Welcome to the IG Design Group Full Year 2024 results webinar. First, we'll play a pre-recorded presentation, and after this, Paul Bal, CEO, and Rohan Cummings, CFO, are both with us to answer your questions. The slide deck can be found on the investor section of the IG Design website. This webinar is being recorded. We'll now play the presentation.
Hello, everybody. I'm joined today by our group CFO, Rohan Cummings. You'll recall that Rohan joined us last July from Devro plc , and he has made a great contribution since he joined the group. I'll start by touching on the highlights from the year ended 31 March 2024, including the financial headlines. I'll then move to how the group performed overall across its categories, as well as how the two divisions performed. I'll then hand over to Rohan to cover the financials in more detail, the sales, the profits for the year, and the key drivers behind them, and our performance in cash terms. I'll then update you on our strategy and how it's coming to life, both externally and internally, and our aspirations for the coming years. Finally, I'll wrap up. To Slide two and the headlines for the year.
We've delivered a pleasing performance, almost doubling adjusted operating profits, up 94% to just over $31 million. The adjusted operating profit margin has got to just under 4%, up a strong 210 basis points. Both divisions were up on profits and margin, but this result has been delivered against what remains a difficult global backdrop. Consumer demand remains subdued in some key markets, such as the United States, the United Kingdom, and Australia, and this meant that revenue was down in these markets, and therefore, at group level. Towards the end of 2023, we saw a return to supply chain disruption around the Red Sea and Suez Canal, as well as in the Panama Canal. Over the year, we have also seen increased risk, and therefore a need to exercise more caution in managing the credit terms we offer some of our customers.
Our cash generation over the year has significantly exceeded our own expectations. The year represented the completion of the second of our three-year journey to turn around the business and recover margins, and there remain more opportunities to unlock further value on this journey. But with an eye to what comes beyond having restored margins and built a more resilient business model, we are now starting to pivot to the growth-focused strategy we introduced this time last year. And that strategy requires us to ensure that we have the right mix of capabilities required to make our customers win, and to win alongside them when they do. And despite the challenging consumer backdrop, we are seeing some early successes.
Notwithstanding this tough backdrop, we remain confident that we'll deliver on our recovery aspiration by the end of the current year, delivering at least an adjusted operating profit margin of 4.5% and continue to generate a strong level of cash, and of course, have the financing in place to support our seasonal working capital needs. We announced today that we'll be ceasing in-house production in our China plant and shutting down that operation over the coming months. This follows a comprehensive review around efficiency, margins, and standards in a market where other local manufacturers are increasingly more competitive, and we ourselves are getting better at sourcing from such players.
Finally, last November, we set out some aspirations for the two years after having completed the turnaround, and that points to a return to revenue growth, reaching $900 million, as well as continued margin improvement to at least 6%. So onto a summary of the financials on Slide 3. The group's reported 10% top-line decline to $800 million was mostly driven by the DG Americas division. The weaker everyday sales we experienced in early 2023 continued into the financial year that we're now reporting on, and in the year, we saw that subdued consumer sentiment also influenced the level of seasonal orders placed by our customers, especially for autumn and winter 2023.
It is pleasing to say that in the last quarter of the year, we have seen the benefits of the new strategy starting to come through as we arrested much of the decline in DG Americas, as well as lapping the comparative. There was also decline in the U.K. and Australia markets, while our Continental European businesses remained more resilient, pivoting their mix to more lower value products, especially as some of our customers in those markets did relatively well in these tougher economic times. Turning to profitability, as I said already, it was pleasing to deliver an adjusted operating profit, EBITDA, and adjusted profit before tax that was ahead of our expectations. While various headwinds continue to have an impact, our initiatives to simplify the business and make it more efficient are working. The corresponding margins are also up in each case.
Our underlying operations were a lot more cash generative as well.... and the group ended the year significantly more net cash positive. Working capital levels have been reduced over and above the impact of inflation and the lower sales. Let's now get into more detail on our sales, looking at our performance across our categories. On Slide 4, on the left side, I should start by pointing out that during the year, we redefined the categories that we trade in. This is to better align with the emerging organizational structures as our businesses implement the new strategy. The resulting 6 product categories can be grouped into 2 groupings of Celebrate and Create. The mix across the categories has been relatively stable over the year. The weakened demand was felt across all categories. However, homeware was the most resilient category, driven by picture frames in Continental Europe.
The categories that represent more discretionary spend, such as party, fared the least well. The craft category was particularly affected by our caution with customer credit management. Looking at the same performance through the lens of seasonality in the box on the right, there is little change in the mix. Moving on to Slide 5 and looking at DG Americas, which is some two-thirds of our business, I have already referred to the main revenue dynamics of our DG Americas division. There was also a small element of rollover from exiting unprofitable business in the previous year. Notwithstanding the market challenges that the business faced and which affected all customers, it was pleasing to see some positive developments in the second half of the year.
In that period, we experienced more wins than losses in competitive bids as we focused on where our weaknesses had been and as our restructurings made us more competitive in pitches. The team particularly leveraged the newly established strategic selling team, which supports the new category teams. In the appendix of this presentation, which can be found on our website, you can read of one such successful collaboration with a major customer, where strategic and market insights were provided to grow the category. There was limited pricing gains, given our success with catch-up pricing in the previous years. Walmart, still our largest customer across the group, awarded DG Americas Giga- Guru status for the third year in a row, with respect to its collaborative contribution to its Project Gigaton aspiration to reduce its carbon footprint.
In terms of our business operations, the leadership team has come together following the new divisional CEO and CFO, recruited in early 2023. The turnaround initiatives embarked upon by the team in our DG Americas have continued. As a reminder, the focus is on the fundamental aims of simplification, efficiency, and margin growth. The aim remains an improvement in the financial performance of DG Americas to an operating margin of about 5%-6% by the end of this current year. The key initiatives yielding the most return in the year were further supply chain reorganization, securing good savings in logistics, distribution, and especially sourcing and procurement, a headcount reduction of 200, and continuing to drive efficiencies in our manufacturing, distribution, and office footprint, allowing us to exit 12 sites during the year. Of these 12 sites, two being freehold properties, are now being marketed for sale.
Some of these efforts result in more work being passed to our contract manufacturing and developing supplier base in Mexico. It has also facilitated, and sometimes driven, the concerted effort to reduce inventory levels and simplify our assortment through rationalizing SKUs. As I already mentioned, the business also had to navigate a return to volatility in sea freight rates from the end of 2023. The situation in the Middle East, as well as drought-related issues in the Panama Canal, has meant sharply elevated rates at various times, as well as delays and availability issues, and that volatility continues to this day. On to Slide 6 and our international division. Again, I have covered the general revenue dynamics already.
So far, we're still not seeing across Continental Europe the softening that we have experienced in the U.K. and Australia, especially in the product ranges that are of more of a discretionary nature. It still holds true that a lot of our success in the year in Continental Europe reflects our customer mix, which is well-suited to the tougher economic environment facing the consumer in those markets. Our revenue gains have been largely volume-driven, as pricing has been very difficult to achieve in the current environment, and they have been helped by favorable currency movements as the euro and sterling strengthened against the U.S. dollar. Our in-house developed shrink wrap-free solution, called SmartWrap, is fast gaining traction with most of our customers in Continental Europe and the U.K.
Similarly, Eco Nature, our signature brand, covering a circular economy range of recycled, recyclable, plastic-free gift wrap, bags, and cards, continues to grow among our U.K. retail customers. More recently, we are focusing on the independent channels, such as garden centers. Keeping with the desire to do more in terms of sustainability, we are making good progress with a number of customers, such as Costco, in exploring more planet-friendly packaging and product solutions. Our collaborative work with Tesco in category development, following their purchase of the Paperchase brand in early 2023, came to life on shelves ahead of Christmas 2023. In the appendix to this presentation, you can read about our successful collaboration in more detail. Wanting to leverage our momentum in Continental Europe, our teams there are exploring opportunities in other product categories we supply in other markets, such as home decor and stationery.
Of course, the teams will leverage our work in those other markets. On the operational side of the business, the year saw us internally promote MDs within two of our businesses, testament to our talent pipeline and succession planning. During the year, we also recruited a CFO into one of our Continental European businesses. As I mentioned a year ago, the tougher conditions in the U.K. market required us to revisit the business model and cost base, and that was done swiftly. It has also enabled us to release a surplus site, which is currently being marketed for sale. Part of the success of Eco Nature that I have referred to is down to us building its appeal as a more premium and eye-catching, yet sustainable offer. This was done through inks development.
This year's main investment has been in equipment to produce our in-house developed, shrink-free gift wrap packaging solution called SmartWrap. This innovation by our Dutch team further minimizes the need for labels to hold the roll closed, as well as reducing the risk of rolls being damaged in transit and in store. Another area where we have invested for future growth is in more flexible bag-making capacity in Continental Europe. As I previously said, a growing number of gifters prefer the convenience of a bag versus traditional gift wrapping. This particular investment also responds to customer calls for more nearshoring and more sustainable solutions. As in the other division, we have become more effective in our sourcing, with more coordination across the Group's various sourcing and procurement teams.
However, also like the other division, DG International also experienced periods of spiked sea freight costs, as well as delays and availability issues. Nevertheless, we have managed this cost driver more effectively than in the past. One such way is bringing more warehousing on stream in Continental Europe, especially to manage critical seasonal periods and new launches. And lastly, following a comprehensive review of its operations, spanning its efficiency, margins, and standards, we announce today that we'll be ceasing in-house production in our China plant and shutting down that operation over the coming months. The operation was set up in 2003, and it moved to its present location in 2013. It produces Christmas crackers, bags, and cards. However, over that time, other local manufacturers have become increasingly more competitive, and we ourselves are getting better at sourcing from such players.
That's the roundup on the business performance, and I'll now hand over to Rohan to cover the financial performance.
Thank you, Paul, and hello, everyone. As Paul has already mentioned, we delivered a very positive overall performance. We continued to improve operational efficiency and further simplify the business, which led to an increased profit and margin recovery. We made significant progress in further strengthening the balance sheet and ended the year with a very pleasing net cash position of $95 million. This strong balance sheet ensures the Group has the ability to deliver on its strategic priorities for the year ahead. I will start today's presentation by focusing on Group revenue. Slide 7 bridges the main drivers behind the Group's revenue performance for the year, which decreased by 10% to $800 million. If we start with the DG Americas division, which represents nearly 63% of Group's revenue, we saw a 16% decline for the year to $500 million.
This reduction in DG Americas was experienced almost entirely during the first half of the year, with the second half of the year only declining 1%. The decline in DG Americas was driven by two key factors. Firstly, reduced consumer demand. This was experienced in both the everyday categories and products, as well as in seasonal, where there was a reduced ordering for the Christmas 2023 season, as our customers had anticipated the reduced consumer demand. Secondly, during the year, we focused on profitable retendering of business, which resulted in a net loss of revenue, particularly in the low end of the U.S. market. The DG International division saw revenue flat at $300 million for the year. We experienced a 3% volume decline, driven by continued consumer weakness in the U.K. and Australia, following a number of interest rate rises.
This volume decline was offset by growth in Continental Europe, where the consumer has thus far been far more resilient than in our other markets. It is also where we have been most successfully winning alongside our key customers as we help them gain retail share, especially in the homeware category. There was a $2.6 million net price decrease in selected accounts in order to protect business in a deflationary environment. Foreign exchange had a positive impact on the year, driven by the strengthening of the pound and euro versus the U.S. dollar. Turning to operating profit, on slide 8, we will bridge the main movements for the year. Group operating profit was up $15 million, or 94%, with an increase in margin of 210 basis points to 3.9%.
The first red bar of this bridge is a combined margin impact of the revenue decline covered in the previous revenue slide. Since 2022, the DG Americas team have been focusing on a turnaround of the business to drive simplification and deliver improved operational efficiency. Through this work, they unlocked further synergies of $16.9 million, resulting from the integration of acquisitions of the past decade. The main contribution from these initiatives come from site rationalization as we exited 12 sites, lower headcount by approximately 200, and more efficient sourcing and distribution. There remains further opportunities to unlock additional value on this journey. The group has benefited from more efficient sourcing and sea freight cost reductions, which in the year delivered a combined $43.5 million benefit.
While we have benefited at times from savings in costs of sourced products and sea freight, the cost environment has remained challenging at other times. Towards the end of 2023, we saw a return of supply chain disruptions around the Red Sea and Suez Canal, as well as in the Panama Canal, which caused rates to increase sharply. We have also seen inflationary increases in other costs, such as overheads and labor. Let's now move to the detailed financial review and start by looking at the key P&L lines in slide 9. The reported decline of -10% in revenue was due to DG Americas being down 16% and DG International being flat year-on-year. Through improved input costs and ongoing efficiency improvement, particularly in DG Americas, both divisions were able to increase operating profit and improve margins.
Gross margin increased 290 basis points to 17.8%, driven by a combination of initiatives, including sourcing and sea freight savings. This led to a 7% increase in gross profit year-on-year. Overheads decreased 5%, driven by headcount reductions and ongoing restructuring initiatives. Finance costs for the year were $5.2 million and are lower than the prior year, driven by the average net debt levels, offsetting significantly higher interest rates. Looking at taxation, within our numbers, we have $21.3 million of previously unrecognized deferred tax assets, which were recognized as a tax credit this financial year. On the acquisition of CSS Industries in 2020, there were certain deferred tax attributes that were subject to restrictions.
We have engaged our advisors and have confidence that there are no more remaining restrictions, and these deferred tax assets are available for use, and therefore recognized in the P&L. We have treated this taxation credit as an adjusting item. The adjusted tax charge for the year was $8.5 million, with the effective tax rate at 32.9%. Our strong P&L leverage meant the diluted adjusted earnings per share was $0.163. We will now turn to the cash flow on slide 10. The group ended the year with a net cash balance of $95 million, $45 million better than the prior year. This is as a result of a combination of higher profit delivery as well as ongoing working capital improvements. A higher profit meant adjusted EBITDA was up 26% on prior year.
Looking at working capital, the group made significant improvement in working capital, benefiting $26 million versus the prior year. Looking ahead, we don't expect the same level of improvements in working capital year-on-year, but we do expect the better utilized working capital to grow revenue and keep the same proportion as the new reduced base. Capital expenditure in the year increased to $9.9 million, with investments in ERP and manufacturing capabilities, including strategic investments in the innovative SmartWrap solution and bag-making technology. Capital expenditure in 2025 is expected to be slightly higher, with further investments in our ERP, further rollout of SmartWrap, as well as the relocation to a new warehouse facility for our DG Australia operations.
Pleasingly, the strong cash management and cash flow generation has resulted in lower average borrowings than anticipated, and we have averaged cash positive for the year, and this had a positive impact on our interest charge. I will now hand back to Paul to cover the strategy as well as the outlook for the year ahead.
Thank you, Rohan. Last year, I shared with you, literally hot off the press, our new go-forward growth-focused strategy. Here it is summarized in slide 11, a little livelier compared to its original articulation 12 months ago. During the year, our teams started the process to pivot to this as we became confident of our ability to complete the turnaround to a more resilient business model and deliver the margin recovery. Those turnaround initiatives, particularly in DG Americas and also DG U.K., have provided a strong driver to the results we announced today, and they will also continue to provide the group with further momentum... but they cannot be a substitute for a forward-looking strategy for the group. And so our teams have translated this new strategy into local priorities, specific actions, and plans. Recall that there are two main elements to this strategy. First, the top row elements.
They speak to our strategic objectives of excellent partnering with our customers to bring consumer-focused solutions that will grow our categories. The second half of the chart contains what we consider to be the six key attributes that will make us successful in those strategic objectives of partnership, consumer focus, and through them, category growth. As I have said before, our strategy is a reminder that at the heart of it all, everything should start and end with the consumer in mind. It's in the products that will excite them, that will appeal to them, that will enrich their lives and experiences, and perhaps that will say something about them. Yet, it's more than that, too.
It's also about their experience as they engage with our products, as well as how they navigate the product ranges and categories that we offer, be it at the shop shelf or on a screen. A good example of this is our Paperchase collaboration with Tesco in the U.K. that I mentioned earlier. On slide 12, I share further details with you of our main strategic priorities resulting from implementing the strategy. They are organized under the six key attributes. I will not cover all of the detail on this slide during this presentation, but I hope through reading it, you will appreciate the breadth of our ambition to be the best partner in the industry for our customers.
As mentioned before, included in the appendix are two actual case studies of this new strategy in action during the year, and going forward, we will share further similar case studies. I now turn to slide 13. Our new strategy is a call to keep all of those winning attributes at the forefront of our minds, ensuring that we are always at the top of our game. This requires honest appraisal and challenging ourselves and others, taking feedback and learning, and then changing and investing where we identify we fall short. In order to facilitate this behavior across the group, a number of organizational changes were required. First, I have reconstituted the operating board. This comprises myself, Rohan, the group legal counsel, the group IT director, and the CEOs or MDs of our business units.
This body supports me in the development and implementation of the strategy, as well as oversight of our day-to-day business. Secondly, we have established seven forums covering commercial, manufacturing, finished good sourcing, talent, sustainability, finance, and technology. These comprise of some operating board members working with subject matter experts from management ranks from across the group. They support the operating board in progressing with the strategy when it comes to specific functional areas. Through this, we best leverage the group's rich talent and capabilities to everyone's benefit. However, structural reorganization of the leadership isn't enough to deliver the change that the new strategy requires, and therefore, during the year, the group's operating board revisited the group's purpose, vision, mission, and common values. I won't read them out, but will leave you to read them.
They are articulated to support our efforts to drive forward with the right focus and with the right culture and behaviors under the new strategy. Over the coming year, these statements will be brought to life in our businesses. Rohan and I presented slide 14 last November when we reported the interims for the year we're now reporting on. It sets out the aspirations we share for not just the current year, but two further years out to 31 March 2027. They are a product of the early work on the new strategy. As we have already said today, we feel well-placed for achieving the first milestone, the recovery of our past margins and profitability by 31 March 2025, even with the tougher consumer conditions we are presently experiencing.
Under the new organic growth-focused strategy, over the next three years to 31 March 2027, we aspire to grow to around $900 million in sales, with an adjusted operating profit margin above 6%, which will then deliver record profits. Our focus on strong cash generation will remain so that we can comfortably manage to a 1x average leverage under normal conditions. The group remains well-capitalized and transformational M&A is not on our agenda, but selective bolt-ons may be if they arise. Finally, to summarize on slide 15, we have delivered a strong set of results in fiscal year 2024, largely driven by a number of self-help initiatives as we continue on the turnaround and margin recovery journey. This is particularly so in DG Americas...
Alongside the strong profit and margin delivery, we have generated cash beyond our expectations as we focus on reducing our working capital levels, particularly inventory. Revenue growth remains a challenge in the current environment of subdued consumer sentiment in a number of key markets. Nevertheless, we are serving our customers well, and our long-standing and strong relationships remain our asset. Our continued focus on developing sustainable solutions is beginning to gain some traction, whether it's the Eco Nature range, our exciting SmartWrap solution for shrink-free wrap, or our many proposals for packaging reduction or switch to more sustainable alternatives. We have just decided to cease our in-house manufacturing operations in China.
At the interims in November, we will be in a position to provide more details as to the closure costs, which should be treated as adjusting, and the net benefit that the move to third-party sourcing of those products will bring to our ongoing trading. Looking ahead, the Group's present financing facilities are ample and run to June 2026, and the Group remains well capitalized. We do believe that the uncertainty over the consumer demand in certain key markets that we have been experiencing will continue through the present year, influencing our customers' buying behavior. In some cases, it may even impact their financial health, forcing us to transact with increased caution. We also expect that the volatility lately experienced in sea freight costs, timing, and availability will also continue into the current year.
But these headwinds aside, we remain confident that 2 years into our 3-year recovery journey, we are still on track to restore the Group to its historic margins of around 5% and delivering increased profitability by the end of this current year. Furthermore, the new growth-focused strategy has been implemented, and our resulting growth-driven financial aspirations to the end of March 2027 have been set out. Thank you for listening and for your continued support and interest.
Paul and Rohan are here to answer questions. To ask your question, click on the Q&A button and type your question. We have a question here: Do you expect negative or positive costs on withdrawing from China, and what are the drivers behind the decision?
Thank you. In terms of the drivers for the decision, perhaps let me start with that. We've been in business in China in terms of a manufacturing site since 2003. Over that time, we have seen that market develop, and we have seen the competitive marketplace for the categories that we're producing really alter over that period. And in recent years, we have found ourselves not as competitive as some of our Chinese competition when it comes to the manufacture of some core categories like crackers, bags, and cards. So the driver for the decision was really to address our lack of competitiveness in the manufacturing space. It's fair to say that over the same time, we have become increasingly effective at sourcing and negotiating great pricing from the huge supplier base in China.
So both of these things were sort of conspiring against being able to run a viable manufacturing operation in China, and hence the decision that was announced this morning to cease manufacturing during the course of this year. In terms of the financial impact, of course, we will be providing more detail at the interim stage in November, and that really reflects the fact that there's a number of variables and moving pieces, given that this is fresh news. We anticipate the cash cost of closure to be treated as an adjusting item for accounting purposes in the FY 2025 accounts. We believe that the cash cost will be around a single-digit GBP million, and we anticipate that some of that will be mitigated by our ability to access cash, which we currently have in China.
In terms of the impact that it has on trading going forward, we anticipate there to be a positive impact, which we will provide more detail on as we go forward. But that positive impact should be accruing from the coming fiscal year.
Great. Thank you very much. On finance costs year on year, do you expect a reduction and increase on cash held, and what's the seasonal phasing going forward?
Okay, yeah, really good question. I think if we look at slide 10, there is a phasing of our cash flow. So this is a seasonal business and always has historically, for the last three years, started with a cash positive and a cash flow benefit through the year and ended with a cash negative. Now, we see that typical cash flow trend would continue into the year, but what we've seen continually over the last three years is, with our working capital improvement and increased profitability, obviously, our net cash position has got better and better, and that has impacted, obviously, positive on the finance charges. So, I mean, to answer the question on cash, yes, the business is cash generative. We continue to, you know, we expect to continue to generate cash.
... With regards to how it impacts finance costs, you know, a lot of the finance costs in that is amortization of fees with regards to the loan facility, and you know, there will be a little bit more to go in that, but a lot of the finance costs would still remain because of the facility costs and the amortization costs within that. So you will still see a finance cost going forward, even if the group was average cash positive for the year.
Great. Thank you very much. You mentioned a debt profile of 1 times earnings going forward. Do you envisage takeovers or cash payouts, et cetera?
Yeah, so we refer to that level of cover really as a sort of a signal of discipline under which we'll be working as we go forward. There are currently no plans for M&A, and that's something that obviously we will address with shareholders when the time comes. But really, that was a statement of intent, that we intend to sort of work to a degree of governance when it comes to managing our balance sheet. Yes, that would take into account, obviously, shareholder distributions that we would be intending to make over the coming years.
Great. Thank you very much. And who are your main competitors? Do you track how they're performing, and if they're taking greater market share?
Yeah, we've we would probably distinguish three types of competitors. So we've got, competitors who are rather like ourselves. These would be sort of formal businesses, that operate in a way similar to how we operate, who deal with customers in the way that we deal with them, similar products, similar routes to market, and so forth. So the kind of competitors we would be referring to in that sort of category would be, American Greetings or UK Greetings, as they are here in the U.K. It would be businesses like Hallmark, which are a big player in the U.S., and it would be, slightly smaller businesses, that are private in the U.K. or in Europe, or in Australia that we compete against.
Those would be sort of the traditional competition that we would view. In addition to that, over recent decades, we have seen the rise of competitors that are based in China, who also compete in a lot of the categories that we operate in, and they've grown in size over the last couple of decades, and they've become mature, but not necessarily at the level of maturity that the traditional players are at. Then finally, there is a category of competitor that I believe, as an industry, we've typically overlooked, and those would be what I would call the disruptors.
So this would be sort of small, sometimes informal groups of perhaps design-led teams, who will be looking at niches in the industry, looking at niches in our product categories, and typically serving with premium offers, and therefore taking a disproportionate value at lower, at low volume out of the market. So those would be the three types of competitors that I would describe in the market. In terms of the dynamics between them, I think our performance and the performance of businesses that are similar to us has been pretty similar. I think the shares are pretty stable. I think the Chinese competitors have been successful in taking share and disrupting the market over the last few decades.
Over that time, I think the traditional players like us have learned to adapt and fight back. But as I say, I think the one sort of area that we've overlooked has been the sort of higher value disruptors, and I think potentially there's something we can learn from these players and see how we can sort of premiumize the category by adopting some of the approach that they have taken.
Thank you very much indeed. Can you explain your approach to hedging freight rates, given the recent significant spot rate increases in freight and lack of availability, which are gathering momentum or reminiscent of 2021?
Yeah, I mean, if we talk about freight rates overall, and then I'll go into the hedging in a bit, but you know, we did see a disruption towards the end of FY 2024 as we saw the impact in the Red Sea and Suez Canal, and we saw freight rates elevating at the end of last year, and we've seen those persisting as we come through into Q1 this year. And you know, I think with this, we do have hedging contracts. We do hedge them forward, but with them, there are elements of availability that become an issue, and there are surcharges that come onto them.
But one of the things we've done as a group, quite actively, is being able to monitor these freight rates and our exposure to freight over the last few years. And, you know, there was definitely an issue in 2022, and if we look back at how we compared to 2022, when, you know, there was an issue with regard to freight rates globally, I think, you know, if we look at our international businesses, they were able to respond quite favorably. They were able to pass on to customers and be able to sort of protect their P&L when they went through that type of issue. Where we had a bigger issue was in our DG Americas division.
One of the things we've done in simplifying our business and simplifying and optimizing the business as we have in exiting sites, you know, we've been able to optimize our freight usage, compared to 2022, and we've seen a significant reduction in those rates, in that usage. So one of the things we are doing is we do see an exposure, and we've called it out in here that we do have, but, you know, the group is in a position to actively monitor it, and engage with customers at the appropriate time, should they need to keep those discussions open on pricing.
Yeah. I think, Tammy and I would just sort of follow up and just say, there's a popular belief that you can hedge freight rates. I think our practical experience, both in the summer of 2021 and even more recently, has shown that in extreme situations, actually contracts end up getting torn up, or if they're not torn up, surcharges are applied, which kind of renders the hedge not as effective as one first thought it was. So I think that's sort of the reality of the world that we are in when things become extreme.
I think, you know, as Rohan has said, you know, what's important to understand is that, as a group, I think we've become better positioned in addressing this volatility, either in terms of sort of how we manage the whole subject of freight internally, in terms of how we move logistics and schedule and so forth, but also in our ability to be able to go back to customers and have a meaningful discussion about the impact that freight is having. And of course, you know, the bulk of our customers are not unfamiliar, because they're also feeling the same issues when it comes to sea freight.
Thank you. That's very helpful. And in your outlook statement today, you mentioned, "We remain cautious with regards to the stability of some participants in the U.S. retail market." Could you add some color to this comment?
Yeah, sure. We've got the privilege of working with a broad range of customers in every market that we operate in, and the U.S. is no exception. Within that population of customers, at times you will have winners, and you will have, at times, those that don't fare so well. What we have seen in recent times is really a strengthening of the winners. The winners are winning even more and becoming even more successful. We see that through the performance of, you know, great businesses like Walmart, for example, who is our biggest customer of the group, as you all know.
As these businesses grow and they take share and they grow into new categories, that increases the competition in categories that previously other players, perhaps more specialist players, have enjoyed a position. And as that position now comes under pressure, that puts pressure on those businesses. So we've seen, you know, a degree of consolidation beginning to take place in categories that previously weren't as contested, and that has put pressure on some of our other customers. So we... And in dealing with those customers, obviously, we have to act in a responsible and cautious way, and that's what we've done. It's not an issue which is peculiar to the U.S.
We obviously experienced it last year, last summer, with the collapse of Wilkinsons, the retail chain here in the U.K., and we see similar dynamics in some of the categories of U.S. retail as well.
Thank you. Here's quite a specific question: There was mention of getting into niche, smaller retailers. Smiths News offer a daily delivery option to thousands of news agents. Is this an option to offer through to small shops?
Absolutely is the short answer. You'll see in our strategy, as we've set out, that we are targeting certain sort of channels. And definitely one of the channels that we're looking at are the smaller, the independent players in the market. And this is something that we are looking at actively, and you refer to a specific example. Another similar example is garden centers, and we see those as quite fertile ground for some of our more sustainable products. So, for example, in the U.K., our Eco Nature range is now being rolled out into garden centers, and is gaining lots of traction in that area.
I have to say here, you know, we, we have the benefit of being able to take some learnings within the group. Our operation in Australia actually is a bit more unique compared to some of our other business units, because it actually has quite a proportion of its business servicing the independent channel, and they've got a particular route to market. And one of the opportunities I took this year was to visit our Australian operation and see that model in operation, and I definitely believe that there are learnings for us to apply in our other business units, as we look at these alternative channels that we previously sort of overlooked.
Many thanks indeed. And that's the end of questions. Many thanks to you, Paul and Rohan. And to all listeners, you'll now be taken to a webpage to give feedback on today's presentation. If you can't complete it now, you'll get a follow-up email. We would be really grateful if you could take a few minutes to complete. Many thanks for joining. This is the end of the webinar.