35,754) (25.08) (17,919) (13.66) (32,164) (23.54)

Loss and basic loss per share (27,981) (19.63) (5,194) (3.96) (8,105) (5.93)

Earnings/(loss) and diluted

earnings/(loss) per share

Adjusted earnings and Adjusted diluted

earnings per share 7,773 5.45 12,725 9.52 24,059 17.49

Adjusting Items (35,754) (25.07) (17,919) (13.40) (32,164) (23.38)

Loss on earnings and diluted loss per

share (27,981) (19.62) (5,194) (3.88) (8,105) (5.89)

Adjusted earnings is calculated by adding back Adjusting Items, as adjusted for tax, to the profit/(loss)

for the period.


17

6. Restatement

Previously the Group reported the employee costs of the Insight businesses, part of Strategic

Marketing segment, under administrative expenses. The Group’s accounting policy is to include these

types of costs within cost of sales and accordingly the half and full year comparatives have been re-

stated to ensure consistency.

The impact of the prior period adjustments on the previously reported Consolidated Income Statement

are summarised as follows:

52 weeks to 29 July 2016 26 weeks to 29 January 2016

Before

Adjustments Adjustments Restated Before

Adjustments Adjustments Restated £’000 £’000 £’000 £’000 £’000 £’000

Adjusted Results:

Cost of sales 249,730 12,738 262,468 125,688 6,180 131,868

Administrative expenses 59,570 (12,738) 46,832 29,634 (6,180) 23,454

Statutory Results:

Cost of sales 249,730 12,738 262,468 125,793 6,180 131,973

Administrative expenses 93,042 (12,738) 80,304 46,235 (6,180) 40,055 There is no impact on Consolidated Comprehensive Income, Consolidated Statement of Changes in

Equity, Consolidated Balance Sheet and Consolidated Cashflow for either the half or full year

comparatives.

7. Retirement benefits

The net obligation in respect of St Ives plc Retirement Benefits Pension Scheme of £18,469,000 at 27

January 2017 has decreased compared to £26,394,000 as at 29 July 2016. The decrease is primarily

due to strong investment performance of the plan assets.


18

8. Notes to the condensed consolidated cash flow statement

Reconciliation of cash generated from operations


2017 £'000


2016 £'000

52 weeks to 29 July

2016 £'000

Loss from continuing operations (25,048) (1,040) (1,843)

Adjustments for:

Depreciation of property, plant and equipment 3,630 3,608 7,201

Share of (profit)/losses from joint venture (122) 104 122

Impairment losses 26,930 2,520 12,712

Amortisation of intangible assets 5,389 4,558 10,016

(Profit)/loss on disposal of property, plant and equipment (450) 1,669 1,484

Share-based payment (credit)/charge (54) 445 (238)

Settlement of share-based payment – 195 108

Increase in fair value of derivatives – – (175)

Decrease in retirement benefit obligations (1,145) (1,373) (2,278)

Remeasurement of deferred consideration (34) 2,939 (781)

Increase in contingent consideration required to be treated as

remuneration

3,616 5,237 8,220

Increase in provisions 33 86 55

Operating cash inflows before movements in working capital 12,745 18,948 34,603

Decrease/(increase) in inventories 239 (506) (880)

Increase in receivables (4,086) (7,245) (9,572)

Increase in payables 9,394 3,763 3,985

Increase/(decrease) in deferred income 570 (432) (906)

Payment of deemed remuneration – (1,056) (3,580)

Cash generated from operations 18,862 13,472 23,650

Analysis of net debt 30 July

2016 £'000

Cash flow £'000

Exchange differences

£'000

27 January 2017 £'000

Cash and cash equivalents 11,835 6,364 287 18,486

Bank loans (92,595) 5,000 (1,311) (88,906)

Net debt (80,760) 11,364 (1,024) (70,420) Cash and cash equivalents (which are presented as a single class of assets on the face of the balance

sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three

months or less. The effective interest rates on cash and cash equivalents are based on current market

rates.

9. Post-balance sheet events

The Group has classified the investment properties at Roche and Peterborough as assets held for

sale in the second half of the year.


19

10. Risks and uncertainties

The Group’s principal risks and key mitigating activities in place to address them, as at 29 July 2016,

are set out in pages 21 to 23 of the Group’s Annual Report and Accounts 2016, a copy of which is

available on the Group’s website: www.st-ives.co.uk.

The principal risks have been considered by the Board and changes to the risk ratings have been

made, since the period ended 29 July 2016, for the following risks.

(i) Legacy Businesses

This risk covers issues arising within the legacy businesses, Marketing Activation and Books which

may distract or inhibit the Board’s focus on its strategic objective and in the short term, impact the

growth within the Strategic Marketing segment if the Board has to address issues that emerge in these

segments.

The inherent risk rating associated with legacy businesses has been increased from medium to high,

following a further decline in Marketing Activation and the loss of the HarperCollins contract in Books.

A consultation has commenced with employees to reduce employee numbers within both Books and

Marketing Activation in response to the reduction in revenues. In addition, the Board is considering its

strategic options in respect of these businesses. Given the continued uncertainty around these

businesses the residual risk rating remains high.

(ii) Clients

The Group has a variety of key clients in each of its three business segments. Long-term relationships have been fostered with many of these clients over a number of years however competitive pressure may result in the loss of a key client.

Whilst the financial impact of these key contracts has not increased, the likelihood has risen since the

appetite for clients to carry out tenders has become more apparent (particularly in the Marketing

Activation and Books segments), therefore the inherent risk rating associated with this risk has been

increased to high. The mitigating activities include encouraging collaborative behaviour across the

Group’s businesses and creating a commitment to cross-selling that will distinguish the Group’s

marketing offering from its competitors’; achieving or exceeding service level agreements with clients;

broadening the Group’s capabilities, providing marketing solutions in support of our clients’ marketing

strategies; avoiding over reliance on any single client; implementing bespoke propositions for

securing the renewal of key client contracts, providing Group support where appropriate and

conducting client satisfaction surveys. Notwithstanding these mitigating activities, the residual risk

rating has increased from low to medium.

(iii) Financing

The Group’s ability to trade may be compromised by lack of cash funds. The ability to finance working

capital and carry out operations is fundamental to the Group. In order to monitor this, the Group

conducts ‘going concern’ reviews twice yearly, longer-term viability assessments on a yearly basis and

continually monitors the Group’s performance against its banking covenants. The Group also

undertakes monthly reviews of working capital, cash forecasts and headroom on banking covenants and

periodically reviews its financial KPIs with its bankers. This inherent risk is consistent with prior years and

continues to be high.

During the period the £125 million revolving credit facility was reduced to £95 million supplemented by a

term loan of £30 million and the maximum leverage covenant condition (net debt to Adjusted EBITDA)

was increased for the remaining duration of the facility (which expires on 23 March 2019). However, as a

result of the challenging trading environment, particularly in the Marketing Activation and Books

segments (as detailed in the announcements on 19 January and 8 February 2017), the residual risk

rating has increased to medium from low.


20

11. Related parties

The nature of related party transactions of the Group has not changed from those described in the

Group’s consolidated financial statements for the fifty two weeks ended 29 July 2016.

12. Responsibility statement

We confirm that, to the best of our knowledge:

the condensed set of financial statements has been prepared in accordance with IAS34 “Interim

Financial Reporting”;

the half year management report includes a fair review of the information required by DTR4.2.7R

(indication of important events during the first six months of the year and descriptions of principal

risks and uncertainties for the remaining six months of the year); and

the half year management report includes a fair review of the information required by DTR4.2.8R

(disclosure of related parties’ transactions and changes therein).

By order of the Board

Matt Armitage

Chief Executive

7 March 2017

The foregoing contains forward looking statements made by the Directors in good faith based on

information available to them up to 7 March 2017. Such statements need to be read with caution due

to inherent uncertainties, including economic and business risk factors underlying such statements.

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