IG Design lowers earnings expectations amid supply-chain crunch
Stationery and giftware company IG Design Group reported first half like-for-like revenue up 11% on the prior year on Tuesday, and up 5% on pro forma revenues for the six months to 30 September 2019, pre-pandemic, while it lowered earnings expectations amid substantial supply-chain disruption.
The AIM-traded firm said those results were driven by growth across both the Americas and international divisions, reflecting the ongoing success of the group's 'Working with the Winners' strategy, combined with its “strong and innovative” portfolio of products and brands.
It said it had expected revenue growth at the half year in excess of the levels achieved, but that was constrained by the supply chain challenges currently being experienced across all distribution and retail sectors.
The board said it was seeing good demand in the second half to-date, with “good momentum” into the 2023 financial year from its customer base.
In addition to the logistical disruption within the company's global supply chain, partially related to the impact of Covid-19, the business said it had also experienced worsening cost headwinds during the period, with sea freight costs up significantly across all regions, alongside raw material and labour inflation as well as supply availability issues.
The business said it had responded quickly to mitigate much of the impact of those challenges through commercial negotiation, earlier stock commitments and other initiatives, while working with both suppliers and customers to ensure the group maintained its customer service levels across its operations.
However, as a result of the disruption and those cost increases, operating margins in the first half were negatively impacted, with the board indicating that the challenges would continue into the second half of the current financial year and also into 2023, although it remained difficult to estimate the impact at the moment.
As such, the group said it now expected 2022 full-year operating margins to be between 175 and 225 basis points lower year-on-year, resulting in full-year earnings being “significantly below” current market expectations, with the cost and supply chain headwinds continuing for an as-yet unknown period in the 2023 financial year.
As at 30 September, group net debt totalled $59m, widening from $23m year-on-year, reflecting the normal and expected seasonal movement as the group increased working capital ahead of the Christmas peak season.
It also reflected the timing impact of delayed deliveries to customers.
Average leverage was 0x in the 12-month period ended 30 September, compared to 0.2x a year ago.
“It is more than frustrating to have to report a decline in expected earnings at a time when demand from our customers remains so positive, driven by the continued execution of our strategy and our best ever portfolio of products, brands and service,” said group chief executive officer Paul Fineman.
“However, we are not immune to the unprecedented supply chain issues affecting just about every sector, including the significant increase in shipping costs, and despite our best and ongoing efforts to mitigate the impact, these factors have affected our margins.”
Fineman said it was unknown how long the supply issues would last, with the company taking a “cautious approach” to the near-term outlook, especially in light of recent increased Covid-19 concerns.
“With our ongoing focus on providing great customer service and a compelling product proposition, supported by our strong balance sheet and first-class team we are better placed than many of our peers to weather the supply chain storm and return to a combination of both revenue and earnings growth. In the medium term, we remain committed to the goals outlined in the growth plan announced in June.”
At 0949 BST, shares in IG Design Group were down 31.29% at 303p.