11th Mar 2005 07:01
Flying Brands Limited11 March 2005 Flying Brands Limited Preliminary Results for the 52 weeks ended 31 December 2004 11 March 2005, Jersey. Flying Brands Limited (LSE: FBDU), the home shoppingcompany, today announces preliminary results for the 52 weeks ended 31 December2004. A fourth consecutive year of strong profit growth Highlights • Profit before tax and all exceptional items up by 10% to £5.81m (2003: £5.27m) • Profit before tax increased by 4% (2003: £5.58m) • Sales were £35.77m (2003: £35.91m) • Internet sales increased by 24% • Cash balance improved to £6.02m (2003: £3.92m) • 496,980 shares repurchased and cancelled in the year for £1.0m • Adjusted earnings per share up 10% to 17.3p; earnings per share up by 3% • Final dividend increased by 8% to 5.65p (2003: 5.22p) Commenting on today's announcement, Alan Fryer, Chairman, said: "We improved profitability through a good performance from Listen2Books andcontinuing control of costs. All of the Group's four brands have been developedand diversified significantly in the last twelve months and we are now muchbetter positioned to appeal to and capture a wider section of the market. A disappointing Christmas result from Flying Flowers impaired sales growth inwhat was otherwise a successful year, but continuing strong cash generation hasleft us with £6.02m on the balance sheet, putting us in a good position toimplement our growth plans for the business." Mark Dugdale, Chief Executive, said: "By diversifying our brands' appeal, giving existing and new customers greatervalue and choice, as well as driving more trade through the internet, we haveseen the number of active customers and their retention improve in 2004. Thishas maximised profit growth and cash generation within our core business and hasenabled us to make sufficient investment in our existing brands to drive longerterm sales growth. Overall, our brands are now in a much better position to expand and attract morespend and new customers." Outlook Flying Flowers and Benham are trading satisfactorily and Listen2Books has made avery positive start to the year. Along with our competitors, the Spring campaign for Gardening Direct has beenslow to date, but we anticipate strong response through the second half of Marchand April as a result of the early Easter and demand trends shifting to later inthe season. For further information, please contact: Flying Brands Limited c/o SmithfieldMark Dugdale, Chief ExecutiveDavid Harbord, Finance Director Smithfield 020 7360 4900Nick BastinGeorge Hudson Notes to editors Jersey based Flying Brands Limited (LSE: FBDU) is a leading home shoppingcompany. Founded in 1965, it was admitted to the Official List of the LondonStock Exchange in 1993. The Group has the following brands: • Flying Flowers, the UK's largest flowers by post brand, despatching nearly one million bouquets a year• Gardening Direct, one of the UK's largest mail order bedding plants and gardening products operations• Listen2Books, the leading mail order audio books distributor• Benham, the first day cover stamps and coins collectables specialist More information can be found at: www.flyingbrands.com Chairman's Statement Overview and Financial Results Flying Brands delivered another good performance in 2004, with the strategiesthat were planned and tested in 2003 beginning to bear fruit. All of the Group'sfour brands have been developed and diversified significantly in the last twelvemonths, and we believe that we are now much better positioned to appeal to andcapture a wider section of the market. It is also pleasing that, alongside thisoverall brand development, management were able to continue making the businessas a whole more streamlined and efficient. Profit before tax and exceptional items rose to £5.8m, an increase of 10% over2003. Profit before tax increased by 4% to £5.8m. Adjusted earnings per shareincreased by 10% to 17.30p. Earnings per share increased by 3% to 17.30p. Theimprovement in profits is attributable to an improved performance fromListen2Books, higher interest receivable, and also further reducing overheads. Sales were flat on the prior year, an otherwise good performance marred by adisappointing Christmas campaign from Flying Flowers. After an excellent firsthalf, with many of the new initiatives (principally diversification into newgift areas) testing well, the brand had a soft second half, suffering from atough retail trading environment. Nevertheless, the strategy of positioningFlying Flowers more as an outlet for excellent value low priced gifts isencouraging customers to buy from us more often. Gardening Direct also had astrong Spring campaign, allowing management to invest more in reactivatinglapsed customers in the Autumn. Listen2Books had a very good year, increasingsales and profits, although Benham failed to sustain the progress made in 2003.Management will only pursue sales that are either profitable in themselves ordeliver a fast return on investment. Continuing strong cash generation has left us with a cash balance of £6.02m(2003: £3.92m) on the balance sheet and our lack of gearing leaves us in astrong position to develop our growth plans for the business. We remainoptimistic about the opportunities that we will be pursuing in 2005 and beyond. Dividend The directors are recommending a final dividend of 5.65p (2003: 5.22p). Togetherwith the interim dividend of 2.75p (2003: 2.53p), this will represent a totaldividend of 8.40p (2003: 7.75p), an increase of 8.4% for the year. Dividendcover is 2.06 times. Outlook Our challenge for 2005 is to roll out successfully the new product tested in2004, aimed both at extending the appeal of our brands to a wider market, and wesee continuing internet development as being integral to this, as well ascontinuing to drive up frequency of purchase from our existing customers. We will continue to search for suitable acquisitions in the gifts, hobbies andentertainment sectors. We are applying strict selection criteria to ensure thatthe acquisition enhances shareholder value; getting it right is more importantthan timing because we believe that there is significantly more that we canachieve with our existing brands. We expect to remain strongly cash generative, and will apply our considerableresources to delivering greater shareholder returns. Employees Our staff are the lifeblood of our business, and they can feel proud of theirachievements in 2004. Exciting times lie ahead, and I'm sure they share myoptimism for this current year and beyond. Alan FryerChairman 11 March 2005 Chief Executive's Report It has been a good year for Flying Brands, the most pleasing aspects being thatthe plans for brand development initiated in 2003 started to deliver positivelyin 2004. It has been and remains our intention to widen the appeal of all ourbrands so that our existing customers have greater choice and that a new anddifferent type of customer will find what we have to offer more appealing. Asthe cost per new customer gradually increases from conventional print media, wesee the Internet as central to our growth plans. We are also committed toimproving the quality of our products whilst maintaining our competitive pricingso that the businesses within Flying Brands become synonymous with value andservice. The increase in profitability over 2003 was achieved in the face of continuingdelivery cost increases (approximately 10%); I am pleased to report that we havenegotiated a new contract with our postal services for 2005 that will result inlower increases in this crucial area for us. Top line growth has proved elusive over the last two years. We have beenpursuing a deliberate policy of only chasing profitable sales by eliminatingfringe and risky new customer recruitment; however, it is becoming increasinglyexpensive to recruit new customers, so it is essential that we continue toimprove customer retention (up to 53% overall in 2004 from 48% the year before)and drive up both annual customer spend (up to £21.60 in 2004 from £19.24 in2003) and frequency of purchase (up from 0.79 in 2003 to 0.89 in 2004 across thewhole active trading database) to offset a generally higher recruitment cost pernew customer. We were well positioned for sales growth at the half year, buttrading conditions were much tougher in the second half, resulting in an outcomebelow our expectations. Strategic focus We will continue to run our core business to maximise profit growth and cashgeneration, whilst ensuring that sufficient investment is made in our existingbrands to drive up longer term sales growth. This means that we need to continueto build our active customer database (defined as customers who have made atleast one purchase from us in the last 12 months) either through new customerrecruitment or through the reactivation of lapsed customers. We did well in2004: the total active database increased by 4% over 2003 from 894K to 932K;more importantly, customers who ordered more than once increased by 9% from 691Kto 753K, pointing to the success both of our targeted mailings and thedeployment of our database management skills. We are finding that we are able tomail our best customers more often, whilst the widening of the overall productranges gives them more reasons to buy more frequently. We recognise the growing importance of the Internet to our business as on linesales moved from 6.5% of total revenues in 2003 to 8.1% in 2004, and total online sales themselves increased 24%. Our brand web sites have developed to amuch higher level of sophistication and customer involvement whilst remainingboth easy to navigate and order from. We now have over 130K e-mail addresses, asophisticated e-mail marketing plan and are working hard at search engineoptimisation to drive potential new customers to our sites. Our web sites areregularly refreshed with special seasonal offers and a more editorial approachwhilst still dedicated to driving sales. Running in parallel with this strategy lies our commitment to make appropriateacquisitions to drive top line and profits growth as well as economies of scalethrough our infrastructure. We deliberately set ourselves a series of strictcriteria when assessing potential businesses. This should ensure that thecompanies or brands that we acquire add real value to the Group as a whole, butfor which we have paid a fair price. An acquisition is key to our overallstrategy so getting it right is more important than setting a tight timescale. Notwithstanding these issues, we believe that the cash and profits that wegenerate, linked to the potential of both the Internet and the continuingefficiencies of our infrastructure, stand Flying Brands in good stead. We areclose to achieving what we said we were going to with our current brands, and weare now in a much better position to see these brands expand and attract moreoverall spend and new customers. Operating results for the period 2004 2004 2003 2003 2002 2002 Sales Profit* Sales Profit* Sales Profit* £'000 £'000 £'000 £'000 £'000 £'000 (restated) (restated) Flying Flowers 12,759 4,051 12,812 4,243 13,333 4,292Gardening Direct 15,249 5,274 14,769 5,180 15,981 4,849Listen2Books 3,548 472 3,360 198 2,605 (59) ------- ------- -------- ------- -------- -------Kelvedon and Jersey - (3,715) - (4,021) - (3,817)overheads ------- ------- -------- ------- -------- ------- 31,556 6,082 30,941 5,600 31,919 5,265 ------- ------- -------- ------- -------- -------Benham 4,065 154 4,828 241 4,930 192Other 147 58 143 144 261 68Corporate overheads - (695) - (795) - (636)Interest - 209 - 75 - (88) ------- ------- -------- ------- -------- ------- 35,768 5,808 35,912 5,265 37,110 4,801 ------- ------- -------- ------- -------- -------Disclosure in theFinancial Statements: ------- ------- ------- Profit beforeoperating exceptional items 5,599 5,190 4,889 ------- ------- -------Net interestreceivable/(payable) and similar charges 209 75 (88) ------- ------- ------- 5,808 5,265 4,801 ------- ------- ------- * Profit before taxation and operating exceptional items. Flying Flowers Sales were £12.8m (2003: £12.8m) with a contribution of £4.1m (2003: £4.2m) anda contribution margin of 32% (2003: 33%). Internet sales increased by 13% to£1.62m, representing 13% of total sales (2003: 12%). Flying Flowers remains the UK's leading postal delivered bouquet business,despatching nearly 1m bouquets a year. Although predominantly active around thepeaks of Valentine's Day, Mother's Day and especially Christmas, we have managedto increase our activity at other times of the year, with Easter, for instance,emerging as an important marketing opportunity. We are continuing to seek outmore promotional occasions through the year and have increased the number ofmailings our best customers receive from eight to ten. The number of activecustomers who have bought from Flying Flowers more than once increased in 2004by 5% over prior year, and 40 new products were introduced (46% of the total).Our Mother's Day promotion won the Direct Marketing Association's "People'sChoice" mail order award for creativity and responsiveness. Although Flying Flowers had a disappointing Christmas campaign in 2004, the restof the year was the best the brand has experienced for some time, with positivesales growth across all other areas of activity. The success of the brandoutside of Christmas was driven by several factors: • Giving customers reasons to buy flowers throughout the year• Introducing a lower (£9.99) price point• Introducing new bouquets and flower varieties• Successful diversification into other low price gift products• Creating different and more relevant offers to different customer segments• Better management of new customer recruitment and old customer reactivation• More dynamic on line presence• Improving quality (reduced customer complaints)• Encouraging growth of our guaranteed delivery date Ultimate offer The new gift types (pot plants, personalised teddy bears, wine gift sets) liftedresponse and we will be promoting these (together with new gift products)alongside our flower bouquets as a unified catalogue in 2005. The web site is regularly updated to offer special seasonal bouquets and suggestrelevant and up to the minute reasons for giving gifts at different times of theyear. Our intention is to create an exciting gift solution site. Gardening Direct Sales increased to £15.2m (2003: £14.8m). Considerable investment was focused onthe Autumn campaign to reactivate lapsed customers which both drove top linesales as well as the size of the active customer database going into 2005,increasing by 4%. Despite this, contribution still improved to £5.3m (2003:£5.2m). Contribution margin was 35% (2003: 35%), and Internet sales grew by 47%,which now represents 6% of total sales (2003: 4%). Gardening Direct is the UK's largest home delivery provider of bedding plants,which we grow (over 120m per year) in our two nurseries on Jersey. We work hardto ensure that our quality is of the highest standards, a fact that wasrecognised by Gardening Which where our products and service received very highpositive recognition in all categories. We are constantly testing new varietiesand looking to assist home gardeners of all types in delivering beautifulborders, hanging baskets and flower beds. 2004 saw 170 new products launched,which amounted to 49% of the total. We also realise that customers expect us to provide excellent value for money,which is why we cut many of our prices in 2004. As a result the number of unitsdespatched to our existing customers increased by 14% over 2003, and overallcustomer retention improved from 43% in 2003 to 51% in 2004. Spend per customeralso increased from £17.22 to £20.54. 2004 was the first year where Gardening Direct offered a comprehensive Internetservice. We have made the site much easier to navigate, have introduced specialoffers and a customer preference listing. With over 40K e-mail addresses, wealso are able to send out tactical promotions at different stages of the season. We are working hard to increase sales of non plant gardening products (hardware,accessories and gifts) which now account for more than £0.5m in revenue. Thisdemonstrates our commitment to expand the Gardening Direct franchise to serveour existing customers better, as well as attract new ones to grow the brandprofitably. Listen2Books Sales for Listen2Books increased to £3.5m, up from £3.4m in 2003, withcontribution increasing to £0.5m (2003: £0.2m). On line sales increased by 26%,with on line now representing 9% of total sales compared to 7% in 2003. The brand has enjoyed a good year and has emerged as a significant player in theaudio book market place. New product introductions (340 audio, video and DVDtitles in 2004), many of which were either exclusive or backed up by editorialsupport, have ensured that customer spend has increased from £20.87 in 2003 to£25.10 in 2004. The active trading database increased by 7%, with customers whobuy more than once growing by 22%. In addition during 2004, we successfully introduced CDs as an alternative formatto cassettes (approximately 50% of all titles featured are dual format but thisis increasing all the time) and have seen a 25% take up of CDs where they havebeen offered. We believe that this will widen the appeal of the brand to ayounger market. We also tested 52 video/DVD titles (of similar genre to our coreaudio books offer) in the autumn and these were sufficiently promising for us tointegrate video/DVD within the main audio catalogue from January 2005. The web site is now far more dynamic and offers visitors the opportunity todownload samples of many audio books as a 'taster' to help the uninitiatedunderstand just how good and easy to use audio books really are. We feature aBest Sellers section driven by actual sales, new releases changed weekly andrecommendations based on previous customers' purchases. Diversification into other home entertainment areas such as video and DVD willboth grow the brand more quickly and create a rounded offer that should have awider appeal than merely audio books themselves. Benham Benham experienced a tough year, with sales of £4.1m (2003: £4.8m) and profit£0.15m (2003: £0.24m). 2004 did not provide as many new product opportunities as2003 (such as the Queen's Jubilee or Rugby World Cup). During the second half of 2004, we successfully installed a mail orderfulfilment system at Benham which will enable us both to run the brand far moreclosely alongside our other businesses and also provide us with managementinformation to develop Benham far more proactively. We also anticipateestablishing an improved web site in 2005: we believe that Benham products areideally suited to be traded on line. In 2004, we migrated much of Benham's stock to a new despatch facility at ourheadquarters in Jersey, which will also give us much greater control over thiscritical aspect of its business. Coupled to these developments, we have reviewed our overall product strategy andwill be looking to create more opportunities for our existing customers both tobuy more and to spend more. These combined actions should result in Benham returning to growth in 2005. Infrastructure and Operations We have continued to improve the overall efficiency of our operations, whichhave been streamlined by moving order inputting to Kelvedon Park (our callcentre in Essex), alongside our telephone handling division. This will helpreduce the under capacity in Kelvedon as well as centralising all packing anddespatch operations in Jersey, where a high level of expertise is beingdeveloped. The second phase of the three year renovation project at Retreat Farm in Jersey(our headquarters and fulfilment centre) was completed in 2004. We created alarger storage and despatch area for Listen2Books and Gardening Direct hardgoods, and a despatch centre for Benham. These developments not only anticipatethe growth in gardening hard goods, audio books, video and DVD, but alsoanticipate an acquisition when the time comes. In addition, we cultivated a"trial garden" to assess how new Gardening Direct plants progress in "customerconditions", which also enables us to manage our own photography for promotion.The final phase, to be completed in 2005, will focus mainly on the replacementof the refrigeration units, essential in prolonging the longevity of FlyingFlowers' stems. The current units have reached the end of their useful lives;there will also be the conversion of the remaining glass panes to polycarbonatewhich are safer, longer lasting and allow for constant temperature through theseasons. We are also beginning the process of phasing out the use of polystyrene despatchboxes on Flying Flowers in favour of cardboard. Not only is this moreenvironmentally friendly, it allows a partial rebranding, better reflectingwhere the brand is today and also enables us to prepare for the introduction ofRoyal Mail's "size based pricing" policy which may be introduced from the middleof 2006. The Marketing Department has now been reorganised into brand focused teams,served by a central database function, and we have seen clear benefits in theapproaches being taken to increasing the brands' franchises and in targeting ouroffers more effectively. Outlook Flying Brands has many strengths: • Market leading strong brands• Increasing Internet presence• Highly cash generative• Very profitable (whether measured against revenue or capital employed)• Progressive dividend policy• Strong balance sheet• Efficient operations with flexible infrastructure• Currently debt free and no pension liabilities• Significant freehold property portfolio In developing this business to increase the value for shareholders, we intend tobuild on these strengths: • Widen the appeal of our existing brands, offering greater choice/value• Embrace the Internet as the major growth opportunity• Add brands and services to our portfolio to become a rounded retailer• Increase cash and profits generation• Maintain a progressive dividend policy• Continue to improve operational efficiencies• Accept debt for acquisitions but to a prudent level I believe that we have a major opportunity, given the strength of our currentposition, to become a much more significant retail presence and really provideour shareholders with increasingly better returns. We will do this sensibly andin line with our strategy, but we are committed to achieving it. I would like to thank the team at Flying Brands for their tenacity, creativityand hard work during 2004: I know that our shareholders appreciate theirefforts. Mark DugdaleChief Executive 11 March 2005 Consolidated Profit and Loss AccountFor the 52 weeks ended 31 December 2004 2004 2003 (53 weeks) £'000 £'000 (Restated)Turnover 35,768 35,912Cost of Sales (24,540) (24,670) ----------- ----------- Gross profit 11,228 11,242Operating expenses (5,629) (6,052) ----------- ----------- Operating profit 5,599 5,190Profit on sale of subsidiaries and businesses - 287Profit on sale of freehold property - 23Net interest receivable/ (payable) and similar charges 209 75 ----------- ----------- Profit on ordinary activities before taxation 5,808 5,575 ----------- -----------Tax on profit on ordinary activities (1,346) (1,170) ----------- ----------- Profit for the financial year 4,462 4,405Dividends (2,164) (2,010) ----------- ----------- Retained profitfor the year 2,298 2,395 ----------- ----------- Earnings perOrdinary share 17.30p 16.86pExceptional items - (1.19p) ----------- ----------- Adjusted earningsper Ordinary Share 17.30p 15.67p ----------- ----------- Diluted Earningsper Ordinary Share 17.11p 15.56p ----------- ----------- All activities derive from continuing operations. There is no material difference between the profit on ordinary activities beforetaxation and the retained profit for the year stated above and their historicalcost equivalents. Statement of Total Recognised Gains and LossesFor the 52 weeks ended 31 December 2004 2004 2003 (53 weeks) £'000 £'000Profit for the financial year 4,462 4,405Exchange adjustments offset in reserves - 12 ----------- -----------Total recognised gains for the year 4,462 4,417 ----------- ----------- Reconciliation of movements in equity shareholders' fundsFor the 52 weeks ended 31 December 2004 2004 2003 (53 weeks) £'000 £'000Profit for the financial year 4,462 4,405Dividends (2,164) (2,010) ----------- ----------- Retained profit 2,298 2,395Purchase of own shares (1,000) (496)Issue of own shares 207 104Exchange difference - 12 ----------- ----------- Net increase in equity shareholders' funds 1,505 2,015Opening equity shareholders' funds 14,351 12,336 ----------- -----------Closing equity shareholders' funds 15,856 14,351 ----------- ----------- Balance SheetsAs at 31 December 2004 Group Company 2004 2003 2004 2003 £'000 £'000 £'000 £'000Fixed assetsIntangible assets - 7 - -Tangible assets 13,081 14,042 - -Investments 820 927 22,189 22,321 -------- -------- -------- --------- 13,901 14,976 22,189 22,321 -------- -------- -------- --------- Current assetsStocks 2,674 2,394 - -Debtors- due after more than oneyear - 21 - -- due within one year 1,322 996 1,199 2,544Cash at bank and in hand 6,022 3,920 - 7 -------- -------- -------- --------- 10,018 7,331 1,199 2,551 -------- -------- -------- --------- Creditors: amounts fallingdue within one year (7,158) (6,804) (2,669) (1,356) -------- -------- -------- ---------Net currentassets/(liabilities) 2,860 527 (1,470) 1,195 -------- -------- -------- --------- Total assets less currentliabilities 16,761 15,503 20,719 23,516 Creditors: amounts fallingdue after more than one year (846) (1,007) - -Provisions for liabilitiesand charges (59) (145) - - -------- -------- -------- ---------Net assets 15,856 14,351 20,719 23,516 -------- -------- -------- --------- Capital and reservesCalled-up share capital 265 268 264 267Share premium 15,936 15,731 15,936 15,731Revaluation reserve 457 464 - -Capital reserve (17) (17) 670 670Capital redemption reserve 10 5 10 5Profit and loss account (795) (2,100) 3,839 6,843 -------- -------- -------- ---------Equity Shareholders' funds 15,856 14,351 20,719 23,516 -------- -------- -------- --------- Consolidated Cash Flow StatementFor the 52 weeks ended 31 December 2004 2004 2003 (53 weeks) £'000 £'000Net cash inflow from operating activities 6,754 7,689 ----------- -----------Returns on investments and servicing of financeInterest received 209 75 TaxationJersey tax paid (520) (677)UK corporation tax paid (666) (563) ----------- ----------- (1,186) (1,240) ----------- ----------- Capital expenditure and financial investmentPayments to acquire tangible fixed assets (976) (994)Receipts from sales of tangible fixed assets 49 345 ----------- ----------- (927) (649) ----------- ----------- Acquisitions and disposalsReceipt of deferred consideration - 495 ----------- ----------- Equity dividends paid (2,062) (1,975) ----------- -----------Net cash inflow before financing 2,788 4,395 ----------- ----------- FinancingIssue of ordinary share capital 207 104Capital element of finance lease payments - (89)Bank loan repayments - (1,200)Exercise of options held in ESOP 107 15Payments to buy own shares (1,000) (496) ----------- -----------Net cash outflow from financing (686) (1,666) ----------- -----------Increase in cash 2,102 2,729 ----------- ----------- Notes 1. The final dividend of 5.65 pence will be paid on 20 April 2005 to all shareholders on the register on 29 March 2005. 2. The weighted average number of shares for the calculation of basic earnings per share was 25,795,412 (2003 - 26,124,989) 3. There was one change to the accounting policy for the year, which was to record sales for the Flying Flowers brand on a basis consistent with the other brands. The change in policy means that credit card commission and the cost of overseas bouquets are treated as a cost of sales rather than as a deduction from turnover. The effect of this in 2004 was to increase turnover and cost of sales by £0.55m. The effect on 2003 was to increase turnover and cost of sales by £0.58m. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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