4imprint : 2020 Half Year Results Presentation

Half Year Results 2020

Overview

Kevin Lyons‐Tarr, CEO

Half Year Results 2020

1

Results Summary

Group revenue

$265.81m

34%

Net cash

$37.49m

Underlying* profit before tax

$0.25m

99%

Interim dividend

Nil

Underlying* basic EPS

0.73c

 99%

Legacy pension commitments

$9.14m (£7.50m)

'lump sum' deficit reduction contribution paid May 2020

*Underlying is before defined benefit pension charges and exceptional items

Half Year Results 2020

2

COVID‐19 Impact - Situation Update

Impact on demand

• Orders through February + 13% vs. 2019
• Orders in mid‐April ‐ 80% vs. 2019 as 'lockdown' restrictions put in place
• Restrictions eased/lifted 'state‐by‐state' in May‐June
• Current order intake has recovered to above 50% of PY; AOV up 6.6% YTD

Market conditions

• US GDP down 32.5% in Q2; industry down 44.4% in Q2 (ASI estimate)
• Recovery varies depending on local pandemic conditions
• Impact broad‐based although some differences by business size and sector
• Forecasting remains difficult and pandemic‐driven

Operations

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Office facilities and US distribution centre re‐opened; majority of office staff still working from home Reliable supply base and very good supplier relationships

Merchandising reacting to changing product mix

All team members retained

Half Year Results 2020	3

COVID‐19 Impact - Situation Update (continued)

Business model flexibility

• Low fixed cost base
• Ability to react swiftly and decisively to changing conditions
• Marketing investment recalibrated as appropriate
• Platform ready to drive recovery

Financial strength

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•

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Conservative balance sheet funding policy

Low working capital requirements

Cash conservation measures have protected the cash balance Strong liquidity

Well positioned to take market share as conditions improve

Half Year Results 2020	4

Financial Review

David Seekings, CFO

Half Year Results 2020

5

Group Income Statement

		H1 2020	H1 2019		FY 2019
		$'000	$'000	%	$'000
	Revenue	265,808	405,057	-34%	860,844
	Gross profit	77,284	131,666	-41%	275,320
	Gross profit %	29.08%	32.51%		31.98%
	Marketing costs	(47,157)	(79,176)	-40%	(154,310)
	Selling costs	(15,211)	(15,315)	-1%	(31,037)
	Admin & central costs	(14,362)	(17,240)	-17%	(35,092)
	Share option related charges	(422)	(507)	-17%	(949)
	Underlying operating profit	132	19,428	-99%	53,932
	Operating margin	0.05%	4.80%		6.27%
	Interest	121	364	-67%	751
	Underlying profit before tax	253	19,792	-99%	54,683
	Defined benefit pension admin costs	(165)	(144)	-15%	(312)
	Pension finance charges	(62)	(203)	69%	(378)
	Profit before tax	26	19,445	-100%	53,993
	Tax	(5)	(4,083)	100%	(11,276)
	Profit after tax	21	15,362	-100%	42,717
	Underlying EPS	0.73c	55.81c	-99%	154.41c
	Basic EPS	0.07c	54.81c	-100%	152.42c

Half Year Results 2020

• Revenue ‐34%
  o YTD Orders ‐40%; AOV +6%
  o Revenue Jan ‐ Feb +16%; Mar ‐ June ‐54%
  o US $260.5m; UK $5.3m
• Gross profit
  o 3.4% margin compression o Excess production labour
  primary factor
• Marketing ‐40%
  o Swift reaction to COVID‐19 environment
  o Careful adjustments to marketing mix driving cost reductions
• Overheads
  o Selling costs mainly payroll
  o Admin includes benefit of job retention credits under US CARES Act
  o Central costs flat vs. 2019

6

Cash Flow

	H1 2020	H1 2019	FY 2019
	$'000	$'000	$'000
At start of period	41,136	27,484	27,484
Underlying operating profit	132	19,428	53,932
Share option non-cash charges	415	502	928
Depreciation and amortisation	1,646	1,347	2,785
Amortisation of right-of-use assets	819	750	1,499
Profit on sale of fixed assets	(82)	-	-
Change in working capital	9,185	17,577	697
Capital expenditure (net)	(3,245)	(4,176)	(8,178)
Operating cash flow	8,870	35,428	51,663
Contributions to defined benefit pension	(10,909)	(1,661)	(3,593)
Interest	121	364	751
Net tax paid	(141)	(3,255)	(10,318)
Own share transactions	(212)	(1,281)	(2,567)
Capital element of lease payments	(811)	(821)	(1,687)
Exchange and other	(560)	(85)	62
Free cash flow	(3,642)	28,689	34,311
Dividends to Shareholders	0	(13,513)	(20,659)
Net cash (outflow)/inflow in the period	(3,642)	15,176	13,652
At end of period	37,494	42,660	41,136

Half Year Results 2020

• Decline in operating profit vs. 2019 is the primary driver
• Working capital inflow reflects usual H1 seasonality
• Capex is primarily DTG printing equipment - committed in 2019 and operational in Q1
• Pension contributions include $9.1m 'lump sum' payment made in May 2020
• No dividends paid in 2020 to preserve liquidity; no fundamental change in dividend policy

7

Balance Sheet

	H1 2020	H1 2019	FY 2019
	$'000	$'000	$'000
Fixed assets	27,142	22,929	25,521
Right-of-use assets	1,164	1,108	1,985
Deferred tax assets	3,553	5,651	4,338
	31,859	29,688	31,844
Inventories	8,625	11,572	11,456
Receivables	31,400	48,212	52,899
Payables	(44,067)	(71,517)	(59,209)
	(4,042)	(11,733)	5,146
Current tax	1,233	(183)	140
Deferred tax liabilities	(624)	(1,120)	(968)
Cash	37,494	42,660	41,136
Lease liabilities	(1,234)	(1,285)	(2,045)
Pension deficit	(3,509)	(15,046)	(12,305)
	33,360	25,026	25,958
Net assets	61,177	42,981	62,948

• Minimal fixed asset expenditure planned in H2
• Net negative working capital balance as expected at half year
• Pensions
  o Close to full funding on IAS 19 basis after $9.1m 'lump sum' contribution in H1 2020
  o Plan is to fund at a rate to be 'buy‐out ready' in 5 years
• Financing
  o Cash $37.5m; no debt
  o Undrawn, committed $20m US line of credit

Half Year Results 2020

8

Operating Review

Kevin Lyons‐Tarr, CEO

Half Year Results 2020

9

Market

US Industry Sales 2000 ‐ 2020 $Bn

28.0										25.8
26.0
									24.7
24.0									22.9	23.6
22.0								21.5	22.0
					19.6	19.8	20.5
20.0						19.4
				17.8	18.6		18.5
18.0		16.5		16.1	16.9			17.4		16.8
16.0	15.6		15.9
16.0
14.0
12.0
10.0

• North America revenue $260.5m, ‐34%
• UK revenue £4.2m, ‐49%
• Industry ‐44% in Q2; unbranded PPE sales may obfuscate the underlying picture

Source: ASI 2020 = ASI estimate

No. of orders received ('000)

					420	457
	184	208	225		969	1,130	New
177		126	Existing
475	553
352	403	344
2016	2017	2018	2019	2020	2018	2019
	Half year			Full year

• 470k total orders received
• New customer orders 27% of total; reasonable in context
• Existing customer orders down less than new as would be expected

Half Year Results 2020

10

Marketing Recalibration

	• Total marketing spend ‐40% at $47.2m
US and Canada Acquired and Retention %	(2019: $79.2m)

50%													80,000
45%													• Q2 spend $9.5m, vs. $41.1m Q2 2019
												70,000
40%													•	Increased flexibility/diversity of marketing
													60,000	platform due to addition of brand
35%														component in 2018‐19; extremely
30%													50,000	beneficial in current environment:
													o Direct Mail stopped from late March
25%													40,000	through June
20%													30,000	o Online spend immediately adjusted to
													align with market demand
15%														o TV paused briefly, rapidly re‐tooled for
													20,000	context
10%
													o Brand programme has shown
													10,000
5%														measurable result with unaided and
0%													0	aided brand awareness measures
												improved year‐over‐year
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	1	2
2010	2011	2012	2013		2014	2015	2016	2017	2018	2019	2020
		Customers Acquired		% Retained 12 months	% Retained 24 months		• New customer acquisition clearly
														challenging, however quality of those
Revenue/Marketing $											acquired solid

5.31	5.27
2016	2017

		5.64
5.12	5.12
2018	2019	2020

Half year

5.63	5.58	• Blue Box™ programme paused May to mid‐
		June; ability to deliver to home office
		added
2018	2019	• Revenue per marketing dollar illustrates
the size/scope of the recalibration
Full year

Half Year Results 2020

11

Operational update

Operating in the 'new normal'

• Phased reopening, significant team effort in establishing new ways of working at all locations

1. Revised operational procedures including robust social distancing protocols and extensive cleaning procedures - health and safety of our team remains the first priority

1. Shifts staggered at the distribution centre to minimise contact

1. Work from home successful and effective (majority of office‐based staff continue to work from home)

Supply chain

• Domestic suppliers have been reliable; benefit of long‐standing partnerships clearly evident

1. Generally good inventory availability and collaboration on meeting demand for logo'd hand sanitizer, masks, social distancing related items, etc.

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1. Excellent support and relatively minimal production delays

Internal embroidery demand currently running at 65% of 2019; apparel category continues to perform well DTG printing up and running

Product mix

• Product mix evolving

1. Category and intra‐category shifts reflect current landscape (e.g. Tradeshow and Mobile Tech more impacted, items to support work‐from‐home, thanking employees less impacted)

• 1. Logo'd 'wellness' items growing e.g. hand sanitiser YTD sales $14m (2019: $4m)
• Strong average order value resulting from change in product mix and usage

Half Year Results 2020

12

Operational update (continued)

'People first' at heart of our approach

• Retention and support of teammates: central to the preservation and development of our culture; key driver of our success pre‐, and post‐pandemic
• Preserve ability/capability to take full advantage of eventual market recovery; careful management of all other costs and maximising flexibility essential

Marketing to 'match the moment'

• Continue to develop and refine ability to effectively match the marketing investment to the market as it exists in as close to 'real time' as possible; fully utilise all the tools in the box
• Patience to preserve ability to ramp up quickly when the appropriate time arrives

Double‐down on customer service

• Continue to provide customers the best possible experience; expand/adapt offering to match customer requirements in the context of the pandemic

Half Year Results 2020

13

Outlook

Although significant uncertainty remains over the likely duration and extent of the pandemic, the Board is confident that the core strength of the Group's highly flexible business model and competitive positioning will allow it to take advantage of the opportunity presented by a recovering market, leaving it well placed to re‐establish the growth pattern of recent years.

Half Year Results 2020

14

Q & A

Half Year Results 2020

15