International Greetings is unexpected present

Synergise to maximise

It’s surprising how much money there is in the most prosaic things. Take the manufacture of gift wrap, a product we use a few times a year and discard almost immediately.

Last year, hardly a vintage year but one in which the company showed early signs of recovering from a near-death experience, International Greetings (IGR) sold 1.5 billion feet of gift wrap worth £74.6m or about 37% of total sales.

Fifty-four per-cent of sales, which also include stationery, greetings cards, Christmas crackers, and bags, come from the UK, but maybe not for long.

International Greetings’ recovery plan involves reducing its dependence on the UK, Christmas, gift wrap, department stores, and unbranded products manufactured for retailers. Its own brands and licensed brands like Disney and The Simpsons have increased their share of turnover from 41% last year to 54% this year.

There was more to the catastrophic collapse in confidence in International Greetings than over-dependence on the UK market, or Christmas, which still happened in 2008.

Indeed its ambition to expand was part of the problem. As it integrated companies it had bought  at home and abroad, and relocated manufacturing to China, debt and costs increased.

Then revenues fell as the economy worsened and International Greetings, a stock market darling in the previous decade, was loss-making.

We can see the internal and external turmoil in the commentary on the previous year’s exceptional items, significant profits and losses that it does not normally experience.

Debtors (like Woolworths) that went bust, redundancies, restructuring costs, and reductions in the accounting value of machinery it no longer needed, and a business, Glitterwrap, it paid too much for in 2007, cost the company over £21m.

Like a teenager looking for dirty words in a dictionary, the company has dredged its lexicon to find the very worst corporate-speak in which to express its new mantra: "Synergise to Maximise". Although I shudder at the language, by closing superfluous factories, withdrawing from loss-making business and knitting together the operations of its  many brands, it seems to be reducing costs and returning to profitability.

Despite an 8% fall in sales, International Greetings was profitable in the year ending 31 March 2010, it had reduced debt and has scaled back its ambitions.

Its directors won’t pay a dividend, though, until they are sure that the profit trend is sustained, and the company has repaid more debt.

Although Anders Hedlund, the founder, former chief executive, deputy chairman and, presumably one of the principle architects of the company’s rise and fall, still controls IGR, owning more than 45% of the shares, the new ceo, Paul Fineman, is a relatively new face. He got the job in January 2009 having joined as managing director of Anker International, one of International Greeting’s acquisitions. Financial Director Sheryl Tye joined in February 2008.

Tye bought 16,000 shares last month for 62p, the same price they are now, and I’m not surprised. International Greetings is dirt cheap costing just four times earnings averaged over the last 10 years, and it appears to be recovering.

More conservative investors would wait for the dividend to confirm the company is off life-support, but I rely on the F_Score to anticipate a return to health, and buy the shares, hopefully, at a lower price. International Greetings has a healthy F_Score of 7 out of 9

As usual, I’m torn between the desire to buy value when I see it, and the need to conserve cash in case the markets crash and present an opportunity to buy really good companies at bargain prices.

Maybe I’ll be raising some cash soon, though. Games Workshop and XP Power are both more than 50% higher than the price they were when they joined the portfolio, a trigger point at which I re-evaluate a share’s suitability.

Unexpectedly, I’ve added International Greetings to the portfolio. It’s a classic Thrifty 30 company. Let’s hope it synergises to the max, or cuts costs and boost profits, anyway.

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