11/08/2021 - 4imprint Group plc: Half year results for the 26 weeks ended 3 July 2021

11 August 2021

4imprint Group plc

Half year results for the 26 weeks ended 3 July 2021 (unaudited)

4imprint Group plc (the "Group"), a direct marketer of promotional products, today announces its half year results for the 26 weeks ended 3 July 2021.

• Underlying is before defined benefit pension charges (see note 9 for reconciliation to equivalent IFRS measure). The results for the half year and prior half year are unaudited.

Operational Overview

• Robust recovery in demand:
• • 616,000 total orders processed in H1 2021 (H1 2020: 470,000; H1 2019: 778,000)
  • 113,000 new customers acquired in H1 2021 (H1 2020: 81,000; H1 2019: 147,000)
  • July 2021 order counts running above pre-pandemic (2019) levels
• Marketing portfolio successfully re-shaped during the pandemic; well positioned in recovering markets
• Attractive market share opportunity in H2; will require careful management in conjunction with pandemic- related supply chain challenges and cost increases
• Re-introductionof biannual dividend payments; interim dividend of 15.00c per share declared
• Strong financial position: cash balance of $52.80m (27 June 2020: $37.49m); no debt

Paul Moody, Chairman said:

"The Board is confident that the Group's markets remain highly attractive and addressable, and that the core strength of its flexible business model and competitive positioning will allow it to return to its pre-COVID-19 organic growth profile."

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Chairman's Statement

Backdrop

A year ago, our attention was fully focused on navigating the extraordinary societal and commercial disruption caused by the early phases of the COVID-19 pandemic. Although the true extent and impact of the pandemic is yet to be fully realised, we are confident that the decisions we made at a time of severe stress have been successful in protecting the long-term prospects of the business and the interests of all our stakeholders.

In particular, the following themes have been central to our approach in leading the business through the severe downturn, whilst positioning it to take full advantage of the opportunities presented by a recovery: (i) We have taken a people-led approach at all times. We are in no doubt that our team members are at the heart of our culture and are therefore fundamental to our recovery from the pandemic and to our future success; (ii) We rapidly adapted to a 'work from home' solution for many of our office-based team members. Initially borne out of necessity, our evolving 'hybrid' flexible working model promises to enhance our culture and service capabilities as we move forward; (iii) We have maintained strong and ethical relationships with our supplier partners throughout the crisis. These close partnerships will be key in developing innovative solutions to help us work through the evolving supply chain challenges set in motion by the pandemic; and (iv) We have taken advantage of an unprecedented and extremely difficult situation to make bold, but well considered, moves in re-shaping our marketing portfolio, leaving 4imprint well positioned to take further market share.

The benefit of these decisions and actions has been evident in the improving performance of the Group in the first half of 2021 and they remain fundamental to the delivery of our strategy.

Performance

Given the dramatic disruption to trading patterns during 2020, a comparison of current order intake against the same period in 2019 (the most recent 'normal' year) gives the best indicator to gauge the extent of the recovery. In our AGM trading statement on 18 May 2021 we mentioned that total Group order counts had recovered to 85% of 2019 levels over the preceding three weeks. Since that time, total order counts have continued to improve, rising to over 96% of the 2019 comparative in the month of June 2021 (79% year to date). This much improved performance comes despite the Canadian and UK markets being in some form of lockdown throughout the first half of 2021. Since the end of June our primary US market has continued to gain significant momentum, with total order intake in the month of July up an average of 12% over 2019 levels. Importantly, new customer orders in that same period were up 18% over 2019, representing a very encouraging recovery of demand in the business.

Group revenue in the first half of 2021 was $326.81m, an increase of $61.00m, or 23% over H1 2020. Profit before tax for the period was $3.37m (H1 2020: $0.03m), resulting in basic earnings per share of 9.12c, (H1 2020: 0.07c).

The continuing cash-generative characteristics of the business model produced a strong cash performance for the half year. Consequently, the Group remains very well financed, with a cash balance of $52.80m at the 2021 half year (27 June 2020: $37.49m).

Product supply and margins

The Group's revenue outlook is fast improving. At the same time, challenges in the second half of the year from global logistical issues are expected to cause sporadic disruption in the availability of some of the products that we sell, as well as increasing transportation costs. This will combine with wage inflation at our tier 1 domestic suppliers to increase our overall cost of goods. The labour element of this increase will likely be permanent, whereas we expect that the transportation disruption element will be mainly transient. Market-driven internal wage inflation will also impact margins. In the aggregate we expect these cost pressures to temper net margins in the second half. We will address these challenges proactively without compromising our market share opportunity.

Dividend

As a measure of our increasing confidence in the recovery of the business, we are pleased to re-introduce our biannual dividend payment programme, which had been suspended to conserve cash during the pandemic. The Board has declared an interim dividend of 15.00c per share (H1 2020: nil). The well-established Group balance sheet funding and capital allocation guidelines will continue to shape future dividend payments to Shareholders.

Board

John Gibney was appointed as a Director on 8 March 2021, duly succeeding John Warren as Chair of the Audit Committee after John's retirement at the AGM in May 2021.

Further, we announced with our 2020 final results on 16 March 2021 that we had commissioned a search for additional non-executive talent with a view to strengthening the depth and diversity of our Board. We are pleased to welcome two additional Non-Executive Directors.

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Lindsay Beardsell is currently Executive Vice President and General Counsel at Tate & Lyle plc, and she has held similar positions in other public companies including Ladbrokes Coral Group plc and SuperGroup plc. We look forward to benefitting from the breadth of legal, governance and commercial experience that Lindsay will bring to our Board.

Jaz Rabadia MBE is currently Director of Energy, Sustainability and Social Impact at WeWork, the commercial real estate company. Prior to this, she held senior positions at Starbucks Coffee Company and Sainsbury's Supermarkets Ltd with responsibility mostly in the areas of energy management and sustainability. Jaz's contribution is eagerly anticipated as we further develop our sustainability agenda in the years ahead.

Both Lindsay and Jaz will be appointed formally as Non-Executive Directors of 4imprint Group plc on 1 September 2021.

Outlook

The Group has remained in a strong financial position throughout the COVID-19 pandemic. This has permitted management to make a series of sound business decisions, always in alignment with the Group's culture and purpose and with a view towards the long-term.

The benefit of these decisions is reflected in recent demand activity; total orders are now running at or higher than pre-pandemic levels as the recovery takes shape in the markets we serve.

We are cognisant of the challenges that the pandemic still presents. In particular, the potential risks posed by virus variants, product availability issues and pressure on operating margins in the second half of the year mean that a range of outcomes is possible. Equally, we are confident in our ability, over time, to turn these challenges into opportunities.

The Board is confident that the Group's markets remain highly attractive and addressable, and that the core strength of its flexible business model and competitive positioning will allow it to return to its pre-COVID-19 organic growth profile.

Paul Moody

Chairman

11 August 2021

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Operating and Financial Review

Operating Review

Underlying profit is included because the Directors consider this gives a measure of the underlying performance of the business.

• Underlying is before defined benefit pension charges (see note 6 for reconciliation to equivalent IFRS measure). The results for the half year and prior half year are unaudited.

Performance overview

The first half of 2021 saw a continuing steady recovery in the business after the severe downturn in demand for our products caused by the COVID-19 pandemic in early 2020. Our team has been tireless in working through the many challenges presented by the crisis culminating in a return, in recent weeks, to pre-pandemic activity levels.

In our 2020 final results announcement released on 16 March 2021, we noted that total order counts in January and February 2021 were at an average of 65% of 2019 levels (the most recent 'normal' year and thus the best comparative). Since then, vaccine rollouts and the easing of restrictions in our main US market have resulted in substantial recovery in business volumes. At our AGM in May 2021 we mentioned that total order counts were at 85% of the same period in 2019; this had risen to over 96% of 2019 levels in the month of June 2021 and in the month of July we have seen total orders exceeding pre-pandemic volumes at 112% compared to July 2019.

In total 616,000 orders were processed in the first half of 2021, an increase of 31% compared to 470,000 orders in H1 2020. It is encouraging that we have continued to attract new customers at a relatively steady rate throughout the pandemic. In the first half of 2021 we acquired 113,000 new customers, an increase of 39% over the 81,000 acquired over the same period in 2020. This momentum has accelerated in the month of July, resulting in new customer order counts up an average of 18% over the same weeks in 2019.

This gradually improving trading environment resulted in a better year-on-year financial performance. Group revenue for the 2021 half year of $326.81m was 23% improved over $265.81m in the prior year. Underlying operating profit for the period was $3.77m, compared to $0.13m in H1 2020, however it should be noted that the comparative was boosted by a non-recurring credit of $3.64m in respect of employee retention credits under the US CARES Act and UK Government Job Retention Scheme.

The 4imprint direct marketing business model remains very cash generative, with a cash balance at the 2021 half year of $52.80m (27 June 2020: $37.49m) underpinning the financial strength of the Group.

Operational highlights

We are confident that the important decisions we have made and the actions we have taken throughout the pandemic were directionally appropriate, consistent with 4imprint's culture and values, and supportive of the Group's long-term future. Some of the more important themes are set out below.

• People. A business is only as strong as its people. Consistent with our principles and our culture we have taken a people-led approach from the onset of the pandemic. Health and safety protocols have been and remain a top priority in the business. We resolved to protect and retain all of our team members through the depths of the crisis, secure in the knowledge that our people represent the foundation on which our success is built and are the key to making the most of the opportunities presented in recovering markets. This

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approach has delivered tangible benefit in recent months as we retained the necessary resource to capture the rapidly increasing demand, providing excellent service to our customers at a time when labour constraints in our primary US market have tightened considerably and some other businesses have struggled to rebuild their workforce.

• Flexible working. The experience gained from the actions taken to enable the majority of our office-based team members to work from home has allowed us to test new working practices, in particular the development of a permanent 'hybrid' working environment that will further enhance our culture and as such, our competitive position. We have begun to roll out the new computer hardware and software to support this new way of working and to provide the team with the necessary tools to do their work effectively and efficiently.
• Supply. We have collaborated closely with our valued supplier partners throughout the pandemic, dealing with challenging disruptions in the supply chain. Early problems included managing production difficulties caused by lockdowns and a rapidly changing product mix. The current phase of the pandemic has brought challenges around global logistics, inventory availability and the difficulty and increased cost of finding production labour to keep up with recovering demand. As with the previous phases of the pandemic, these challenges will present a period of acute pressure as we assess the situation and identify effective solutions in support of our strategic objectives.
• Marketing. Prior to the pandemic, we were already well underway with our strategic initiative to significantly evolve our marketing portfolio through building a brand awareness pillar. From the start we believed this represented an opportunity to strengthen the business for the long-term and also to provide more flexibility than our previous mix. In many ways, the pandemic provided the ultimate 'stress test' to this approach as we have been able to be aggressive in the way that we have re-calibrated the marketing portfolio through the crisis. The flexibility of the new portfolio allowed us to dramatically reduce costs as order volumes plummeted at the start of the pandemic by substantially reducing our print (direct mail) element, whilst simultaneously taking full advantage of the reduced cost of brand marketing to ensure we maintained our place in the minds of current and potential customers. We think that our increasing investment in brand awareness prior to, and during the pandemic will also help us to take full advantage of the recovery. In effect, we took the opportunity to accelerate strategic changes in the marketing mix (primarily increasing the brand and decreasing the print components) that typically would have occurred over a longer timeframe. The results we have seen during the pandemic and into the recovery phase give us confidence that these changes leave our marketing engine in good shape to continue to power the business in the years ahead.

ESG

We are excited to have made good progress in our ESG initiatives in the first half of the year, particularly in respect of environmental matters. Our Environmental Committee has convened monthly to manage and prioritise our various initiatives, including:

• Working to understand further and audit the scope 1 and scope 2 carbon footprint of our operations, as well as selected scope 3 elements material to our business, most notably transportation.
• Progressing existing carbon reduction projects, for example LED lighting in our main offices.
• Refining the constituent elements of our plan towards meeting the 'CarbonNeutral®' certification of our external consultant Natural Capital Partners, with a view to becoming a carbon neutral business no later than December 2022.
• A broad review of our product range and how it is presented on our website with the aim of providing our customers with easy access to as much information and product variety as possible to enable them to consider choices based on verified sustainability criteria.

Competitive position

We believe that the experience of dealing with the many challenges presented by the COVID-19 pandemic will leave 4imprint stronger and more focused than ever. The impact of the pandemic will continue to be felt in various ways for some time to come, but the significant rebound in demand seen in recent months gives confirmation that our strategy remains fully relevant, and that our markets are attractive and ready to be addressed via our agile and resilient low fixed cost business model.

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