Final Results

FLYING BRANDS LIMITED

Announcement of Results for the 52 weeks to 31 December 2010

10 March 2011. Jersey. Flying Brands Limited (LSE: FBDU), the multi channel retailer, today announces its results for the 52 weeks ending 31 December 2010.

Summary

2010 was a year of considerable corporate activity:

·; Announcement of strategy to focus on Garden and Gifts

·; Significant acquisitions with purchase of Flowers Direct, Drake Algar and Garden Centre Online

·; Disposal of non-core Benham collectibles business

·; Enhanced online capability through acquisitions

·; Significant holding in Internet start up Dealtastic, taking a majority stake in January 2011

·; Internet sales increased to 34.8% of total sales (2009: 23.6%)

The financial highlights are:

·; Dividend restored, with a proposed final dividend of 0.8p, giving a full year dividend of 2.4p (2009: nil p)

·; Revenue from continuing business, excluding Greetings Direct at £27.56m was ahead of 2009 (£27.39m)

·; Continuing operations segment profit before interest and tax, excluding Greetings Direct, was £0.63m (2009: £1.75m)

·; Group profit before tax from continuing operations of £0.22m (2009: £2.39m)

·; Basic loss per share of 1.43p (2009: earnings 10.29p)

·; Closing net debt of £0.56m (2009: net cash of £1.99m)

Commenting on today's announcement, Tim Trotter, Chairman, said:

"In 2010 we made significant progress in executing our strategy to become a business focussed on Garden and Gifts. We disposed of Benham, acquired Flowers Direct, Drake Algar and Garden Centre Online, reduced our cost base, and strengthened our online retailing with an investment in Dealtastic. We believe that the initiatives we have undertaken during the year will improve the profitability and efficiency of our business in 2011."

For further information, please contact:

Flying Brands Limited 01245 228 300

Stephen Cook, Chief Executive

Anthony Gee, Finance Director

Smithfield Consultants 020 7360 4900John Kiely

Notes to editors

Jersey based Flying Brands Limited (LSE: FBDU) is a multi brand and multi channel home shopping specialist. Founded in 1981, it was admitted to the Official List of the London Stock Exchange in 1993. The Group operates the following divisions: 

·; Gifts (Flying Flowers, Flowers Direct and Drake Algar  making the company one of the UK'sleading florists)

·; Garden (Gardening Direct, one of the UK's largest mail order bedding plants and gardening products operations; Garden Bird Supplies, a leading provider of food and accessories for birds and other wildlife; Garden Centre Online, an internet retailer of garden hardware products)

·; Entertainment (Listen2, a mail order audio books, nostalgic music, DVD and video home shopping retailer)

·; Dealtastic (Deal a day website)

More information can be found at: www.flyingbrands.com

Chairman's statement

Business Summary

In 2010 we set out a clear strategy, to focus on our core business of direct home shopping, offering value for money products in gardening and gifts, whilst also maximizing the value of our entertainment and collectables brands.

During the year, we conducted a strategic review of the Group and came to the conclusion that Benham, the Group's collectibles brand, did not fit in with the other brands in the Group. The Board took the view that the best way of maximising the value of Benham was to sell it to free up capital and resources to invest in the core businesses of gardening and gifts.

We completed the sale of Benham in September and the initial proceeds went towards the financing of a number of strategic acquisitions and joint ventures we made during the year.

In the Gift division, in May, we acquired the business of Flowers Direct. This strengthened our online business and has given us access to our own relay network of florists. We supplemented this acquisition with the acquisition of Drake Algar, one of the premier florists in London. This gave us a presence in all sectors of the florist market, from great value bouquets from Flying Flowers through to the designer range of Drake Algar, and from postal delivery through to courier and florist deliveries.

In the Garden division, we acquired Garden Centre Online, which has added greatly to the range of products we can sell to our gardening customers and will also provide an additional online outlet for our live plants and wild bird food. Garden Centre Online also broadens our customer base, since its customers tend to be younger than our existing Gardening Direct customers.

In line with our strategy of increasing our presence in online retailing we also made an investment in Dealtastic, an early-stage "deal of the day" website, which also owns some potentially exciting search technology. We subsequently increased our holding in Dealtastic to 80% shortly after the end of this financial year.

In addition to making these investments, which were funded partly by the proceeds of the sale of Benham and partly by borrowings, we also invested approximately £1m in an upgrade of our IT Systems and restored the payment of a dividend.

Our ability to fund these developments was a direct result of the cost reduction and operational efficiency programme started in 2009 by the new management team. However, 2010 was a difficult trading year in our core businesses of gardening and gifts. The peak gardening season was disappointing and our Gifts division was hit particularly hard by the extraordinary bad weather conditions during the key Christmas sales period.

Flying Brands delivered a profit before tax for the period excluding one-off redundancy costs (£0.17m), legal costs associated with the acquisitions (£0.25m), profit from Greetings Direct (£0.37m) and the impairment of goodwill on Silverminds (£0.09m), of £0.36m compared with £1.53m in 2009, on revenue from continuing operations, excluding Greetings Direct, of £27.56m.

The decrease in profitability was due to a reduced profit contribution from our Garden division, which saw profits fall to £1.34m (2009: £1.81m) and an increased loss from our Gifts division to £0.81m (2009: £0.21m). We estimate that the extreme weather conditions at Christmas resulted in approximately £0.55m in lost profits.

We continued to supply existing profitable customers of our now discontinued Greetings Direct business and this contributed £0.37m of profit in 2010. We recorded a net book loss of £0.72m from the Benham business and our share of the start-up losses of Dealtastic amounted to £0.15m. After paying net interest of £0.14m (2009: £0.23m) the Group loss before tax was £0.50m compared to Group profit before tax in 2009 of £2.67m.

Financial

The basic loss per share of 1.43p compares to basic earnings per share of 10.29p in 2009. Cash generated from operations was £1.39m against £4.50m in 2009. Our gross cash balance at the end of the year was £2.29m (2009: £4.32m) with bank loans of £2.85m (2009: £2.33m). We therefore had net debt at the end of 2010 of £0.56m compared to net cash at the end of 2009 of £1.99m.

The reduction in profitability in the last quarter of the year meant that we breached one of our banking covenants. As announced in our January 2011 trading statement, we have brought forward the repayment of part of our debt to give us more covenant headroom going forward. We also obtained the commitment of our bank to waive this breach of covenant when it occurred.

Current trading and outlook

We acquired Flowers Direct and Drake Algar to enable us to offer a complete range of flowers from great value flowers by post to exclusive designer bouquets. We also now have our own relay network of florists and we have a number of initiatives underway to make full use of this extended portfolio. We are also revitalising our range of products.

Similarly our acquisition of Garden Centre Online is designed to enable us to offer a wider range of products to our existing gardening customer base and to lessen our dependence on the highly seasonal bedding plants market.

We are delighted to have signed up Charlie Dimmock as the new face of Gardening Direct and we are confident that she will help us greatly in the attempt to broaden the appeal of our gardening products.

Our acquisition of Dealtastic signals our intent to put the Internet at the heart of Flying Brands and we are making good progress in integrating that company's Web-centric culture with our more traditional direct marketing approach.

Trading in 2011 has got off to a mixed start. Flowers Direct in particular continued to trade below expectations but there are encouraging signs that our recent changes to the business are starting to take effect. Valentine's Day trading was slightly ahead of last year, which was a considerable improvement over recent day-to-day performance and our new range of products and pricing was a success. We have done something similar for the Mother's Day range and are in the middle of revitalising our core range. We are working hard at improving our relationship with our florists and have improved retention rates and recruitment of new florists. We are also expanding our corporate and third party business under the leadership of Tash Khan at Drake Algar.

Flying Flowers on the other hand was below expectations for Valentine's Day and in future this brand will concentrate on its traditional "value" range and expanding its customer base in that area.

Overall, we continue to believe in our strategy for our Gifts division in the medium and long-term and we are confident that new areas of business will more than compensate for the increasing competition in the "boxed flowers" market.

Trading in Garden Bird Supplies has been disappointing so far this year. Part of this may be weather-related but there is evidence of customers trading down from our premium "Ultiva" product in favour of cheaper alternatives, as discretionary spending comes under pressure and competition from general retailers increases. However, a number of our customers have said that they have been disappointed with these inferior products and will be returning to us. We have put in place a new marketing plan taking these factors into account and expect the performance of this brand to improve.

Dealtastic's new site and product range was introduced on 1 March and early signs are encouraging.

Gardening Direct's core campaigns have been performing largely in line with expectations, as has its online trading. Our off the page campaigns have been performing below expectations and we are currently reviewing our plans for the rest of the season. Any cutbacks in this area would affect revenues but not profitability. Garden Centre Online is trading in line with expectations at this early stage of its season and our new site should be ready in time for the peak trading season in April.

Overall, although the economic environment remains challenging and our new strategy for the Gift division is at an early stage, we look forward to this year with confidence.

Business Review

Operating results for the period

Continuing business

Operating profit, excluding one-off items (acquisition costs, impairment of goodwill and redundancy and reorganisation costs) and profit from Greetings Direct, from the continuing operations was £0.63m compared with £1.75m in 2009, a decrease of 64%, and net cash generated from operating activities was £1.15m against £3.72m in 2009. Revenue from continuing operations, excluding Greetings Direct, for the period was £27.56m, which was a very slight increase on last year.

The decrease in operating profit was due largely to (first) the slightly disappointing trading performance of our Gardening division coupled with large increases in fuel and postage costs in that division (£0.5m) (second) the effect of the extraordinary bad weather at Christmas (£0.55m) and (third) losses in the Flowers Direct business, which we acquired in the quieter second half of the year (£0.39m). The decrease in net cash generated from operating activities reflects the reduction in operating profits and also a greatly reduced contribution from Greetings Direct.

Group performance

The weaker profit performance of the ongoing business combined with the loss generated by the Benham business and the diminution in the profits of Greetings Direct as that business nears the end of its life means that the Group loss before tax was £0.50m (2009: profit before tax £2.67m).

Garden division

*operating profit excludes one-off costs associated with acquisitions, impairment of goodwill and redundancy and reorganisation costs

Garden

Sales in the garden division of £15.67m were marginally down when compared with 2009 (£15.89m). Operating profit, excluding one-off items was £1.34m compared to £1.81m in 2009.

Gardening Direct

Gardening Direct revenue was £11.38m compared to £11.93m in 2009. The peak Spring bedding sales campaign was behind expectations although we made up most of this sales shortfall by selling more mature plants later in the season. The Autumn selling campaign was also behind expectations, partially caused by our decision to cut back on recruitment advertising at this time.

Despite this cut back in advertising we did recruit 89,000 new gardening customers during the year (2009: 77,000) and ended the year with 310,000 active customers (2009: 312,000), largely consolidating the strong customer gains we made in 2009.

Operating profit, excluding one-off items, was £0.84m compared to £1.36m in 2009. The contribution margin declined from 27.6% to 23.6%. Contribution margin in this business was affected by a significant increase in fuel costs, partly as a result of an increase in the price of oil compared to last year and partly as a result of the need to use more fuel because of the colder weather this year during the crucial stages of growing our small plants. We also saw an increase in over 10% in postal delivery costs largely as a result of higher postage and fuel costs.

Internet sales now account for 25.4% of sales for this brand (2009: 19%).

Garden Bird Supplies

Revenues for this brand were almost flat at £3.87m (2009: £3.96m) as were profits at £0.53m (2009: £0.45m). The number of active customers declined from approximately 40,000 to approximately 33,000. The decline in the customer base reflects the continuing cut back on off-the-page recruitment advertising for this brand as we find it more and more difficult to recruit customers by this method at an acceptable cost.

Internet sales now account for 33.1% of sales at this brand (2009: 29.8%).

Garden Centre Online

We acquired this business in August of 2010 and its sales of £0.42m for the rest of the year at a small loss was in line with our expectations.

Gifts division

Gifts

We acquired the businesses of Flowers Direct and Drake Algar during the year and as a result of the contribution of those businesses overall sales in the Gifts division increased from £9.39m in 2009 to £10.16m in 2010. The operating loss also increased from £0.21m to £0.81m reflecting not only the Flying Flowers results but also initial losses in Flowers Direct and a small profit from Drake Algar. Overall contribution margin in the Gifts Division is now 15.8% compared to 17.3% in 2009 and we now have an active customer base of 286,000 compared to 222,000.

Internet sales accounted for 47.8% of sales during the year (2009: 27.6%).

Flying Flowers

The year-on-year comparisons for Flying Flowers continued to be affected by our decision to absorb the impact of the increased VAT when we moved postal flower dispatch to the UK. This, together with the loss of sales sustained as a result of the extraordinary bad weather conditions at Christmas, were to a large extent responsible for the decline in sales in this brand from £9.39m in 2009 to £7.75m in 2010. The operating loss for this brand widened from £0.21m in 2009 to £0.45m in 2010 and the contribution margin declined from 17.3% to 13.7%. This was a disappointing result after all the improvements that have been made to this brand over the last 18 months and was attributable to the losses sustained at Christmas.

Flowers Direct

This business was acquired on 24 May and contributed £2.19m of revenue, generating a loss of £0.39m. We are integrating the business into the Group's activities. This acquisition also gives the Group a significant asset with over 600 affiliated florist shops which are part of the Flowers Direct network.

Flowers Direct profitable trading period is the first quarter of the year which includes the key flower selling dates of Valentine's Day and Mothers Day.

Drake Algar

Since the acquisition in August 2010, Drake Algar has traded in line with expectations generating sales of £0.22m and a small profit of £0.03m.

Entertainment division

With the disposal of Benham, this division now consists solely of Listen2.

Sales at Listen2 continued to decline to £1.73m although we did see a small increase in its contribution margin over the course of the year. We still have 25,000 active customers but in this competitive market find it difficult to attract profitable new customers.

We did have discussions during the year with prospective distribution partners but were unable to agree terms.

Benham produced a loss for the year of £0.72m, of which £0.90m was due to the stock write down in preparation for sale. Benham was sold for £1.50m, of which £0.75m was received in September 2010, the remainder will be received in September 2011.

Financial Review

Corporate Activity

There was a significant amount of corporate activity during 2010 which not only transformed the make-up of the Group but had an impact on its financial performance and its net debt position. Flowers Direct (£2.90m), Drake Algar (£0.50m) and Garden Centre Online (£0.13m) were purchased for a total consideration of £3.53m. £1.45m of the Flowers Direct acquisition was deferred until August 2011. £0.20m of the Drake Algar consideration is contingent on the company meeting certain performance criteria. The Group also acquired a 50% interest in Dealtastic Holdings Limited for £0.15m and funded a working capital loan of £0.85m. Therefore, total cash outflow as a result of these investments was £3.07m.

This was partially funded by the disposal of the trade and assets of the Benham collectables business for £1.50m, although £0.75m of this is deferred until September 2011. The Group also increased its debt by taking out a £3.00m loan with Barclays Bank (see note 10), of which £1.38m paid off the outstanding existing loans and the remainder was used to fund the Flowers Direct acquisition. The net impact on cash was a £0.70m outflow.

Operating results

Continuing business

Group revenue from continuing business for the 52 weeks ending 31 December 2010 was £28.04m compared to £29.41m. The performance of the individual brands has been highlighted in the Business Review. 2010 was a tough trading year for all our brands with the cold weather in early Spring and the extraordinary bad weather at Christmas impacting turnover. Like-for-like turnover excluding Greetings Direct was down 10% with turnover in the Garden Division down 5% and Gifts division down 17%, although 5% of the reduction in the Gifts division was a result of the lost benefit from Low Value Consignment Relief when postal flower despatch was moved to the UK from Jersey.

Gross profit from continuing operations fell by £1.26m to £7.06m, £1.08m of this fall relates to the Greetings Direct business which is being wound down. Contribution margins for all divisions for the 52 weeks ending 31 December 2010 were lower than in 2009 but we continued to reduce our printed marketing and mailing costs and review product costs to improve margins further. Our margins were squeezed by higher transport and delivery costs and the higher prices of raw materials to some brands.

Operating expenses were £6.56m compared to £5.71m. Legal costs and one-off reorganisation associated with the acquisitions were £0.25m. The underlying overhead cost of the businesses acquired in the year contributed £0.99m to that increase. This includes £0.15m of amortisation related to the write down of intangible assets acquired. During 2011 we will integrate further the acquired businesses in to the Group's existing overhead base.

Operating profit for 2010 of £0.50m is £2.11m lower than last year. However, excluding the impact of the winding down of Greetings Direct (£0.74m) and the one-off acquisition costs (£0.25m), operating profit is lower by £1.12m. The shortfall arises from a £0.47m lower profit in the Garden division, the majority of which was caused by the poor Spring season trading performance and £0.60m in Gifts. The Gifts division was particularly hit by the poor weather around Christmas where profit was impacted by around £0.55m.

The Group's share of the loss from the associated companies in the Dealtastic Group was £0.15m.

Profit before tax

The net interest charge for the year was £0.13m, arising on the Group's outstanding loans. Profit before tax from continuing operations was £0.22m compared to £2.39m in the prior period.

Taxation

The tax charge for the continuing business for the year was 23.7% of profit before tax (52 weeks ending 1 January 2010: 0.6%). During 2010 the majority of the profit was made in the UK business of the Group, increasing the tax charge.

Discontinued operations

During 2010 the Group disposed of the assets and trade of Benham, as the business was no longer part of the Group's core growth strategy. Prior to its disposal the Group wrote down the carrying value of the Benham stock by £0.90m. As a result Benham made a loss from operating activities of £0.82m up until disposal.

The Group sold the trade and assets of the business to Stanley Gibbons Limited for £1.50m, after legal costs of £0.05m and a payment to settle the contract of the managing director of Benham of £0.07m, the profit on disposal was £0.11m. This resulted in an overall loss after tax from discontinued operations of £0.56m (52 weeks 1 January 2010: profit £0.22m).

Earnings per share

Basic loss per share of 1.43p compares to an earnings per share last year of 10.29p. The diluted earnings per share is 1.40p compared to 10.12p diluted earnings per share.

Going concern

These financial statements have been prepared on a going concern basis as set out in note 1 to the accounts, which sets out the consideration given to adopt this approach. The Group reviews its cash flow forecast formally each quarter and the Directors are of the opinion that there is adequate headroom in the Group's cash flow based on the latest forecast.

Loan covenants

The trading performance in 2010, and particularly the impact of the snow on the profitability of the Gifts division at Christmas, resulted in the Group breaching its debt service banking covenant in the final quarter of 2010 (see note 10). The Group has discussed this breach with its principal bankers (Barclays Bank) and has had a proposal agreed where the Group makes early repayment of £0.6m thereby reducing its subsequent loan repayments. This should give the Group sufficient headroom to meet its banking covenants in 2011. After accepting the proposal, Barclays Bank has agreed to waive the breach of covenants in the final quarter of 2010.

Capital expenditure

At the end of 2009, the Group commenced the replacement of its current operating system replacing it with Microsoft Dynamics AX. This project is progressing well and some of the Group's businesses are now using this system. As a result of this project, capital expenditure in the 52 weeks ending 31 December 2010 (tangible and intangible) was £1.09m compared to £0.50m in 2009. Approximately £0.74m of this spend was on the computer system project.

Following the acquisitions there will be a requirement to move these businesses onto the AX platform. This will result in some capital expenditure in 2011 but will be lower than the spend during 2010.

Working capital

Net working capital (inventories, receivables and payables) after removing the impact of disposal of Benham and stock write down, deteriorated by £0.34m.

The Group currently has not sought to have a working capital banking facility. Having reviewed the projected cash flows of the Group for 2011 the Directors believe that this facility is not currently required.

Dividend

An interim dividend of 1.6p per share was paid in September 2010. The Board is proposing a 0.8p per share payment in May 2011. The Board announced in its interim announcement that it was intending to sustain a progressive dividend policy. Although the results of the second half of the year have not reached the expectations that were anticipated when setting the interim dividend, the Board accepts that some of the shortfall in profitability in the second half was a result of one-off factors and therefore wish to maintain the proposed final dividend payment.

Long Term Incentive Plan

During the 52 weeks ended 31 December 2010, 273,333 share awards were made under the Long Term Incentive Plan scheme to Executive Directors and senior managers. Details of the awards can be found in the Remuneration Committee Report in the Annual Report and Accounts.

Share issue

On 25 May 2010 the Group issued 200,000 shares at £0.75 to a third party investor.

Net debt

In the 52 weeks ended 31 December 2010 there was a net cash outflow of £2.03m compared to a net cash inflow of £2.11m in the previous year. Cash generated from operations was £2.57m lower at £1.15m, with most of the shortfall being a result of the lower trading profits. Of the remaining £1.57m difference, £0.70m related to the net impact of the corporate activity, £0.65m was the higher capital expenditure spend on computer hardware and software and £0.44m due to reinstating the dividend payment.

At 31 December 2010 the Group had net debt of £0.56m compared to net cash of £1.99m at the beginning of the period. The Group's outstanding debt of £2.85m has been shown as a current liability at 31 December 2010 due to it breaching its debt service covenant. Following discussions with the bank the breach of covenant has been waived. If this waiver was applied to the Group's debt at 31 December 2010 the bank loan repayment due in the next 12 months would be £1.38m.

1 Summary of significant accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all financial periods presented, unless otherwise stated.

1.1 Basis of preparation

Flying Brands Limited (the Company) is a limited liability company incorporated and domiciled in Jersey. The consolidated financial statements of the Company comprise the Company and its subsidiaries (together referred to as the Group). The accounting policies of the Company are the same as for the Group except where separately disclosed.

These consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the European Union (adopted IFRS).

The Group's business activities, together with factors likely to affect its future development, performance and position are discussed in the Business Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described further in the Financial Review. In addition notes 2 and 11 to the financial statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives and its exposure to credit and liquidity risks. 

The Group financial statements are prepared on a going concern basis which the Directors believe to be appropriate for the reasons set out below:

The Group meets its short term seasonal working capital requirements through its cash flow generated from trading activity and also has a long term treasury loan facility which has covenants attached to it (see note 11 for more details).

The Group's forecasts and projections, taking into account recent trading and reasonably possible changes in trading performance, show that the Group will have sufficient financial resources and the loan covenants will not be breached over the duration of the forecasts. As a consequence the Directors have a reasonable expectation that the Group is well placed to manage its business risks and to continue in operational existence for the foreseeable future. Accordingly, despite the uncertain economic condition and the potential impact on the Group's trading, the Directors continue to adopt the going concern basis in preparing the Group financial statements.

The financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial assets and liabilities. A summary of the more important Group accounting policies follow, together with an explanation of where changes have been made to previous policies on the adoption of new accounting standards in the period.

The preparation of financial statements in conformity with adopted IFRSs requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

1.2 Basis of consolidation

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities generally accompanying a shareholding of more than one half of the voting rights.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is recorded as goodwill. The results of the subsidiary undertakings acquired or disposed of during the period are included in the Consolidated Income Statement from the date of control commences until the date control ceases.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

1.3 Segment reporting

An operating segment is a component of the Group that engages in business activity from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with and of the Group's other components. All operating segments' operating results, for which discrete financial information is available, are reviewed regularly by the Group's Board to make decisions about resources to be allocated to the segment and assess its performance.

1.4 Foreign currency

(a) Foreign currency transactions

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated Income Statement.

(b) Foreign operations

The assets and liabilities of foreign operations are translated to Sterling at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Sterling at the average rate for the reporting period.

Foreign currency differences are recognised directly in equity.

1.5 Property, plant and equipment

All property, plant and equipment (PPE) is shown at cost less subsequent depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation on assets is calculated using a straight-line method to allocate the cost to each asset to its residual value over its estimated useful life, as follows:

Freehold land is not depreciated.

The assets' residual values and useful lives are reviewed and adjusted if appropriate, at each Balance Sheet date. Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the Consolidated Income Statement. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Consolidated Income Statement during the financial period in which they are incurred.

1.6 Goodwill and intangible assets

(a) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units for the purposes of impairment testing.

The Group had no goodwill on transition to IFRS.

(b) Intangibles - trademarks

Trademarks obtained on the acquisition of subsidiaries are shown at fair value. They have a definite useful life and are carried at fair value at the date of acquisition less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of the trademarks over their estimated useful lives.

(c) Intangibles - customer lists

Customer lists obtained on the acquisition of subsidiaries are shown at fair value. They have a definite useful life and are carried at fair value at the date of acquisition less accumulated amortisation. Amortisation is calculated using the reducing balance method based on the estimated annual attrition rates.

%

Garden Bird Supplies 23

Flowers Direct 90

(d) Software

Computer software and associated development costs that generate economic benefits beyond one year are capitalised as an intangible asset and amortised on a straight line basis between three and five years depending on the estimated useful economic life.

(e) Flowers Direct relay network

The Group acquired the rights to manage a substantial linked (relay) network of florist shops when it acquired Flowers Direct. This network enables the Group to deliver florist and same day delivered bouquets and represents a substantial amount of the turnover of the Flowers Direct business. This has therefore been recognised as an intangible asset. The value of this asset will be amortised based on the anticipated decline in the number of florists annually on a reducing balance method.

1.7 Impairment

(a) Financial assets

A financial asset is assessed at each reporting date to determine whether there is any evidence that it is impaired. A financial asset is considered impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

Individual significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risks characteristics. All impairment losses are recognised in the Consolidated Income Statement.

(b) Non-financial assets

The carrying amounts of the Group's non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date.

The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination.

An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in profit or loss.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognised.

1.8 Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first in first out basis and includes transport and handling costs. Net realisable value is the price at which inventory can be sold in the normal course of business after allowing for the costs of realisation. Provision is made where necessary for obsolete, slow moving or defective inventories.

1.9 Trade receivables

Trade receivables are recognised initially at amortised cost, which is the fair value of consideration receivable and is adjusted for provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all the monies due. The amount of the provision is recognised in the Consolidated Income Statement.

1.10 Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the Consolidated Cash Flow Statement.

1.11 Bank borrowings

Interest-bearing loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

1.12 Share capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of Ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

Repurchase of share capital (treasury shares)

When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effects, and is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from retained earnings.

1.13 Share-based payments

The Group provides share-based payment arrangements to certain employees. These are equity-settled arrangements and are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant. The fair value is expensed on a straight line basis over the vesting period. The amount recognised as an expense is adjusted to reflect the actual number of shares or options that will vest.

The fair values of the share-based payment arrangements are measured as follows:

i) Long Term Incentive Plan (EPS based) - using the Black Scholes model;

ii) Long Term Incentive Plan (Total Shareholder Return basis) - using a pricing model adjusted to reflect Total Shareholder Return market-based performance conditions;

1.14 Revenue recognition

Revenue represents the invoiced value of goods supplied and is stated net of VAT and any trade discounts. Revenue is recognised at the date of despatch of goods to customers. Provision is made for refunds in the period the goods are despatched. Provision is made for expected returns or bad debts of continuity products. Credit card commission and the cost of overseas bouquets are treated as cost of sales. Commission income is recognised on completion of transmission of orders between network florists. Interest income is recognised on an accruals based method.

1.15 Leases

Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Rentals payable under operating leases are taken to the Income Statement on a straight-line basis over the lease term.

Leases in which the lessee assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an equal amount to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

1.16 Dividend distribution

Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved.

1.17 Taxation

Income tax payable is provided on taxable profits using tax rates enacted or substantively enacted at the Balance Sheet date.

Deferred taxation is provided in full, using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted at the Balance Sheet date and are expected to apply when the related Balance Sheet tax asset is realised or the deferred liability is settled. Deferred income tax assets are recognised to the extent that it is possible that future taxable profit will be available against which temporary differences can be utilised.

Income tax is recognised in the Consolidated Income Statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

1.18 Pensions

The Group makes contributions to some employees' and Directors' personal pension defined contribution schemes which are accounted for on an accruals basis.

1.19 Marketing expenditure

The Group charges external campaign marketing expenditure to the Income Statement in the accounting period in which the marketing material's ownership is deemed to pass into the Group's control.

1.20 Financial instruments

(a) Financial guarantee contracts

Where Group companies enter into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Group considers these to be insurance arrangements, and accounts for them as such. In this respect, the Group treats the guarantee contract as a formal contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.

(b) Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as describedbelow.

1.21 Termination benefits

Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits are recognised as an expense if it is probable the offer will be accepted.

1.22 Revisions to adopted IFRS in 2010

In 2010 the Group has adopted IFRS 3 Business Combinations including Amendments to IFRS3 In Improvements to IFRS (2009) and amendments to IAS 27 Consolidated and Separate Financial Statements were applicable for 2010. The acquisitions of Flowers Direct, Arrossisca and Garden Centre On-line have been accounted for in accordance with the requirement of Revised IFRS 3. There was no retrospective impact.

No other revisions to Adopted IFRS that became applicable in 2010 had a significant impact on the Group's financial statements.

1.24 Revisions to IFRS not applicable in 2010

Standards and interpretations issued by the ASB are only applicable if endorsed by the EU. If endorsed IFRS 9 Financial Instruments will be applicable from 2013. If endorsed this standard will simplify the classification of financial assets for measurement purposes but it is not anticipated to have a significant impact on the financial statements.

The Group does not consider that any other standards, amendments or interpretations issued by the IASB but not yet applicable will have a significant impact on the financial statements.

2 Financial risk and credit risk management

The Group has exposure to the following risks from its use of financial instruments:

Credit risk

Liquidity risk

Market risk

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risks and the Group's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework.

The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities.

The Group Audit Committee oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

(a) Credit risk

Credit risk is the risk of financial loss to the Group if a customer fails to meet its contractual obligations, and arises principally from the Group's receivables from customers.

Trade and other receivables

The Group's exposure to credit risk is influenced by the type of customer the Group contracts with. The Group is exposed to a high number of low value receivables from retail customers. The Group assesses the risk of these customers by applying historical trends to the likely event of these customers defaulting.

Impairment to the value of this receivable is applied in line with the historical trends identified and any changes in risk to the portfolio of the debt.

(b) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

The Group had no overdraft facility during the 52 weeks ending 31 December 2010. The Group has no facility for the current period as this facility is not considered necessary given the forecast cash generation of the Group in 2011.

(c) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Currency risk

The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Group entities, primarily the Euro and US Dollar. The risks in the period to 31 December 2010 were minimal.

The Group currently does not hedge any of its currency exposure due to the minimal impact of these currencies, and will not need to in the foreseeable future following the decision to close the overseas operations.

Interest rate risk

The Group has floating rate loans. Thus the Group has some exposure to interest rate risk.

(d) Capital management

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Group defines as net operating income divided by total shareholders' equity. The Board of Directors also monitors the level of dividends to ordinary shareholders.

From time to time the Group purchases its own shares on the market; the timing of these purchases depends on market prices. Primarily the shares are intended to be used for issuing shares under the Group's share option programme. Buy and sell decisions are made on a specific transaction basis by the Board of Directors; the Group does not have a defined share buy-back plan.

There were no changes in the Group's approach to capital management during the year.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

3 Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are discussed below.

(a) Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 1.7. The recoverable amounts of cash generating units have been based on value-in-use calculations. These calculations require the use of estimates.

4 Segmental analysis

The Group has four reportable segments, as described below, which are the Group's strategic business units. The strategic business units offer different products and services, and are managed separately because they require different business strategies. For each strategic business unit the Group's Board reviews internal management reports on a monthly basis. The following summary describes the operations in each of the Group's reportable segments:

Garden - home shopping retailer selling gardening products including bedding plants, fruit and vegetables, garden hardware and wild bird food.

Gifts - home shopping retailer selling floral bouquets and pot plants delivered as gifts.

Entertainment - home shopping retailer selling audio books, memorabilia music and DVDs.

Greetings Direct - a home shopping retailer selling greetings cards.

The accounting policies of the reportable segments are the same as described in note 1.3. Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before interest and tax, as included in the internal management reports that are reviewed by the Group's Board.

Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm's length basis.

5 Taxation

The tax assessed for the period is different from the standard rate of income tax, as explained below:

The UK current tax rate is based on a standard rate of 28%. The UK current tax rate will be reduced from 28% to 27% from 1 April 2011. In line with this change the rate applying to UK deferred tax assets and liabilities has also been reduced from 28% to 27%.

Jersey income tax has been provided at 0% for the period ended 31 December 2010 following the Income Tax (Amendment No 28) (Jersey) Law 1961 being registered by the Royal Court of the Island on 22 June 2007.

6 Dividends

In addition the Directors are proposing a final dividend in respect of the financial period ended 31 December 2010 of 0.8p per share which will absorb an estimated £0.22m of shareholders funds. Subject to approval at the annual general meeting, it will be paid on 5 May 2011 to shareholders who are on the register of members on 8 April 2011.

7 Earnings/(loss) per ordinary share

Basic

Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to the equity holders of the Company by the weighted average number of Ordinary shares in issue during the period, excluding Ordinary shares purchased by the Company and held as treasury shares.

Adjusted

Adjusted earnings per share which excludes one-off items is presented in addition to that required by IAS 33 Earnings per share as the Directors consider that this gives a more appropriate indication of underlying performance.

Diluted

Diluted earnings/(loss) per share is calculated by adjusting the weighted average number of Ordinary shares outstanding to assume conversion of all dilutive potential Ordinary shares. The Company has one category of dilutive potential Ordinary shares: LTIP awards.

The calculation is performed for the LTIP awards to determine the number of Ordinary shares that could have been acquired at fair value (determined as the average market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share awards. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share awards.

8 Goodwill and intangible assets