Final Results

12 June 2012

Findel plc ("Findel" or "the Group")

Encouraging progress made in challenging conditions

Results for the 52 weeks ended 30 March 2012

Findel, a market leader in the UK home shopping, education supplies and healthcare markets, today announces its results for the 52 week period ended 30 March 2012.

Financial Summary

*before exceptional items and terminated operations ** overall net debt excluding the securitisation facility

Highlights

·; Overall revenue* growth of 1.0% despite challenging economic conditions.

o A very strong performance from Express Gifts, our largest business, with 8.3% growth in revenue and 18.2% growth in operating profit

·; Profit before tax* increased by 53% to £10.7m

·; Core bank debt and overall net debt both in line with prior year and slightly ahead of our plans despite investment during the year

·; Good progress made on implementing the Full Potential plan with a positive Group second half operating profit trajectory

·; Overall a good start to the new financial year, with Group sales up by 6.5% for the first 8 weeks and encouraging current trading in all businesses:

o Express Gifts seeing continued growth

o Kleeneze now seeing year-on-year growth after many years of decline

o Kitbag has renegotiated most of its unprofitable contracts and won new contracts in a broader range of sports

o Education Supplies now also recovering after many years of decline with continuing growth in schools brands and recent recovery in curricular brands following the launch of new catalogues

o Healthcare maintaining its strong position as market leader

Roger Siddle, Group Chief Executive, commented:

"During the first year of our Full Potential plan our focus has been on implementing the key initiatives required to reverse the downward trajectory of the Group and bring it back to profitable growth despite an increasingly unstable economic background.

"Overall, we are pleased with the progress that has been made and are particularly encouraged by the good start which has been made to the current year. We remain confident that we are following the right path to achieve improved shareholder returns."

Enquiries

Findel plc 0161 303 3465

Roger Siddle, Group Chief Executive

Tim Kowalski, Group Finance Director

Tulchan Communications 020 7353 4200

Stephen Malthouse

Susanna Voyle

Michelle Clarke

Notes to Editors

The Findel Group contains market leading businesses in the home shopping, education supplies and healthcare markets. It is primarily a retailer and distributor, handling and supplying specialist products manufactured by third parties.

The Group's activities are focused in five main operating segments, together with a small overseas sourcing operation:

·; Express Gifts - one of the largest direct mail order businesses in the UK;

·; Kleeneze - a leading network marketing company in the UK and the Republic of Ireland;

·; Kitbag - a leading retailer of sports merchandise;

·; the Education Supplies Division - one of the largest independent suppliers of resources and equipment (excluding information technology and publishing) to schools in the UK; and

·; the Healthcare Division - one of the largest contract providers of Integrated Community Equipment Services (ICES) in the UK.

CHAIRMAN'S STATEMENT

Following the successful balance sheet restructuring completed in March 2011, Findel entered the year with a secure financial platform from which to deliver our recovery and restore shareholder value. I am pleased to report on a year of considerable progress in implementing the turnaround plans that we embarked upon. We are still in the early stages of the Full Potential plan but we are encouraged that a three-year trend of declining revenues has been reversed, with Group sales* ahead at £537.8m (FY2011: £532.6m), in difficult economic conditions.

Operating profits* for the year of £20.9m (FY2011: £26.7m) included a strong performance from Express Gifts offset by below plan performances from Kitbag and Education. In the second half, operating profits* were 7.5% ahead of the prior year despite non-recurring credits in FY2011 totalling approximately £3.5m. Second-half Group sales* were ahead by 1.6%. This reflects the actions that we are taking and highlights the momentum building within the business. Profit before tax* for the year increased by 53% to £10.7m (FY2011: £7.0m) as a result of substantially reduced finance costs following the refinancing. The Group incurred exceptional restructuring and finance costs, primarily relating to various internal restructurings and management changes undertaken during the year, of £14.5m. In addition, the technical IAS 36 review of goodwill has resulted in a reduction in the carrying value of Education intangible assets by £8.4m, as a result of an increase in the pre-tax discount factor to 16.9% (2.0% above prior year). The Board's long-term aspirations for the Education business remain unchanged. After taking account of these exceptional costs the Group reported a loss before tax of £12.1m (FY2011: £1.4m).

Our largest business, Express Gifts, has had a strong year increasing sales by 8.3% and operating profit by 18.2%, the first growth for five years. This is a commendable achievement against a difficult economic backdrop and is the result of a much improved customer offer in terms of value and range. The investments that we are making in Express Gifts in improved systems and behavioural credit scoring are on plan and on budget and should start to contribute to operating profit improvements in the current year.

Kleeneze has performed in line with our plans and is continuing with its recovery from a long period of gradual decline. 

The new management team in Kitbag has made a strong start and has been taking remedial action in a number of areas to place the business on a stronger footing. The legacy issues identified in unprofitable contracts, margin management and inventory control have led to a substantial operating loss for the year of £4.2m (FY2011: profit £1.9m) but significant progress is being made in reversing this situation. Unprofitable contracts have been renegotiated in recent weeks, new contract wins have been secured, a new Trading Director has been recruited to improve the focus on margin, a re-launch of the Kitbag-branded website is planned and costs have been reduced.

Our Education business was the most severely affected by the working capital constraints before the refinancing last year and this, coupled with past poor service levels, caused the decline in customer numbers to continue for longer than we had anticipated. The result was a decline in sales of 11.8% to £108.3m (FY2011: £122.9m) and operating profits at £0.8m (FY2011: £1.6m). Since the refinancing there has been considerable strengthening of management and an energetic pace of activity to address the issues in every aspect of the business. Current trends are very encouraging, although it is still early in the year.

Our healthcare business, NRS, has also both performed in line with our plans and continues to progress well.

As planned, we have made significant investments in both capital expenditure and working capital during the year. Much of the capital investment related to the ongoing improvement of Express Gifts' systems. The investment in working capital was made to reduce the excessive level of extended credit we had been taking from suppliers, and to support the increase in customer numbers and sales at Express Gifts. The latter has led to an £11m increase in Express Gifts receivables book at the seasonal peak, although the quality of the book has improved. Despite these investments the Group's net debt ended the year broadly unchanged and slightly ahead of our plans, with an improvement in core bank debt** offset by an increase in borrowings under the securitisation facility as a result of the increase in the Express Gifts receivables book. 

We continue to have sufficient headroom in our banking facilities and ample liquidity to execute our Full Potential plan.

Board Changes

We were delighted to welcome Bill Grimsey to the board as an independent non-executive director in March this year and I am sure that his considerable experience, particularly in retail, will be of enormous value. One of our two longest serving non-executive directors, Stuart McKay, has decided to retire from the Board at the end of the forthcoming annual general meeting due to other business and personal commitments. Stuart has made a substantial contribution to the board during an extremely challenging period and I would like to place on record the Board's appreciation and extend our best wishes to Stuart for the future.

Employees

The pace of change in the business over the past year has been considerable and enormous progress has been made. This has been a team effort and the positive spirit in which everyone is contributing to make this turnaround in Findel's fortunes a success is a credit to all. On behalf of all stakeholders I would like to thank our employees for their tremendous contribution.

Current Trading

Since the year end we have seen continued growth in response to the changes implemented, with Group sales up 6.5% in the first 8 weeks of the year. Express Gifts has continued its success, with sales up 19.0%, as we continue to see a strong response from consumers to further investment in our value positioning, whilst bad debt indicators remain in line with the prior year. The second half recovery in Kleeneze has continued with sales now up 0.9%, due to both increases in distributor numbers and the launch of new products and concepts. Kitbag sales are broadly in line with last year after taking account of a one-off wholesale sale to a club sponsor in April 2011 not repeated this year. More importantly, its total cash margin has been maintained, reflecting the increased focus on profitable business. The contract pipeline remains strong, with new wins recently announced with the NBA and the NFL of the USA.

Within our Education business sales have stabilised versus the prior year after a significant period of decline, representing continued growth in our brands focussed on school operations, and an encouraging recovery in our curricular brands following the recent launch of a new catalogue and proposition. Finally, our Healthcare business continues to trade well, enhanced by the commencement of the ICES contract recently won in Berkshire.

Outlook

We are pleased with the progress we have made in implementing our Full Potential plans and are confident that we are seeing healthy signs of recovery. Flexibility will always be necessary and the instability of the external environment could mean that full delivery of the plan may take longer than originally anticipated. In spite of this, we are encouraged by the results to date and by current trading and we will continue our efforts to move as quickly as possible to deliver the strategy that we have put in place.

We remain excited about the future and confident that we are following the right course to add value for all our stakeholders in the years to come.

* before exceptional items and terminated operations ** overall net debt excluding the securitisation facility

CHIEF EXECUTIVE'S STATEMENT

This year has been the first stage in implementing our Full Potential recovery plan, after our successful refinancing in March 2011. Our focus has been on stabilising the business and creating a positive trajectory. We have made good progress in this across the Group and have a focussed and strengthened management team driving the businesses forward. Although some of our businesses are further advanced than others, we are confident we have built a secure base for improved future performance and returns.

Building momentum

The Group entered the year facing a number of well documented challenges.

The refinancing gave us the room and opportunity to address these challenges directly. Across the Group, we have been engaging successfully with our suppliers on product range, terms and prices. We have eliminated all critical blockages in the supply chain, and are working on new opportunities for improvement. Credit insurance has largely been restored and, where they were deficient, service levels have been improved. We have commenced key investments in systems projects which are all on track We have been able to attract a considerable number of impressive new management recruits into our businesses and all teams are driving forwards on the plans developed during our Full Potential review. We have done this whilst maintaining a focus on cash, with target net debt levels achieved.

Unquestionably we have made greater progress in some businesses than in others. Our aim to 'rejuvenate' Express Gifts has been successful, with a return to strong growth and improved returns. After a difficult first half, Kleeneze has recovered well and is now in growth. Our Healthcare business has maintained its strong market position. Our Education business has been harder to turn around, but the launch of our new catalogues in late April 2012 is showing early signs of stabilising the business after more than three years of significant decline. Whilst Kitbag's profit performance this year is disappointing, it is driven by legacy issues that have largely been addressed during the year and we continue to be excited by the opportunities for this business.

Overall, this year has primarily been one of consolidation. We are pleased with the progress we have made in implementing the Full Potential plans and are confident that we are seeing healthy signs of recovery.

Express Gifts

Full Potential focus: Rejuvenate a major player

·; Upgrade and integrate core systems

·; Implement behavioural credit scoring system

·; Improve buying and merchandising processes

Express Gifts, the largest business in the Group, has performed strongly. Having recognised that our product range and pricing was not triggering the desired customer response, we have embarked on a full buying and merchandising restructuring programme. Our improved pricing approach, which led to a reduced gross margin percentage, has, as planned, resulted in an increased total cash return. Sales for the year grew by 8.3%, profits by 18.2%, and customer numbers were up 5.4%. Bad debt indicators have remained stable, and have improved slightly versus the prior year. Our systems implementation programme is underway and on track, with our new behavioural credit scoring system implemented on time and within budget, with benefits expected to commence in the second half of FY2013. Since the year end trading has continued to be very strong, with sales ahead of the prior year by 19.0% in response to further investment in the gross margin percentage. 

We see continued potential for growth and profits in Express Gifts, particularly around further improvements in buying and merchandising. We are working well with suppliers to achieve improved prices and ranges. There is a significant opportunity to improve the scale of our purchases directly from low-cost sources. To that end, we have appointed a new Managing Director of our Hong Kong based sourcing operation, Fine Art Developments Far East (FADFE) and refocused this operation on acting as a buying organisation for Group companies rather than as an independent business. Profits in FADFE have fallen this year as we have not attempted to replace lost external sales, but we expect this to be more than recovered with improved margins across the Group in subsequent years. Additionally we anticipate both cost and revenue benefits for Express Gifts, as new systems are implemented over the coming years.

Kleeneze

Full Potential focus: Look for growth

·; Revise approach to recruitment of new distributors

·; New geographies

·; New recruitment offers

Kleeneze is now on a positive growth trajectory, after a challenging first half of FY2012. Declining distributor numbers and reduced customer shopping led to a significant decrease in sales. However this has been improved substantially during the second half with sales down just 1.4% versus the 9.2% decline in the first half We introduced new distributor recruitment techniques at the start of calendar 2011 which have now been proven to have a strong impact and Kleeneze has seen an overall growth in ordering distributors of 4.7%. Sales are also benefiting from the introduction of new products, particularly within the Health and Beauty area, and new concepts such as party plans. Since year end the business has grown product sales by 0.9% versus the same period of the prior year and we anticipate recent sales and recruitment initiatives will stimulate growth throughout the year. The business recently received the 'Company of Excellence 2012' award from the Direct Selling Association - a prestigious award which is recognition of the progress that Kleeneze has made.

Kitbag

Full Potential focus: Accelerate profitable growth

·; Accelerate roll-out of outsourced retail management

·; Develop the pipeline of new sporting partnerships

Kitbag has seen strong growth in the past in sales but without the commensurate growth in profits. We appointed a new CEO during the year, Andy Anson, with the task to rectify this. Although sales during the year have increased by 4.6% to £60.7m (FY2011: £58.0m), profits have fallen substantially as a result of legacy issues and we have taken a number of actions to address this.

Firstly, we have reinforced our buying and merchandising operation. Kitbag operates in a world of well-defined sports fashion cycles where careful planning and control of stock buying and merchandising is essential. These processes had been inadequate in the past, so we have recruited a new Trading Director and a number of new management in the buying and merchandising area. The improvements they have introduced have resulted in a significant clearance of old stock during the year, which together with additional costs resulting from this investment in senior people has adversely impacted profits. We anticipate a future benefit in improved margins and significantly reduced stock obsolescence.

Secondly, the business had entered into a number of contracts with an unattractive balance of risk to reward- fixed payments to some clubs had been set at too high a level, resulting in losses when sales failed to materialise due to poor on-pitch performance or general consumer pressures. Through the year the most material of these contracts have been identified and agreements have recently been reached to renegotiate them to a much improved position. 

Although sales since the year end are down versus prior year by 9.6%, this is largely due to a one-off wholesale contract with a club sponsor in April 2011 not being repeated this year and, adjusting for this, sales are broadly in line. Cash margins have been maintained reflecting our investments and a new operating approach. This effect, together with the addition of new contracts in football and other sports such as the NBA, NFL and Sunderland AFC, all to commence this year; a strong new contract pipeline; and a re-launch of Kitbag.com, give us reason to believe in a continuing growth business with improving profitability. 

Education

Full Potential focus: Turnaround a market leader

·; Improving supply chain management

·; Enhancing customer contact processes

·; Improving pricing and category management

Within our Education Division, over the year we have had mixed success though current signs are positive across the whole division. The division started the year in a difficult position, hampered by very poor supplier relationships leading to poor service, prices and declining market share. We have turned around those brands focussed on school operations (selling principally consumable and commodity products) back into growth by offering better ranges and pricing, enhanced service and increased sales force coverage. These brands achieved growth of 5% during the second half of the year. Our export sales also flourished, with growth of 6% during the year reflecting the growth of the international schools sector. Those brands focussed on the curricular areas of the market (where the teacher is more likely to be the customer) continued to decline, reflecting not only pressures on public spending budgets but also poorly performing catalogues published when we were in financial difficulties with associated service challenges. Although operations are back to full health, the relatively infrequent purchase patterns of the curricular customer and the legacy of damage to these brands has made turnaround much slower. After careful research we made a decision to adjust the traditional timing of the launch of new catalogues for these brands from January to late April to coincide with the start of the new Summer term. This led to further reductions in sales for these brands in the final quarter, offset by the delay in incurring the costs of these catalogues with an estimated overall in-year net positive profit impact of between £1.0m and £1.5m. Since the launch of these new catalogues in late April we have seen encouraging signs of recovery with growing customer numbers and a sharp improvement in sales trajectory. 

Since the year end the division as a whole has therefore seen a significant improvement in sales performance, with sales in the first 8 weeks currently comparable to prior year. Although it is early days, this is an encouraging start given many years of decline. In addition, action has been taken throughout the year to reduce the cost base. We initiated a major effort in the procurement area, which whilst failing to meet our ambitions for FY2012 still achieved the effect of offsetting supplier inflation and is expected to lead to a significant margin benefit of 2-3% in FY2013. The business also took action on its overheads with reductions amounting to c.£2m, and we continue to see significant further opportunities via process improvement for the years ahead. 

Healthcare

Full Potential focus: Maintain prominent market position

·; Develop the pipeline of new ICES contracts

·; Capitalise on improved working capital conditions to support new contract tenders

Within Healthcare, we have been successful in winning the only new Integrated Community Equipment Supplies (ICES) contract to come to market in the year, in Berkshire. This, together with extensions to existing contracts, amounts to an additional £58m of secured total contract value won during the year. We also lost one ICES contract totalling approximately £18m of total contract value, but overall we have again maintained and improved our market leading position with annualised sales of £76.8m. The pipeline of new contracts is strong, with a potential £145m total contract value of new ICES contracts identified as coming to market over the next two years. Our Primary Care business, the supply of products to support daily living direct to professionals, consumers, the NHS and other trade channels, also grew strongly during the year, at 9%, and we expect continued growth in this area. As previously highlighted, margins in this business are dependent on the relative maturity of contracts, with new contracts typically being lower margin in early years. The growth in new contracts within the business will provide a platform for continued profit growth.

FINANCE DIRECTOR'S REPORT

Group operating profit before exceptional items and terminated operations

Group profit before tax* was £10.7m in FY2012, up £3.7m on FY2011, as summarised below.

2012 2011 Change

Operating profit*:

Express Gifts 18,823 15,918 2,905

Kleeneze 3,227 4,225 (998)

Kitbag (4,212) 1,867 (6,079)

Education Supplies 839 1,595 (756)

Healthcare 2,217 2,147 70

Overseas sourcing 16 957 (941)

Net finance costs* (10,205) (19,698) 9,493

* before exceptional items and terminated operations

The operating profit* of the Group fell by £5.8m to £20.9m, with an excellent performance from Express Gifts being offset by legacy issues in Kitbag, difficulties affecting the curricular supplies part of the Education Supplies division plus, as expected, lower profits from Kleeneze and FADFE. Whilst all five primary divisions reported falls in operating profit in the first half of the year, it is pleasing to note that three out of five - Express Gifts, Education Supplies and Healthcare - returned to profit growth in the second half of FY2012 compared to the same period in FY2011. During the second half of FY2011 there were a number of non-recurring credits totalling approximately £3.5m, of which the largest item related to the reversal of charges for lapsed share awards. Despite this, the Group's total operating profit in the second half increased by 7.5% to £21.5m (H2-2011: £20.0m) indicating the encouraging trajectory that the Group is now on.

The favourable impact of the refinancing undertaken in March 2011 upon finance costs*, which reduced by £9.5m to £10.2m, meant that the Group's profit before tax* increased by 53% to £10.7m.

The performance of each business unit is discussed in turn below.

Express Gifts

Express Gifts has enjoyed a good year of recovery, with active customer numbers increasing by over 5% to 1.2m in response to the more competitive pricing approach and improved offer first rolled out in the 2011 Spring/Summer season. The sales growth of 8.3%, with a particularly strong performance around the Christmas peak period, reversed a declining trend that had been experienced for the last 5 years.

The buying and merchandising departments were restructured during the year, with an increased focus being placed on making profitable use of the Group's overseas sourcing offices and other direct low-cost sources. The range of products included within the main catalogues were reappraised, with greater emphasis now being placed upon improving the gross profit achieved, rather than just the gross margin %. This improved pricing approach has ensured that the division's product offering has remained competitive at a time when customers are keen to secure value wherever possible. The total investment of 280bp in gross margin in FY2012 led to a £17.7m increase in revenue and resulted in a £3.6m (2.9%) net improvement in gross profit.

Tight credit standards were maintained throughout the year. Customer payments have performed slightly ahead of our expectations in the important period after Christmas despite the growth in sales. Consequently, the bad debt charge as a percentage of revenue fell 11% from 14.0% to 12.4%. All other indicators continue to confirm that the quality of the receivables portfolio remains very stable. The new behavioural credit scoring system was delivered on time in December 2011 although it is not expected to contribute significantly to profit until the second half of the current year.

 As flagged as part of the Full Potential review, the business's core systems had suffered from a prolonged period of underinvestment which had started to impede the business's ability to compete . The project to invest some £7m in upgrading Express Gifts' core systems onto an integrated set of market applications started in February 2011. This three-year project is progressing well and continues to be both on schedule and on budget.

Other overhead costs (before the bad debt charge) remained under tight control increasing by just 2.3% despite the significant growth in revenue. This resulted in a net operating profit* for the year was £18.8m, up £2.9m (18.2%) on FY2011 which is an excellent performance from the Group's largest business.

The business has made another good start to the current year, seeing further strong growth in sales of 19% in the first 8 weeks of the year compared to FY2012.

Kleeneze

Kleeneze started the year with a declining distributor base but with plans to rectify this. The launch of a range of recruitment initiatives, including the "Break Free" programme where new distributors can join for a nominal fee, have since led to an underlying increase in the number of active ordering distributors. As we have gone through the year, their level of productivity has improved such that Kleeneze ended the year with 4.7% more active ordering distributors compared to March 2011, the reversal of at least a five year decline.

This trend was most clearly seen in the revenue growth where during the first half of the year sales declined by over 9%. However, the sales decline in the second half narrowed significantly to just 1% and, since the year end, the business has returned to sales growth for the first time in many years. This has been achieved against a challenging sales backdrop where the size of the average order from the distributor has fallen from around £240 to nearer £220, reflecting the relatively discretionary nature of many Kleeneze products.

Other new initiatives have been trialled in recent months, including making increased use of party plan selling for the business's cookery and spa ranges. It is anticipated that this will help to stimulate further sales growth in the coming year, as well as providing a further opportunity to recruit additional distributors.

The business was able to retain its gross margin at around 70% of revenue and, despite the 5.4% overall fall in revenue for the year, was able to reduce overheads. Consequently, as expected, Kleeneze reported an operating profit of £3.2m compared to £4.2m in FY2011.

Kitbag

Kitbag continued to see growth in sales in FY2012, increasing 4.6% in total to £60.7m (FY2011: £58.0m). This included a particularly strong first half of the year, up 15.3% due to its new contract with Leicester Tigers and a strong on-pitch performance at the end of the 2010/11 sporting season from many of its existing partners. This on-pitch performance was not repeated for much of the early part of the 2011/12 season . This was coupled with a challenging consumer retail environment and, as a result, sales in the second half of FY2012 reduced by 4.2%.

During the year it became clear that a number of Kitbag's existing partner contracts had become inherently unprofitable due to high levels of guaranteed royalty payments relative to forecast sales. Andy Anson was appointed as CEO of the business in July 2011 and immediately started the process of identifying and subsequently renegotiating the most material contracts to improve Kitbag's prospects. This process is now substantially completed, and is expected to reduce royalty payments (which are shown within trading costs) significantly on these contracts in future years.

Another issue that had been identified was a significant amount of potentially obsolete stock from prior seasons and discontinued contracts. This stock needed to be discounted significantly to aid its clearance, leading to a substantial fall in the gross margin rate from 46.1% to 41.8% for the year. Buying and merchandising processes have been strengthened with the appointment of a Trading Director and other key buying personnel to prevent future build-ups of stock and mitigate against the need for excessive discounting in future years.

The investment in strengthening the senior management team and improving the business's underlying processes, together with an increase in royalty payments, contributed to a £4.7m increase in trading costs. Overall, Kitbag reported an operating loss for the year of £4.2m (FY2011: profit of £1.9m).

The business has started FY2013 in significantly better shape. The process to renegotiate partner contracts has been successful and the profile of its inventories is much healthier. The pipeline of new potential partnerships which can be pursued over the next three years remains strong. Contracts have already been agreed to start a multi-channel contract with Sunderland AFC in June 2012, as well as new online contracts with the NBA and NFL to operate their European online stores. We have also announced that Kitbag has secured the contract to support the next two Ryder Cups and has successfully renewed its contract with The Open Championship.

The re-development and expansion of the Kitbag.com website is also planned in the coming months in order to incorporate new product categories and extend the offer in existing categories so as to provide an improved customer experience and strong brand architecture, coupled with greater cross-selling opportunities and focus on CRM.

Kitbag's sales since the year end have reduced by around 9.6%. This fall is almost entirely attributable to a one-off wholesale sale to a club sponsor in April 2011. With many of our partner clubs ending their seasons with major successes, and with new contracts starting in the coming months, we expect Kitbag to return to sales growth in the near future and report significantly improved profitability in FY2013.

Education Supplies

The Education Supplies division was significantly affected by the inability to source its goods effectively in the period before the refinancing in March 2011. This was in addition to long-standing legacy issues including poor service levels, uncompetitive product pricing and a declining market share. Consequently, the business entered FY2012 with falling sales and customer numbers in both its school operations and curricular brands.

Detailed attention was therefore placed upon restructuring many aspects of the division during the year. Early efforts were focussed upon the main school commodity brands, where repeat orders are typically placed frequently, through better pricing, enhanced service and increased sales force coverage. The multi-year sales decline in this half of the division was arrested by the middle of the year and has since seen a strong level of recovery with sales in these brands up 5% in the second half of the year.

The process to turn around the main curricular brand catalogues, where ordering typically takes place infrequently was likely to take longer. Its last catalogues were launched in January 2011 before many of the systemic business problems had been addressed, and performed relatively poorly. Although this was clearly a competitive weakness, research indicated that there was a strong case to alter the timing of the launch of new catalogues from January to April 2012 to coincide with the start of the new Summer term. By doing so the business suffered a further fall in sales during the final quarter of the year in these brands, offset in the year by the one-off effect of not incurring catalogue costs. We estimate that the net effect of this decision is a positive impact on 2011/12 profits of £1.0m to £1.5m versus the prior year.

Overall sales in the year fell by 11.9% to £108.3m (FY2011: £122.9m). Efforts to improve the procurement process successfully offset rising supplier inflation, although the change in sales mix caused by the contrasting performances of the main brands in the second half of the year led to an overall reduction in the gross margin rate from 34.2% to 33.6%. The improved relationships with suppliers and renegotiated trade terms are expected to lead to margin improvements in FY2013 of between 2-3%. These improved relationships have also led to much higher customer service levels through the year.

In addition to the impact of the change to the timing of annual catalogue launches, a reappraisal of the overhead base in the second half of the year contributed to an overall reduction in trading costs of £4.8m in FY2012.

The operating profit delivered by the division during the year of £0.8m (FY2011: £1.6m) was below our plans. However, with the launch of our new catalogues we have seen sales since the year end match the prior year and customer numbers in our curricular brands stabilise after over five years of significant decline. Together with the operational improvements now in place, we are encouraged by these early signs that our multi-year turnaround is now on an upward trajectory.

Healthcare

The Healthcare division won one new ICES contract during FY2012 for Berkshire which started on 1 April 2012. The division also successfully negotiated extensions on 7 ICES contracts during the year, covering the contracts for Bristol, Buckinghamshire, Cambridgeshire & Peterborough, Lincolnshire, Powys and Warwickshire. Additionally the division was re-awarded the Mobility Care contract for Northern Ireland.

The East Sussex ICES contract was lost at the time of rebid, coming to an end on 30 September 2011, although this revenue loss was more than offset by the new ICES contracts for Hull, East Riding and Leicestershire, all of which commenced on 1 April 2011. Underlying growth in the continuing contracts was strong, and the new Primary Care catalogue published in Autumn of 2011 was well received, contributing to the 15.2% overall increase in revenues.

Gross margin was depressed slightly by changes in the contract mix, with the expiry of a mature higher margin contract and start-up costs on new contracts. There is some evidence that the government's austerity measures have reduced local authorities' spending budgets but the non-discretionary nature of the services provided by the Healthcare division has limited the impact. Operating costs were tightly controlled and only increased in line with the growth in gross profit. This resulted in a steady increase in operating profit* from £2.1m in FY2011 to £2.2m.

The pipeline of new ICES contracts expected to come to market continues to be strong, with £48.3m aggregate annual contract value identified over the next two years, compared to £22.5m at the same time two years ago. The division therefore enters FY2013 in a strong position.

Overseas sourcing

As reported at the half-year, the Group's overseas sourcing operation, Fine Art Developments Far East (FADFE), has historically been treated as part of the central operations of the Group and its results were allocated to divisions separately. As part of the Full Potential plans, FADFE is now more focussed upon serving its Group clients - primarily Express Gifts, Kleeneze and Education Supplies - and less focussed upon its portfolio of external clients. Following this change in emphasis and to avoid distorting the underlying performance of the other divisions, we now report FADFE's external sales and profit separately. As anticipated as a consequence of this strategic change, both the external turnover and operating profit for FADFE have fallen during FY2012.

Exceptional items

Total exceptional costs (including items in terminated operations) of £22.9m (FY2011: £8.4m) were incurred as set out in note 3. These largely relate to operational restructuring costs incurred during the year, including changes in stock management processes, redundancy costs and changes to senior management totalling £11.1m. The carrying value of the goodwill in the Education Supplies division has been written down in line with the technical requirements of IAS 36 by £8.4m to a value supported by the Groups' current projections using an appropriate discount rate (16.9% pre-tax). If the business were to fall significantly short of these projections a further review of the business strategy would be required, which could lead to a further write down. The 2011 exceptional items also included an exceptional gain of £32.9m in relation to the release of debt and issuance of new convertible shares. Exceptional finance costs of £3.4m and £16.6m were incurred in 2012 and 2011 respectively in respect of refinancing.

Pensions

The Group has continued to make additional voluntary contributions to its defined benefit schemes totalling £3.2m in the current financial period (FY2011: £3.2m) to improve the funding levels of these closed schemes. The net deficit at the end of 2012 measured in accordance with IAS19 increased to £13.0m (2011: £4.7m) as a result of actuarial losses in the year, reflecting the well-documented reduction in gilt yields.

Taxation

The Group obtained relief in respect of taxation totalling £7.3m (FY2011: £9.9m). This principally related to movements in the deferred taxation position and a reduction in the Group's current taxation charge. It is likely that losses incurred in prior periods will be utilised against taxable profits in the near term.

Summary balance sheet

2012 2011 Change

£000 £000 £000

Fixed assets 139,906 151,474 (11,568)

Net working capital 200,693 199,325 1,368

Net debt (230,659) (227,804) (2,855)

Other net liabilities (5,801) (6,546) 745

Net assets 104,137 116,449 (12,312)

Consolidated net assets amounted to £104.1m at the period end (FY2011: £116.4m), largely reflecting the actuarial losses suffered in respect of the pension liabilities together with other items charged to the income statement during the period. These net assets are equivalent to 6.2p per share (FY2011: 6.8p per share).

Cash flow and borrowings

Net cash from operating activities was an inflow of £3.7m (2011: outflow of £30.9m), reflecting the significant reduction in net exceptional cash costs following the refinancing in March 2011.

Net debt at the year-end was as follows:

2012 2011 Change

£000 £000 £000

Bank borrowings 164,921 160,000 4,921

Core bank debt 131,822 134,418 (2,596)

Securitisation drawings 98,837 93,381 5,456

Finance leases - 5 (5)

The Group's core bank debt facilities were renegotiated in March 2011 as part of the refinancing with a maturity date of March 2016. It is pleasing to report that core bank debt at the year-end was £131.8m, down £2.6m from the previous year-end. This includes improvements made during the year in working capital management, offset by the increase in the interest-bearing credit receivables at Express Gifts. The majority of this increase was funded through the securitisation facility, where drawings increased from £93.4m to £98.8m. These drawings are not included in the gearing covenant which only applies to the core bank debt and, hence, are shown separately above.

Total net debt ended the year at £230.7m (FY2011: £227.8m). The Group continues to have sufficient liquidity headroom available to execute upon its Full Potential plans.

Shareholder return and dividends

Basic earnings per share from continuing operations increased to 1.03 pence compared to 0.59 pence last year. The statutory basis and fully diluted loss per share for the year was 0.29 pence (FY2011: profit per share of 1.04 pence).

The terms of the Group's credit facilities prohibit the payment of dividends for so long as those facilities are in place. This is consistent with the board's belief that the Group should improve its liquidity and invest in its operations rather than paying dividends for the time being.

Findel plc.

Group Financial Information

Consolidated Income Statement

Period ended 30 March 2012

All results are from continuing operations.

Consolidated Income Statement

Period ended 1 April 2011

All results are from continuing operations.

Consolidated Statement of Comprehensive Income

Period ended 30 March 2012

The total comprehensive income for the period is attributable to the equity shareholders of the parent company Findel plc.

Consolidated Balance Sheet

At 30 March 2012

Consolidated Cash Flow Statement

Period ended 30 March 2012

Condensed Consolidated Statement of Changes in Equity

Period ended 30 March 2012

The total equity is attributable to the equity shareholders of the parent company Findel plc.

Findel plc

Notes to the Group Financial Information

1. Basis of preparation of consolidated financial information

The financial information set out herein does not constitute the company's statutory financial statements for the years ended 30 March 2012 or 1 April 2011, but is derived from those financial statements. Statutory financial statements for 2011 have been delivered to the Registrar of Companies, and those for 2012 will be delivered in due course. The financial statements were approved by the Board of directors on 11 June 2012. The auditors have reported on those financial statements; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

Copies of full account will be available on the Group's corporate website. Additional copies will be available upon request from Findel plc, 2 Gregory Street, Hyde, Cheshire, SK14 4TH.

The Group financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted for use within the European Union and in accordance with the accounting policies included in the Annual Report for the period ended 1 April 2011 except as stated below.

Going concern basis

In determining whether the group's financial statements for the period ended 30 March 2012 can be prepared on a going concern basis, the directors considered all factors likely to affect its future development, performance and its financial position, including cash flows, liquidity position and borrowing facilities and the risks and uncertainties relating to its business activities in the current challenging economic climate. The financial position of the group, its cash flows, liquidity position and borrowing facilities and the key risks and uncertainties are set out in further detail above.

The directors have reviewed the trading and cash flow forecasts as part of their going concern assessment, including reasonable downside sensitivities which take into account the uncertainties in the current operating environment including amongst other matters demand for the group's products, its available financing facilities, and movements in interest rates. Although at certain times the level of headroom against certain covenants reduces, the directors currently believe it to be sufficient and have identified controllable mitigating actions that could be implemented if required.

Taking into account the above uncertainties and circumstances, the directors formed a judgement that there is a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future.

Accordingly, they continue to adopt the going concern basis in preparing the group's annual consolidated financial statements.

2. Segmental analysis

The board has considered the information that is presented to them on each of the trading divisions. In view of this, information on reporting segments has been amended accordingly. For management purposes, the group is currently organised into six operating segments:

·; Express Gifts - direct mail order businesses in the UK, offering online and via catalogue a broad range of home and leisure items, clothing, toys and gifts supported by a flexible credit offer;

·; Kleeneze - marketing company, specialising in supplying household and health & beauty products to customers through a network of independent distributors across the UK and the Republic of Ireland;

·; Kitbag - retailer of sports leisurewear and official football kits both through its own online operation, kitbag.com, as well as a number of partnership relationships with football clubs and other sports organisations whereby Kitbag manages a range of retail, online and/or mail order channels;

·; Education Supplies - supplier of resources and equipment (excluding information technology and publishing) to schools and educational establishments in the UK;

·; Healthcare - operator of outsourced Integrated Community Equipment Services ("ICES") contracts for NHS trusts and local authorities, and supplier of rehabilitation and care equipment to the public and private sectors via catalogue and the internet;

·; Overseas Sourcing - sourcing office based in Hong Kong supplying importing services to various group companies and a small number of external customers.

Segment information about these operating segments is presented below.

2012

Revenue

2011

Revenue

2. Segmental analysis (continued)

2012

Loss after tax

2011

Profit after tax

3. Exceptional items (excluding terminated operations)

Cost of sales include costs associated with new divisional management's turnaround plans such as dealing with stock obsolescence.

Restructuring costs in the current period relate to management changes and redundancies (£3,517,000) and costs associated with rectifying poor systems and controls (£4,066,000). The carrying value of the goodwill in the Education Supplies division has been written down in line with the technical requirements of IAS 36 by £8.4m to a value supported by the groups' current projections using an appropriate discount rate (16.9% pre-tax). If the business were to fall significantly short of these projections a further review of the business strategy would be required which could lead to a further write down.

Exceptional financing costs of £3,396,000 relate to costs associated with the refinancing in 2011.

4. Terminated operations

In the prior year, the operations of Webb, Confetti and IWOOT were sold and as such are disclosed separately as terminated operations. Together with the terminated operations in prior periods, The Cotswold Company and Letterbox, these businesses have been separately disclosed within the "terminated operations" column on the face of the income statement.

5. Tax income

6. (Loss)/earnings per share

* continuing operations before exceptional items and terminated operations

The earnings per share attributable to the convertible ordinary shareholders is £nil.

7. Related party transactions

Trading transactions

There were no related party transactions to be disclosed for the period to 30 March 2012.

Transactions between the company and its subsidiaries, which are related parties of the company, have been eliminated on consolidation and are not discussed in this note.

Compensation of key management personnel

The remuneration of the directors including consultancy contracts and share-based payments, who are the key management of the group, is summarised below.

8. Contingent liabilities

Payment protection insurance

The company's largest subsidiary, Express Gifts is regulated by the Financial Services Authority ("FSA") as an insurance intermediary and, as such, is permitted to sell general insurance products, including Payment Protection Insurance ("PPI"). Express Gifts sold around 267,000 PPI policies in the period from January 2005 to August 2008.

The FSA published its final policy statement (PS 10/12) concerning the assessment and redress of PPI complaints on 10 August 2010.

Express Gifts reviewed its processes for handling complaints relating to the potential mis-selling of PPI in due time. Given the increased profile of PPI in the industry and in the media, as expected the level of complaints received during the year has remained at around 1% of customers although has increased a little in recent months. This remains very low relative to the number of policies sold. The proportion of these claims which have been upheld has increased slightly from 4% to 6%. A provision of £220,000 (2011: £nil), included within accruals, has been made to cover the estimated redress from future inbound complaints.

At this time, and in the absence of further evidence, it is not considered possible to make a reliable estimate of the provision, if any, which may be required as a result of any future increase in the level of complaints received and upheld resulting from the new handling procedures and any outbound customer contact exercises.

Leased properties

The Group has sub-leased, or assigned to third parties the leases of a number of properties that are no longer managed by the Group. The group may remain directly or contingently liable for the performance of these leases which could crystallise in the event of the insolvency or other default by the sub-leasees or assignees of these properties. As at 30 March 2012 the maximum potential exposure was estimated to be approximately £2,000,000 spread over a number of years. No material loss is expected to accrue and hence no provision has been made in respect of such leases.

By order of the board

R W J Siddle T J Kowalski

Chief executive Finance director

11 June 2012 11 June 2012

Principal risks and uncertainties

There are a number of risks and uncertainties that could impact the performance of the group over and above the treasury risks considered above. Group and divisional management, through the budgeting, forecasting and monthly review of actual results, review business risks and seek to mitigate these risks as far as possible, as described in the Corporate Governance Report. The risks relate to three key areas of review by the group being those specific to the group's divisions, economic and regulatory risks, and operational risks.

Risks specific to the group's divisions

The business of the Express Gifts Division is seasonal, and is more heavily weighted towards the second half of the financial year. In addition the division is reliant on credit scoring techniques in the recruitment of new customers.

In the Education Supplies Division, the September and March "Back-to-School" periods account for much of the market's annual sales and profits. The group is focused on delivering a high quality of service and being well prepared for managing peak demand in all of its businesses.

The Education Supplies Division could be adversely affected if a local authority were to withdraw "Approved Supplier" status. Furthermore the Healthcare division may fail to successfully renew existing contracts or win new contracts. The group is focused on maintaining appropriate quality of service to ensure it retains this supplier status and retains and wins new contracts.

Economic and regulatory risks

The group may be negatively affected by the impact of the economic downturn on consumer spending or the ability of its customers to service their debts.

The impact of the sustained reductions in government spending on education or healthcare may adversely impact the performance of the Education Supplies or Healthcare Divisions and may in turn have a material adverse effect on the group's business. As both divisions are large, suppliers in their markets, this may widen the opportunities available to the group due to its scale and efficiency. The continued or prolonged withdrawal of credit insurance traditionally provided to the group's suppliers could have an adverse effect on the group's business. In addition the failure of the group to meet its debt obligations or comply with the terms of its credit facilities could have a similar impact.

Express Gifts is regulated by the FSA as an insurance intermediary and, as such, is permitted to sell general insurance products, including Payment Protection Insurance (''PPI''). It ceased selling this product in August 2008 and, to date, has received a low number of complaints as a proportion of its total PPI sales. With the publication of its final policy statement in August 2010, the FSA has imposed significant changes with respect to the handling of PPI mis-selling complaints, following which, the group reviewed its claims handling processes. The number of complaints received over the last year has, as anticipated, increased following widespread media commentary about the subject affecting the wider industry. However, this number remains very low relative to the size of the customer base, and the number of complaints upheld to date remains low. Notwithstanding this, it is possible that Express Gifts may receive and uphold a greater number of new claims from customers in the future.

Interruptions in the availability or flow of stock from third party product suppliers or defaults by tenants on sub-let properties could have an adverse effect on the group's business. To mitigate this risk, the group purchases products from a wide variety of domestic and international third party product suppliers.

The group's operations may be adversely affected by legal, regulatory and other developments in countries in which it operates. The group is subject to a range of legal and regulatory requirements originating from the UK (particularly the Consumer Credit Act and Data Protection), the other countries in which it operates and in the European Union, particularly in areas of consumer protection, product safety, competition, provision of credit, selling of financial services and extended warranties, copyright royalties, levies, health and safety, taxation, environment, labour and employment practices (including pensions). The group manages these risks in conjunction with third party professionals, where appropriate.

Deteriorating markets and reputational risks could result in the impairment of goodwill, intangible assets (including brands) and property, plant and equipment, which may adversely affect the group's financial position. The group focuses on maintaining the highest quality of service to mitigate against any impairment in the value of its businesses.

Operational risk

The group is dependent on its senior management. The group has entered into employment contracts and taken other steps to encourage the retention of these individuals, and to identify and retain additional personnel. The group's business may be affected by the default of third parties in respect of monies owing by them to the group. However the majority of amounts owed to the group comprise small balances spread across a large number of accounts and active consideration of credit risk is carried out throughout the group.

The group has funding risks relating to its defined benefit pension schemes. Whilst these schemes are closed to both new members and additional accruals, they remain subject to risks regarding the relative amount of each of the scheme's assets, which is affected by the value of investments held by the scheme and the returns derived from such investments, as compared to its liabilities, which are affected by changes in life expectancy, inflation and future salary increases. To improve the funding of these schemes the group has agreed funding plans with the schemes' trustees and as a result makes additional contributions to the schemes.

The group may fail to keep up with advances in internet technology. Furthermore information technology systems failure or disruption could impact the group's day-to-day operations. The group relies heavily on its information technology systems to record and process transactions and manage its operations as well as to enable its customers to purchase products on-line and over the phone. The group has seen significant growth in the proportion of its home shopping sales which are derived from the internet, and these now represent over 40% of the total sales of the Home Shopping Division. The group is focused on investing appropriately in its information technology systems and progressively developing its e-commerce capabilities.

The group is dependent on third parties for outsourcing functions. The group carries out extensive reviews of any potential outsourcing partner. Loss of, or disruption to, the group's distribution centres and administrative sites would have a material adverse effect on the group's business. The group has established disaster recovery procedures designed to minimise the impact of any such disruption. The group also carries insurance cover against the potential loss of key facilities.

Financial risk

The group is reliant on the continued provision of credit facilities, and the ability to refinance them as they fall due, to support its operations as it seeks to reduce its net borrowings to a more appropriate level. The current facility agreements which mature in March 2016 include various financial covenants which, if not complied with, would enable the lenders to seek immediate repayment of amounts outstanding under the outstanding credit facilities.

Directors' responsibility statement pursuant to the Disclosure and Transparency Rules 4.1.12

We confirm to the best of our knowledge:

1. the annual announcement, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and

2. the Chairman's Statement, the Chief Executive's Report and the Finance Review includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

The names and functions of the Directors of the Company are:

Mr D A Sugden Chairman

Mr R W J Siddle Chief Executive

Mr T J Kowalski Group Finance Director

Mr P B Maudsley Managing Director, Home Shopping

Mr E F Tracey Senior Independent Director

Mr W Grimsey Non-Executive Director

Mr M L Hawker Non-Executive Director

Mr S S McKay Non-Executive Director

Mrs L C Powers-Freeling Non-Executive Director