Final Results

RNS Number : 4087I

Flying Brands Limited

11 March 2010

 

 

FLYING BRANDS LIMITED

 

Announcement of Results for the 52 weeks to 1 January 2010

 

11 March 2010, Jersey. Flying Brands Limited (LSE: FBDU), the multi channel retailer, today announces its results for the 52 weeks ending 1 January 2010.

 

Summary

 

Results demonstrate benefits of restructuring, cost reduction, focus on profitable sales and reorganisation of the management team:

 

·; Ongoing business profit before tax, excluding one-off redundancy and reorganisation costs, of £1.94m, compared with £1.47m in 2008, on revenue of £30.35m down 9.7%.

 

·; Overall Group profit before tax £2.67m compared to a loss of £11.91m.

 

·; Like for like revenue in the Garden division up 6% to £15.89m, with operating profit, excluding one-off redundancy and reorganisation costs, up to £1.81m (2008: £1.31m).

 

·; In the Gifts division, a focus on more profitable sales, good cost control and improved operational efficiency saw the loss maintained at £0.21m, on sales of £9.39m down 19%.

 

·; Earnings per share of 10.3p (2008: loss per share of 49.1p).

 

·; Strengthened balance sheet with closing net cash of £2.0m compared to an opening net debt of £3.0m.

 

·; New management team under Chief Executive Stephen Cook appointed in February 2009

 

 

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

 

"I am pleased to report that the Group has made good progress in 2009 towards its aim of sustainable profitable growth. Our cost reduction and operational efficiency programme, started in the year, is now well underway and we are confident that the benefits of this, which began to be seen in 2009, will continue in 2010. I am also pleased to report the Group ended the year with a stronger balance sheet and net cash of £2.0m.

 

Trading in 2010 has got off to a satisfactory start. In Flying Flowers we have continued to rationalise our traditional catalogue-based database activity and our database sales until the end of the Valentine's Day week produced 50% more contribution than last year. Our online sales were also significantly up on last year both in absolute terms and as a percentage of total sales. We have also started to invest in building the brand.

 

The gardening sector as a whole has, we believe, had a difficult start to the year largely brought about by the bad weather to date. Sales so far this year have been behind management expectations but it is still very early in the season and we have been encouraged by our recruitment efforts to date. We have also been pleased with the launch of our new value brand - Jersey Bedding Plants.

 

In 2010 we aim to continue to improve the performance in our two core divisions and we are confident that we should build upon the progress achieved in 2009."

 

 

 

 

 

 

 

For further information, please contact:

 

Flying Brands Limited 01245 228 300

Stephen Cook, Chief Executive

Anthony Gee, Finance Director

 

Smithfield Consultants 020 7360 4900 John 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, a leading home shopping florist and gift delivery service)

·; 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)

·; Entertainment (Listen2, a leading mail order audio books, nostalgic music, DVD and video home shopping retailer; Benham, the first day cover stamps, coins and collectables specialist)

 

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

 

Cautionary statement 

 

This report contains forward- looking statements. These have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report. The Directors can give no assurance that these expectations will prove to have been correct. Due to inherent uncertainties, including both economic and business risk factors underlying such forward looking information, actual results may differ materially from those expressed or implied by these forward looking statements. The Directors undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

 

 

CHAIRMAN'S STATEMENT

 

Business summary

I am pleased to report that after a very difficult 2008 the Group in 2009 made good progress towards our aim of sustainable profitable growth. Our cost reduction and operational efficiency programme, started in 2009, is now well underway and the benefits of this have began to flow through. Flying Brands delivered a profit before tax for the period from the ongoing business, excluding one-off redundancy and reorganisation costs, of £1.94m, compared with £1.47m in 2008, on revenue from the ongoing business of £30.35m, 9.7% down on 2008.

 

The increase in profitability was due to a much-improved profit contribution from our core Garden division, which saw profits rise to £1.81m (2008: £1.31m). In October 2009 we took the significant step of moving our flower packing and despatch operations for our postal range from Jersey to the UK. This brought our postal bouquets within the ambit of the UK VAT regime. Despite the fact that we did not increase our prices to reflect the addition of VAT, the improved operational efficiency arising from the switch meant that we managed to hold the losses in Flying Flowers at the same level as 2008 even after losing approximately £0.35m of Low Value Consignment Relief on our last quarter sales.

 

The decline in revenues was largely attributable to our decision to focus on profitable sales in Flying Flowers and Benham and to the discontinuance of the unprofitable "Sarah Raven" gardening business. Revenues in the core gardening businesses of Gardening Direct and Garden Bird Supplies increased to £15.89m (2008: £14.99m).

 

We continued to supply existing profitable customers of our now-discontinued Greetings Direct business and this contributed £1.11m of profit in 2009. After paying net interest of £0.23m (2008: £0.28m) the Group profit before tax was £2.67m and compares to a reported loss in 2008 of £11.91m.

 

2009 also saw the founding of a new management team under Stephen Cook who became Chief Executive in February 2009. Anthony Gee was appointed Finance Director in June 2009. We promoted James Henry, one of our most experienced staff, to the position of Chief Operating Officer and appointed Marie Myles as Sales and Marketing Director. These appointments reflect the Group's renewed focus on operational efficiency and up-to-date marketing expertise and have been reinforced by key appointments in purchasing and logistics and e-commerce. We expect to announce soon the appointment of a senior commercial director with considerable experience in the horticultural and cut flowers industry and this will complete a significant strengthening of our senior management team.

 

Financial

The basic earnings per share of 10.29p compares to a loss per share of 49.11p in 2008. Cash generated from operating activities was £4.50m against £1.24m in 2008. Our gross cash balance at the end of the year was £4.32m (2008: £2.22m) with bank loans of £2.33m (2008: £5.23m). We therefore had net cash at the end of 2009 of £1.99m compared to net debt at the end of 2008 of £3.01m, an improvement in net cash of £5.00m.

 

The Board has considered carefully the question of returning to the payment of dividends and whilst it is not recommending a dividend in respect of 2009 it will review the payment of an interim dividend at the announcement of its half-year results, having regard to the Group's strategy and general economic conditions and the ability of the Group to sustain a progressive dividend policy from that time.

 

Current trading and outlook

 

The results for 2009 bore out the Board's stated belief that its main divisions - Garden and Gifts - were well placed to ride out the effects of the general economic recession. The general economic environment remains challenging and the core Garden division will face some tough comparatives in 2010 as a result of its very successful Spring 2009 campaign. For the first three quarters of 2010 the comparatives for Flying Flowers will also be affected by the loss of Low Value Consignment Relief.

 

Trading in 2010 has got off to a satisfactory start. In Flying Flowers we have continued to rationalize our traditional catalogue-based database activity and our database sales until the end of the Valentine's Day week produced 50% more contribution than last year. Our online sales were also significantly up on last year both in absolute terms and as a percentage of total sales. We have also started to invest in building the brand.

 

The gardening sector as a whole has, we believe, had a difficult start to the year largely brought about by the bad weather to date. Sales so far this year have been behind management expectations but it is still very early in the season and we have been encouraged by our recruitment efforts to date. We have also been pleased with the launch of our new value brand - Jersey Bedding Plants.

 

In 2010 we aim to continue to improve the performance in our two core divisions and we are confident that we should build upon the progress achieved in 2009.

 

Tim Trotter, Chairman

11 March 2010

BUSINESS REVIEW

OPERATING RESULTS FOR THE PERIOD

 

Ongoing business

 

The Group's performance over the course of 2009 showed that the changes instituted by the new management team are beginning to take effect. The focus for 2009 was on restoring profitability and improving cash generation and we are pleased with the results in both these areas.

 

Operating profit, excluding one-off items, from the ongoing business was £2.17m compared with £1.75m in 2008, an increase of 24% and net cash generated from operating activities was £3.72m against £0.21m in 2008. Revenue from the ongoing period was £30.35m which was 9.7% down on 2008 and this in large part reflected our deliberate decision in the early stages of the turn-around to sacrifice some revenues for the sake of profitability.

 

Further detail on divisional performance is given below.

 

Group performance

 

The strong profit performance of the ongoing business together with a better than expected performance of the Greetings Direct business means that Group profit before tax was £2.67m (2008: loss (£11.91m)).

Garden division

 

Sales in the Garden division of £15.89m were flat when compared with 2008 which also included sales of £0.92m in the now-discontinued Sarah Raven business. Operating profit, excluding one-off items, was £1.81m compared to £1.31m in 2008.

 

Financial

 

	2009  £m	2008 £m
Divisional revenue	15.89	15 .91
Gardening Direct	11.93	10.78
Garden Bird Supplies	3.96	4.21
Sarah Raven	-	0.92
Operating Profit, excluding one-off items	1.81	1.31
Gardening Direct	1.36	1.02
Garden Bird Supplies	0.45	0.44
Sarah Raven	-	(0.15)
Contribution margin %	28.2	23.3
Gardening Direct	27.6	22.7
Garden Bird Supplies	29.8	27.1

 

Customer information

	2009 '000	2008 '000
Active Database	352	302
Gardening Direct	312	260
Garden Bird Supplies	40	42
New customers	88	59
Gardening Direct	77	47
Garden Bird Supplies	11	12
Email addresses	170	131
Gardening Direct	136	98
Garden Bird Supplies	34	33

 

 

 

 

 

 

 

 

 

Gardening Direct

 

Gardening Direct revenue for 2009 was £11.93m compared to £10.78m in 2008 and we saw increases in like-for-like sales in both the Spring and Autumn sales campaigns, driven largely by much more aggressive recruitment campaigns. These resulted in Gardening Direct ending the year with 312,000 active customers, an increase of 52,000 over the course of the year. These results have reversed five years of decline in these two key metrics for this brand.

 

Operating profit, excluding one-off items, for this brand increased from £1.02m to £1.36m.

 

Despite the fact that a larger proportion of 2009 sales were attributable to lower margin recruitment sales, we are pleased to report that the contribution margin for Gardening Direct increased from 22.7% to 27.6% reflecting greater operational efficiency.

 

Internet sales now account for 19% of total sales for this brand and the number of email addresses on file increased from 131,000 to 170,000.

 

Garden Bird Supplies

 

Revenues for this brand declined from £4.21m to £3.96m, reflecting a fall in sales for the second half of the year. We believe this was reflected industry-wide due to a very mild Autumn that resulted in plentiful supplies of natural foods for wild birds. The number of active customers also declined from approximately 42,000 to approximately 40,000.

 

Despite the decline in sales, operating profit, excluding one-off items, for this brand marginally increased from £0.44m to £0.45m reflecting an increase in contribution margin from 27.1% to 29.8%.

 

Internet sales now account for 30% of total sales at Garden Bird Supplies and we increased the number of email addresses for this brand by approximately 1,000 to approximately 34,000.

Gifts division

 

Gifts - Flying Flowers

 

Financial

	2009 £m	2008 £m
Divisional revenue	9.39	11.63
Operating loss, excluding one-off items	(0.21)	(0.21)
Contribution margin %	17.3	12.6

 

Customer Information

	2009 '000	2008 '000
Active Database	222	287
New customers	37	61
Email addresses	226	193

 

Revenues and profitability have been declining at this brand for a number of years and in 2009 we made radical changes in the operations of Flying Flowers to enable us to reverse this decline. These changes and their positive implications for the future of this business are discussed in detail in the Outlook section but their immediate effect was to reduce further the reported revenues of the division as we stopped chasing unprofitable sales and absorbed the loss of Low Value Consignment Relief from October onwards.

 

Revenue for the year was therefore £9.39m compared to £11.63m in 2008. However, the operating loss, excluding one-off items, for the division was flat at £0.21m reflecting an increase in contribution margins from 12.6% to 17.3% even after suffering the loss of LVCR on £3.58m of sales in the fourth quarter.

 

The active database decreased from approximately 287,000 to approximately 222,000 whilst increasing our email addresses from 193,000 to 226,000.

 

 

 

 

 

 

 

 

 

 

 

Entertainment Division

 

Entertainment

 

The Entertainment division's revenue was £5.07m compared with £6.07m in 2008. Operating profit, excluding one-off items, was £0.57m compared to £0.65m.

 

Financial

	2009  £m	2008 £m
Divisional revenue	5.07	6.07
Listen2	2.11	2.56
Benham	2.96	3.51
Operating Profit, excluding one-off items	0.57	0.65
Listen2	0.15	0.20
Benham	0.42	0.45
Contribution margin %	35.5	35.4
Listen2	24.5	23.9
Benham	43.4	43.7

 

Listen2

 

Revenue declined from £2.56m to £2.11m reflecting the continuing reduction in the active customer base arising from our decision to cease unprofitable recruitment in this brand. Contribution margin increased from 23.9% to 24.5% and in the second half of the year we changed our mailing patterns to focus on mailing our more profitable customers more often. This meant that operating profit, excluding one-off items, in this brand held up relatively well at £0.15m (2008: £0.20m).

 

Benham

 

Benham revenue declined from £3.51m to £2.96m. This shortfall was attributable mainly to lower trade sales and to fewer sales of rare stamps and autographs.

 

As announced in our interim report we are now focusing on the traditional club business and revenues in this area were £1.94m (2008: £2.06m).

 

Operating profit, excluding one-off items, was £0.42m compared to £0.45m in 2008 and we believe that this small reduction in reported profits was more than compensated for by the reduction in the risk profile of the business and the greater visibility of real profitability as a result of concentration on the club business.

 

Strategy and outlook

 

General

 

We have a clear strategy; to focus on our core business of direct home shopping, offering value for money products in gardening and gifts, whilst also maximising the value of our entertainment and collectibles brand. We intend to exploit the full potential of our customer database and our Jersey growing operation and fulfilment and distribution centre.

 

We market our products through a number of channels. Currently our principal marketing channels are mail order catalogues and off-the-page advertising but our goal is to increase the proportion of orders coming through the Web so that by 2013 the majority of our sales will be Web-based.

 

Garden

 

Currently over 75% of the sales of Gardening Direct derive from its traditional bedding plants business. The total value of UK bedding plant retail sales is estimated at around £580m and the gardening centres and DIY retailers dominate this market.

 

Bedding plant sales have been largely static over the last few years but we have less than 2% of the market. We believe that our bedding plants offer great value for money particularly when compared to the cost of buying more mature product from gardening centres and DIY retailers and that there is plenty of scope for us to grow bedding plant sales in the future.

 

The total value of the mail order and online market for horticultural stock (a wider category than bedding plants) is estimated to be around £180m. Once again we have a relatively small share of the market and by extending and improving our product range we aim to increase our market share.

 

 

 

 

We believe that there is renewed interest in gardening as a hobby. We do not believe that the recent upsurge in interest in "grow your own" will be confined to fruit and vegetables and we aim to help existing and future customers to get the most out of gardening as a hobby. Keen gardeners access the Web regularly for information but the gardening industry as a whole has been slower than other retail sectors to embrace the Web as a retail opportunity. We aim to be at the forefront of changing this and will improve our Web offering significantly in 2010.

 

Flying Flowers

 

The UK cut flowers market is estimated to be worth around £2 billion a year of which around £500m is estimated to be delivered flowers. The postal market is probably worth less than £50m a year.

 

Until recently the vast bulk of Flying Flowers' efforts and marketing expenditure were concentrated on that sub £50m market. Our peak selling period has always been Christmas but the peak selling periods for the flower industry as a whole are Valentine's Day and Mother's Day.

 

The recent move of our flower packing and fulfilment to the UK enables us to offer a much wider range of stems and delivery options and to compete seriously for the first time in the wider market for delivered flowers.

 

We have also cut down on the number of catalogues sent out to our customers and are re-allocating that marketing expenditure to online marketing.

 

Outlook

 

Flying Brands is now firmly focused on its gardening and gifts divisions - both large markets with good online growth prospects. We have put in place the building blocks for sustained profitable growth in these divisions and believe that there is plenty of scope for expansion and consolidation in our core markets.

 

Stephen Cook, Chief Executive

11 March 2010

Financial review

Ongoing business

 

	Revenue		Operating profit *		Operating profit %*
	2009 £m	2008 £m	(see note 4) 2009 £m	2008 £m	2009 %	2008 %
Garden	15.89	15.91	1.81	1.31	11.4	8.2
Gifts	9.39	11.63	(0.21)	(0.21)	(2.2)	(1.8)
Entertainment	5.07	6.07	0.57	0.65	11.2	10.7
Ongoing Business	30.35	33.61	2.17	1.75	7.2	5.2

* excluding one-off redundancy and reorganisation costs.

 

Operating results

 

Ongoing business

 

Revenue for the 52 weeks ending 1 January 2010 from ongoing operations was £30.35m compared to £33.61m. The performance of the individual brands has been highlighted in the Business Review. However, it is important to note the significant revenue improvement in our key gardening brand and the impact of loss of Low Value Consignment Relief on revenue in the final quarter of the year on Flying Flowers.

 

As stated in our announcements throughout the year the Group focused on cost reduction and margin improvement. Contribution margin %, which is gross margin less direct marketing costs (catalogue distribution and promotional advertising) in all divisions, was ahead of the prior year. This was achieved by improving product margins, greater efficiency in our call centre and despatch operations and targeted marketing towards our more profitable customers. The Group's gross profit from ongoing operations increased from £8.06m to £8.15m.

 

Overheads were also reduced as a part of the Group's focus on cost. Operating expenses from ongoing operations fell to £6.36m from £6.48m. These operating expenses also included £0.37m (53 weeks ending 2 January 2009: £0.17m) of redundancy and reorganisation costs, of this £0.13m related to the buy out of Mr A Grodecki's (Director of Entertainment) profit sharing agreement.

 

Excluding the £0.37m of one-off items, underlying operating profit in the Group grew by £0.42m to £2.17m (53 weeks ending 2 January 2009: £1.75m). This was mainly driven by the performance in the Garden division which showed operating profit of £1.81m compared to £1.31m.

 

Greetings Direct

 

The Greetings Direct business is in the process of being wound down. The Australian business ceased to trade in August 2009. The UK business has retained enough active customers for the Group to continue shipping product into 2010. The improvements in customer retention and payment performance resulted in the business generating £1.11m of operating profit, excluding one-off items, in the 52 weeks ending 1 January 2010 (53 weeks ending 2 January 2009: loss of £1.62m).

 

The UK business has continued into 2010 but has now reached a size where it is no longer material to the Group and it is likely all customer product shipments will cease this year.

 

Profit before tax

 

The net interest charge for the year was £0.23m, arising on the Group's outstanding loans. Profit before tax from ongoing operations was £1.57m compared to £1.29m in the prior period.

 

Overall Group profit before tax for the period was £2.67m compared to a loss of £11.91m (which included an £11.58m write down of goodwill for Greetings Direct in the 53 weeks ended 2 January 2009).

 

Taxation

 

The tax charge for the ongoing business for the year was 4.5% of profit before tax (53 weeks ending 2 January 2009: 15.6%). The tax charge for the ongoing business is lower as the rate of Jersey income tax was changed from 10% to 0% in the current period.

 

Earnings per share

 

Basic earning per share of 10.3p compares to a loss per share last year of 49.1p. The diluted earning per share is 10.1p compared to a loss of 49.1p per share.

 

 

 

Going concern

 

These financial statements have been prepared on a going concern basis as set out in note 1 of the Annual Report and Accounts, which sets out the consideration given to adopt this approach.

 

Impact of accounting policy changes

 

As a result of the Group's adoption of the Amendment to IAS 38 Intangible Assets, the Directors deemed the impact on the prior year marketing charges sufficient to result in the restatement of the prior year numbers. This resulted in profit before tax for the 53 weeks ending 2 January 2009 being reduced by £0.21m.

 

Long Term Incentive Plan

 

During the 52 weeks ending 1 January 2010, 1,003,039 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 note 26 of the Annual Report and Accounts and also in the Remuneration Committee Report.

 

Capital Expenditure

 

The Group's capital expenditure on tangible and intangible assets for the 52 weeks ending 1 January 2010 was £0.50m compared to £0.27m for the prior period. This included approximately £0.37m for the Group's new core operating system.

 

During 2010 part of the Group's current operating system will no longer be supported and therefore requires investment. The Directors reviewed the available alternatives and felt that as the current system was over 10 years old, the best option for the Group was to replace its core operating system and accounting packages. The Group is investing in Microsoft Dynamics AX (classified as an intangible asset on the Balance Sheet) and the overall capital expenditure on this project is anticipated to be £1.1m. The new system should be operational by the fourth quarter of 2010. A further £0.7m of expenditure will be incurred in 2010.

 

Working capital

 

Net working capital (inventories, receivables and payables) improved by £0.55m in the year. This was primarily driven by the collection of outstanding debts from the Greetings Direct business and lower stock holding as a result of the Flying Flowers reorganisation.

 

Dividend

 

No interim dividend was paid during the year and the Board proposes that no final dividend be paid for the year ending 1 January 2010. The Board keeps dividend policy under constant review and will recommend a dividend payment once the Board feels that a sustainable dividend policy can be delivered.

 

Share issue

 

On 15 October 2009 the Group successfully raised £1.64m from a private placement of 2,344,582 shares at 75p per share. A further 208,333 shares were issued at 60p per share to satisfy the buy out of Mr Grodecki's contract.

 

Net debt

 

The Group generated £2.11m of cash during the period compared to a net outflow of £2.65m in the previous period. This was a result of strong cash generation from both the underlying business and Greetings Direct. Cash generated from operations was £4.50m compared to £1.24m in the prior period.

 

The cash generated from the share placement was used to repay £1m of the outstanding bank debt earlier than the repayment schedule. Gross debt outstanding at 1 January 2010 was £2.33m (2 January 2009: £5.23m).

 

At 1 January 2010 the Group had net cash of £1.99m compared to a net debt of £3.01m at the beginning of the period.

 

 

Risks and uncertainties

 

The Directors continually monitor the key risks faced by the Group and below is a summary of some of the Group's key risks:

 

Strategic risks

 

Our main business units operate in highly competitive markets and the Board focuses on these external threats. The size of our business allows agility and the Board will take opportunities to improve both our own strategic outlook and operational activities quickly. The Board understands that size is an important aspect of the ability for its businesses to compete in its core markets and will pursue every profitable growth opportunity.

 

Although the UK economy is showing tentative signs of recovery the outlook for consumer demand is still uncertain. We closely monitor the economic situation and tailor the Group's marketing strategy to maximise the potential return to the Group.

 

Operational risks

 

Like all home shopping retailers the business is heavily reliant on its information systems. A major IT incident would constitute a significant threat to the business. We currently have a disaster recovery plan in place but will use our new system implementation to improve further the business continuity plan to mitigate against such an occurrence.

 

The Group also has a number of key suppliers who are integral to the success of the business and failure of one of these suppliers would cause disruption. We ensure that we have a wide supplier base but also ensure that we have contingency plans in place to mitigate disruption such as industrial action by delivery services to reduce any potential interruption.

 

Similarly our business could suffer from the loss of one of our growing facilities in Jersey. Due to the nature of the product and its growing cycle, it is difficult to mitigate all the risk of the loss of these facilities. However the Group has two growing facilities on different sites which helps to reduce some of the risk of lost revenue. We also ensure that there is sufficient insurance cover to mitigate the consequences of a major incident at one of the growing facilities.

 

Financial risks

 

The Group has two bank loans with Barclays Bank PLC with the outstanding amount totalling £2.33m, secured against its freehold properties. Of these, £1.75m is a fixed rate loan. Repayments are made in quarterly instalments. As a result the Group has very little exposure to interest rate fluctuations.

 

The Group had an overdraft facility during the period ending 1 January 2010 but this facility remained unused. Having reviewed the projected cash flows of the Group during 2010 the Directors believe that this facility is not currently required and have not sought its renewal. However, this will remain under review.

 

Surplus funds are placed on deposit with our principal bankers. Exposure to credit risk is monitored on an ongoing basis.

 

Anthony Gee, Finance Director

11 March 2010

 

 

 

Group income statement

for the 52 weeks ending 1 January 2010

 

	Notes	Ongoing business 52 weeks ending 1.1.10 £'000	Greetings Direct 52 weeks ending 1.1.10 £'000	Total Group 52 weeks ending 1.1.10 £'000	Restated Ongoing business 53 weeks ending 2.1.09 £'000	Greetings Direct 53 weeks ending 2.1.09 £'000	Restated Total Group 53 weeks ending 2.1.09 £'000
Revenue	1.14	30,351	2,021	32,372	33,608	8,939	42,547
Cost of sales		(22,201)	(568)	(22,769)	(25,545)	(8,539)	(34,084)
Gross Profit		8,150	1,453	9,603	8,063	400	8,463
Operating expenses		(6,356)	(347)	(6,703)	(6,484)	(2,025)	(8,509)
Impairment of goodwill	8	-	-	-	-	(11,581)	(11,581)
Operating profit/(loss)		1,794	1,106	2,900	1,579	(13,206)	(11,627)
Finance expense		(239)	-	(239)	(411)	-	(411)
Finance income		13	-	13	127	-	127
Profit/(loss) before tax		1,568	1,106	2,674	1,295	(13,206)	(11,911)
Taxation	5	(71)	(6)	(77)	(202)	(100)	(302)
Profit/(loss) for the period attributable to equity holders of the parent		1,497	1,100	2,597	1,093	(13,306)	(12,213)
Earnings/(loss) per share expressed in pence per share
Basic	7			10.29p			(49.11)p
Diluted				10.12p			(49.11)p

Footnote: The income statement relates to continuing operations. Ongoing business is all operating segments except for Greetings Direct.

 

 

Balance Sheet as at 1 January 2010

 

	Notes	Group 1.1.10 £’000	Restated* Group 2.1.09 £’000	Company 1.1.10 £’000	Company 2.1.09 £’000
Assets
Non-current assets
Goodwill		3,882	3,882	-	-
Intangible assets		796	551	-	-
Property, plant and equipment		4,838	5,623	-	-
Investments		-	-	21,412	21,363
Deferred tax		153	163	-	-
		9,669	10,219	21,412	21,363
Current assets
Inventories		2,922	3,619	-	-
Current income tax receivable		136	-	-	-
Trade and other receivables, net of impairment		598	1,245	1,531	135
Prepayments		518	451	-	-
Cash and cash equivalents		4,325	2,219	1,787	1,255
		8,499	7,534	3,318	1,390
Liabilities
Current liabilities
Current income tax liabilities		-	(372)	-	(15)
Bank loans and overdrafts	9	(1,578)	(1,900)	-	-
Finance lease liabilities		-	(5)	-	-
Trade payables		(3,167)	(3,228)	-	-
Accruals and other payables		(2,109)	(2,778)	-	(62)
		(6,854)	(8,283)	-	(77)
Net Currents assets/(liabilities)		1,645	(749)	3,318	1,313
Non-current liabilities
Bank loans	9	(753)	(3,331)	-	-
Finance lease liabilities		-	(24)	-	-
		(753)	(3,355)	-	-
Net Assets		10,561	6,115	24,730	22,676
Shareholder’s equity
Ordinary shares	10	280	254	279	253
Share premium		17,916	16,178	17,916	16,178
Capital reserve		(17)	(17)	670	670
Capital redemption reserve		22	22	22	22
Foreign exchange reserve		(44)	(66)	-	-
Retained earnings		(7,596)	(10,256)	5,843	5,553
Total equity attributable to equity holders of the parent		10,561	6,115	24,730	22,676

 

* A restated Balance Sheet as at 28 December 2007 has not been presented under the requirements of IAS 1 (revised) as the impact of the restatement for that period is not considered to be significant to the result of that period.

 

 

Consolidated statement of comprehensive income

for the 52 weeks ending 1 January 2010

	52 weeks ending 1.1.10 £'000	Restated 53 weeks ending 2.1.09 £'000
Profit/(loss) for the period Total comprehensive income/(loss)	2,597	(12,213)
Foreign currency translation differences on foreign operations	22	(42)
Total comprehensive income/(loss)for the period	2,619	(12,255)

 

Statements of changes in shareholders' equity

for the 52 weeks ending 1 January 2010

 

The Group	Notes	Share capital £'000	Share premium £'000	Capital reserve £'000	Capital redemption reserve £'000	Foreign exchange reserve £'000	Retained earnings £'000	Total attributable to equity holders £'000
Balance at 28 December 2007		254	16,178	(17)	22	(24)	2,892	19,305
Loss for the period as previously stated		-	-	-	-	-	(12,042)	(12,042)
Accounting policy change (IAS 38 (amended)	11	-	-	-	-	-	(171)	(171)
Foreign currency translation difference on foreign operations		-	-	-	-	(42)	-	(42)
Total comprehensive income/(loss) (restated)		-	-	-	-	(42)	(12,213)	(12,255)
Transactions with owners directly recorded in equity
Employee share incentives	1.13	-	-	-	-	-	(188)	(188)
Dividend paid	6	-	-	-	-	-	(747)	(747)
Total transactions with owners		-	-	-	-	-	(935)	(935)
Balance at 2 January 2009 (restated)		254	16,178	(17)	22	(66)	(10,256)	6,115
Balance at 2 January 2009 (restated)		254	16,178	(17)	22	(66)	(10,256)	6,115
Profit for the period		-	-	-	-	-	2,597	2,597
Foreign currency translation difference on foreign operations		-	-	-	-	22	-	22
Total comprehensive income		-	-	-	-	22	2,597	2,619
Transactions with owners directly recorded in equity
Employee share incentives	1.13	-	-	-	-	-	49	49
Deferred tax on employee share incentives		-	-	-	-	-	14	14
Shares issued	10	26	1,738	-	-	-	-	1,764
Total transactions with owners		26	1,738	-	-	-	63	1,827
Balance at 1 January 2010		280	17,916	(17)	22	(44)	(7,596)	10,561

 

 

 

 

 

 

Statements of changes in Shareholders' equity continued

for the 52 weeks ending 1 January 2010

The Company

	Notes	Share Capital  £'000	Share Premium £'000	Capital Reserve £'000	Capital Redemption reserve £'000	Foreign Exchange reserve £'000	Retained earnings £'000	Total attributable to equity holders £'000
Balance at 28 December 2007		253	16,178	670	22	-	5,934	23,057
Profit for the period		-	-	-	-	-	340	340
Transactions with owners directly recorded in equity		-	-	-	-	-
Dividend paid	6	-	-	-	-	-	(721)	(721)
Total transactions with owners		-	-	-	-	-	(721)	(721)
Balance at 2 January 2009		253	16,178	670	22	-	5,553	22,676
Balance at 2 January 2009		253	16,178	670	22	-	5,553	22,676
Profit for the period		-	-	-	-	-	241	241
Transactions with owners directly recorded in equity
Increase in investment as a result of employee share incentives	1.13	-	-	-	-	-	49	49
Shares issued	10	26	1,738	-	-	-	-	1,764
Total transactions with owners		26	1,738	-	-	-	49	1,813
Balance at 1 January 2010		279	17,916	670	22	-	5,843	24,730

 

	Notes	Group 52 weeks ending 1.1.10 £'000	Restated Group 53 weeks ending 2.1.09 £'000	Company 52 weeks ending 1.1.10 £'000	Company 53 weeks ending 2.1.09 £'000
Profit/(Loss)for the period		2,597	(12,213)	241	340
Adjustment for
Profit less losses on sale of property, plant and equipment		42	4	-	-
Impairment of goodwill	8	-	11,581	-	-
Taxation	5	77	302	-	36
Depreciation		820	1,007	-	-
Amortisation		123	174	-	-
Unrealised exchange gains / (losses)		22	(42)	-	-
Decrease in inventories		697	472	-	-
Decrease/ (increase) in receivables		580	1,970	(1,396)	47
(Decrease) in payables		(732)	(2,107)	(77)	(81)
Net finance expenditure		226	284	-	-
Share based payments		49	(188)	-	-
Cash generated from operations		4,501	1,244	(1,232)	342
Interest received		13	129	-	70
Interest paid		(237)	(412)	-	-
Tax paid		(561)	(750)	-	(15)
Net cash from operating activities		3,716	211	(1,232)	397
Cash flows from investing activities
Purchase of property, plant and equipment		(133)	(270)	-	-
Purchase of intangible asset software		(368)	-	-	-
Proceeds from sale of property, plant and equipment		56	18	-
Repayment of loan from subsidiary		-	-	-	90
Net cash (used in)/ from investing activities		(445)	(252)	-	90
Cash flow from financing activities
Net proceeds from issue of Ordinary share capital		1,764	-	1,764	-
New loans raised		-	35	-	-
Repayment of borrowings		(2,929)	(1,900)	-	-
Dividends paid to shareholders	6	-	(747)	-	(721)
Net cash (used in)/from financing activities		(1,165)	(2,612)	1,764	(721)
Net increase/(decrease) in cash and cash equivalents		2,106	(2,653)	532	(234)
Cash and cash equivalents at 2 January 2009/28 December 2007		2,219	4,872	1,255	1,489
Cash and cash equivalents at 1 January 2010/2 January 2009		4,325	2,219	1,787	1,255

 

Notes to the financial statements

 

1 General Information

 

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.

 

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). Separate financial statements of the Company are also presented. The accounting policies of the Company are the same as for the Group except where separately disclosed.

 

The audited consolidated and separate company financial statements of Flying Brands Limited (the Company) in respect of the 52 weeks ending 1 January 2010 have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the European Union (adopted IFRS). The financial statements were authorised for issue by the Board of Directors on 11 March 2010.

 

The financial information set out in this announcement of results does not constitute the Company's statutory accounts for the period ended 1 January 2010 and 2 January 2009 but is derived from them. The financial statements for the 53 weeks ending 2 January 2009 have been filed with the Registrar of Companies in Jersey whereas those for the 52 weeks ending 1 January 2010 will be delivered following the Company's Annual General Meeting. The auditors' opinions on these financial statements were unqualified and did not include a statement under Companies (Jersey) Law 1991.

 

1.1 Basis of preparation

 

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 27 to the Annual Report and Accounts 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 and Parent Company 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 two long term treasury loan facilities which have covenants attached to them. The Group had a short term overdraft facility in 2009 of £0.5m which it did not utilise during the period ending 1 January 2010, as a result of strong trading cash flows and cash received from a share issue (see note 10).

 

The Group's forecasts and projections, taking into account reasonably possible changes in trading performance, show that the Group has sufficient financial resources. As a consequence the Directors have a reasonable expectation that the Company and the Group are well placed to manage their business risks and to continue in operational existence for the foreseeable future, despite the current uncertain global economic outlook. Accordingly, the Directors continue to adopt the going concern basis in preparing the consolidated 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 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:

 

	%
Buildings including glasshouses	0-4
Plant and equipment	10-20
Computer hardware, included in plant and equipment	20-33.33
Motor vehicles, including tractors	15-25

 

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 Group 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 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:

 

Garden Bird Supplies until May 2013.

 

1 Summary of significant accounting policies continued

 

(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.

 

	%
Silverminds	48
Garden Bird Supplies	23
Greetings Direct	87

 

(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 over five years.

 

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 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.

 

Included within inventory are certain First Day Cover inventories. These inventories are valued as a proportion of the anticipated realisable value, as a best estimator of the lower of cost and net realisable value, based on expert opinion of the Group's philatelists. Provision is made for slow moving inventory.

 

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 Income Statement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 Summary of significant accounting policies continued

 

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 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) Share options and 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 condition;

 

See note 26 in the Annual Report and Accounts for a further description of the share-based payment plans.

 

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. 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 terms of which the Group 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 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 Fixed asset investments - Company

 

Investments held as fixed assets are stated at cost less provision for any impairment.

 

1.21 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 described below.

 

Cash and cash equivalents comprise cash balances and call deposits. 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 purposes of the statement of cash flows.

 

1.22 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.

 

1.23 Changes in accounting policy

 

The following are changes in accounting policies that have impacted the Group during the period.

 

IAS 1 (Revised) Presentation of Financial Statements has been adopted by the Group. This presentation has been applied to the Annual Report and Accounts. Comparative information has been represented so that it also conforms with the revised standard. Since the change in accounting policy only impacts presentation aspects there is no impact on earnings per share.

 

IFRS 8 Operating Segments has been applied to this Annual Report and Accounts. The new accounting policy in respect of segment operating disclosures has not led to a change in the number and/or definition of segments previously presented on the basis that the information disclosed is consistent to that provided to the CEO, who is the Group's chief operating decision maker.

 

Amendment to IAS 38 Intangible Assets has been applied to the Annual Report and Accounts which clarifies the accounting for the Group's marketing expenditure. This amendment has been applied retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and comparatives have been restated accordingly (see note 11).

 

The following standards and interpretations, issued by the IASB and the International Financial Reporting Interpretations Committee (IFRIC), are effective for the first time in the current financial year and have been adopted by the Group with no significant impact on its consolidated results or financial position:

 

Amendments to IFRS 2 Share-based Payments: Vesting Conditions and Cancellations - these amendments concern certain aspects of the valuation of share-based payments and the impact of a cancellation by a grantee. These amendments have not had a significant impact on the charges recognised to date for share-based payments.

Amendments to IFRS 7 Financial Instruments: Disclosure - these amendments require additional disclosure of the basis of fair value measurements and liquidity risks. Note 27 reflects these additional disclosure requirements which have not been significant for the Group

 

Amendment to IAS 23 Borrowing Costs - the amendment generally eliminates the option to expense borrowing costs attributable to the acquisition, construction or production of a qualifying asset as incurred, and instead requires the capitalisation of eligible borrowing costs as part of the cost of the specific asset. There is no significant impact, as the Group generally funds qualifying assets from gross cash resources and consequently does not have significant eligible borrowing costs.

IFRIC 12 Service Concession Arrangements - Not relevant for the Group and therefore no significant impact

IFRIC 13 Customer Loyalty Programme - Not relevant for the Group and therefore no significant impact.

IFRIC 14, IAS 19 The Limit of a Defined Benefit Asset, Minimum Funding Requirements and their Interaction - Not relevant for the Group and therefore no significant impact

 

1.24 Accounting standards issued but not adopted

 

Standards and interpretations issued by the IASB are only applicable if endorsed by the EU. The following revisions to IFRS will be applicable in future periods, subject to endorsement where applicable:

 

Revised IFRS 3 Business Combinations and amendments to IAS 27 Consolidated and Separate Financial Statements are applicable for 2010. These standards will affect the future accounting for acquisitions and transactions with non-controlling interests. There will be no retrospective impact.

Amendments to IFRS 2 Group Cash-settled Share-based Payment Transactions are applicable from 2010. If endorsed, these amendments will apply but the impact is not anticipated to be significant.

IFRS 9 Financial Instruments is applicable from 2013. If endorsed, this standard will simplify the classification of financial assets for measurement purposes, but 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 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 an overdraft facility during the 52 weeks ending 1 January 2010 of £500,000 which it has not renewed in the current period as this facility is not considered necessary given the forecast cash generation of the Group in 2010.

 

 (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, US Dollar and Australian Dollar. The risks in the period to 1 January 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 both fixed rate and 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.

 

(b) Valuation of collectibles inventory

 

The Directors have used their knowledge and experience of the collectibles industry in determining the level and rates of provisioning required to calculate the appropriate collectible inventory carrying values.

 

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, first day covers, stamps and autographs.

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.

 

 

4.1 Segmentation by primary divisions

 

a) Segment results

 

52 weeks ending 1 January 2010	Garden £'000	Gifts £'000	Entertainment £'000	Total ongoing business £'000	Greetings direct £'000	Total Group £'000
Revenue	15,885	9,395	5,071	30,351	2,021	32,372
Segment result	1,812	(213)	567	2,166	1,106	3,272
Redundancy and reorganisation				(372)	-	(372)
Interest payable				(239)	-	(239)
Interest receivable				13	-	13
Profit before tax				1,568	1,106	2,674
Depreciation	(433)	(247)	(121)	(801)	(19)	(820)
Amortisation of Intangibles	(121)	-	(2)	(123)	-	(123)

 

53 weeks ending 2 January 2009 (restated)	Garden £'000	Gifts £'000	Entertainment £'000	Total ongoing business £'000	Greetings direct £'000	Total Group £'000
Revenue	15,905	11,634	6,069	33,608	8,939	42,547
Segment result	1,309	(207)	651	1,753	(1,625)	128
Redundancy and reorganisation				(174)	-	(174)
Impairment of goodwill				-	(11,581)	(11,581)
Interest payable				(411)	-	(411)
Interest receivable				127	-	127
Profit / (loss) before tax				1,295	(13,206)	(11,911)
Depreciation	(560)	(290)	(137)	(987)	(20)	(1,007)
Amortisation of Intangibles	(143)	-	(31)	(174)	-	(174)

There is no inter-segment revenue to report

 

b) Assets & Liabilities

1 January 2010	Garden £'000	Gifts £'000	Entertainment £'000	Total ongoing business £'000	Greetings direct £'000	Total Group £'000
Reportable segment assets   Other assets	7,501	1,567	3,861	12,929	34	12,963 5,205
Consolidated total assets						18,168
Reportable segment liabilities Other liabilities	(592)	(2,409)	(86)	(3,087)	(213)	(3,300) (4,307)
Consolidated total liabilities						(7,607)
Capital expenditure on property, plant and equipment	98	23	12	133	-	133
Expenditure on software (intangible)	194	113	61	368	-	368

 

 

 

 

 

4 Segmental analysis continued

 

2 January 2009 (restated)	Garden £'000	Gifts £'000	Entertainment £'000	Total ongoing business £'000	Greetings direct £'000	Total Group £'000
Reportable segment assets Other assets	7,106	2,089	4,353	13,548	628	14,176 3,577
Consolidated total assets						17,753
Reportable segment liabilities Other liabilities	(530)	(5,371)	(99)	(6,000)	(296)	(6,296) (5,342)
Consolidated total liabilities						(11,638)
Capital expenditure on property, plant and equipment	111	107	41	259	11	270

 

 

 

4.2 Segmentation by geographical area

 

Revenue by customer geographical area	52 weeks ending 1.1.10 £’000	53 weeks ending 2.1.09 £’000
Jersey, Channel Islands	74	64
United Kingdom	30,939	38,038
Australasia	857	3,498
Europe	246	635
Rest of World	256	312
	32,372	42,547

 

 

Non-current assets* by geographical area	52 weeks ending 1.1.10 £’000	53 weeks ending 2.1.09 £’000
Jersey, Channel Islands	8,402	8,942
United Kingdom	1,114	1,112
Australasia	-	2
Rest of World	-	-
	9,516	10,056

 

 

* Not including deferred tax asset of £153,000 (2 January 2009: £163,000).

 

 

5 Taxation

 

	52 weeks ending 1.1.10 £’000	Restated 53 weeks ending 2.1.09  £’000
Current tax
Jersey income tax	-	102
UK corporation tax	61	119
Overseas tax	6	-
Over provision in previous periods	(14)	(39)
Total current tax	53	182
Deferred tax
Increase in provision for the period	24	120
Total tax on profit	77	302

 

 

 

 

 

 

 

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

	52 weeks ending 1.1.10 £'000	Restated 53 weeks ending 2.1.09 £'000
Profit/(loss) before tax	2,674	(11,911)
Profit/(loss) before tax multiplied by the standard rate of Jersey income tax of 0% (2009: 10%)	-	(1,191)
Adjustments to tax in respect of prior periods	(14)	(39)
Adjustments in respect of foreign tax rates	106	163
Expenses not deductible for taxation purposes	-	1,113
Other	(15)	(2)
Unutilised losses	-	255
Amortisation on intangibles not allowable	-	3
Tax charge for period	77	302

 

The UK current tax rate is based on a standard rate of 28% (2 January 2009: 28.5%).

 

Jersey income tax has been provided at 0% for the period ended 1 January 2010 (2 January 2009: 10%) 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

	52 weeks ending 1.1.10 £'000	Restated 53 weeks ending 2.1.09 £'000
Dividends on equity shares
Final dividend for 2008 proposed in March 2009 agreed at annual general meeting in April 2009 at nil p (2008: 3.0p)	-	747
Interim dividend of nil p per Ordinary share in July 2009 ( 2008: nil p)	-	-
	-	747

 

 

The Directors are not proposing a final dividend in respect of the financial period ended 1 January 2010.

 

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.

	52 weeks ending  1.1.10	Restated 53 weeks ending 2.1.09
Profit/(loss) attributable to equity holders of the Company (£'000)	2,597	(12,213)
Weighted average number of Ordinary shares in issue, less weighted average number of treasury shares (thousands)	25,240	24,868
Basic earnings/(loss) per share (pence per share)	10.29	(49.11)

 

 

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.

 

	52 weeks ending 1.1.10 £'000	Restated 53 weeks ending 2.1.09 £'000
Earnings/(loss) used to calculate basic and diluted EPS (£'000)	2,597	(12,213)
Impairment of goodwill (£'000)	-	11,581
(Profit)/loss attributable to Greetings Direct (after tax) (£'000)	(1,100)	1,725
Ongoing business redundancy and restructuring costs (after tax) (£'000)	275	125
Earnings before one-off items (£'000)	1,772	1,218
Adjusted earnings per share before one-off items (pence)	7.02	4.90

 

 

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.

 

	52 weeks ending 1.1.10	Restated  53 weeks ending 2.1.09
Profit/(loss) attributable to equity holders of the Company (£'000)	2,597	(12,213)
Weighted average number of Ordinary shares in issue
less weighted average number of treasury shares (thousands) Adjustment for share options (thousands)	25,240 430	24,868 -
Weighted average number of Ordinary shares for diluted earnings per share (thousands)	25,670	24,868
Diluted earnings/(loss) per share (pence per share)	10.12	(49.11)

 

 

8 Goodwill and intangible assets

 

An impairment charge of £11,581,000 in respect of Greetings Direct was incurred in the 53 weeks ending 2 January 2009. For details see note 13 in the Annual Report and Accounts.

 

 

9 Bank loans and overdraft

	Group 1.1.10 £'000	Company 1.1.10 £'000	Group 2.1.09 £'000	Company 2.1.09 £'000
Bank loans	2,331	-	5,231	-
The borrowings are repayable as follows:
On demand or within one year	1,578	-	1,900	-
In the second year	753	-	1,900	-
In third to fifth years inclusive	-	-	1,431	-
Less: Amount due for settlement within 12 months (shown under current liabilities)	(1,578)	-	(1,900)	-
Amount due for settlement after 12 months	753	-	3,331	-

 

All loans and overdrafts are Sterling denominated.

 

The weighted average interest rates paid were as follows:

	52 weeks ending 1.1.10	53 weeks ending 2.1.09
Bank overdrafts	-	5.50%
Bank loans	5.64%	6.68%

 

 

Two bank loans totalling £9,500,000 were arranged on 15 September 2006, one at fixed interest rates and thus exposing the Group to fair value interest rate risk. The other borrowing was arranged at floating rates, thus exposing the Group to cash flow interest rate risk. As a result of the decision to close Greetings Direct management's expectations of future profits were lower than previously expected. As a result the Group agreed with its bank new debt and interest service covenants over the outstanding bank debts. Following this the interest rate charged on the loans has been revised as noted below. The other principal features of the Group's loans are as follows:

 

(a)A loan of £4,500,000. The loan was taken out on 15 September 2006. Quarterly repayments commenced on 15 December 2006 and will continue until 15 June 2011. The loan is secured by a charge over certain of the Group's properties dated 15 September 2006. The loan carries an interest rate at 1.0% (2007: 0.6%) above LIBOR. In March 2009 this was increased to 2% above LIBOR.

(b)A loan of £5,000,000. The loan was taken out on 15 September 2006. Quarterly repayments commenced on 15 December 2006 and will continue until 15 June 2011. The loan is secured by a charge over certain of the Group's properties dated 15 September 2006. The loan carries a fixed interest rate of 5.27% plus a 1.0% (2007: 0.6%) margin. In March 2009 this was increased to 2% above LIBOR.

 

During 2008, Barclays Bank plc registered a bond for £7,200,000 in respect of the Group's freehold property as security against these loans. This security had been previously held as unregistered promissory notes.

 

On 15 October 2009 the Group raised an amount, after borrowing fees, of £1,639,000 (see note 10) from a share placing with new and existing shareholders. On 18 December 2009 the Group used £1,000,000 of these funds to pay down, ahead of schedule, part of the £4,500,000 loan.

 

 

 

Barclays Bank plc has a right to full set off between all companies within the Flying Brands Limited Group. The Group had no overdraft facility at the year end but had a £500,000 facility from March to December 2009. This facility was not used during the financial year ending 1 January 2010 and the Group does not anticipate it will be required in 2010 based on current cash forecasts.

 

10 Called-up share capital

	1.1.10 £'000	2.1.09 £'000
Authorised
35,000,000 Ordinary shares of 1p each	350	350
Allotted, called up and fully paid
27,873,735 (2 January 2009: 25,320,820) Ordinary shares of 1p each	279	253
"A" Shares in Flying Brands Holdings (UK) PLC 27,873,735 (2 January 2009: 25,320,820) Ordinary shares of 0.005p each	1	1
	280	254

 

Issue of shares

 

There were two issues of units (comprising a share of Flying Brands Limited and an "A" share In Flying Brands Holdings (UK) PLC) during the period ending 1 January 2010. On 8 September 2009 208,333 units were issued in relation to the settlement of Mr Grodecki's contract at a price of 60p per unit (share capital by £2,000 and share premium by £123,000).

 

On 15 October 2009 the Group issued 2,344,582 new units by way of a placing with new and existing shareholders. The shares were issued at 75p per unit (share capital £24,000, share premium £1,615,000). After fees and commission a net £1,639,000 was raised.

 

11 Prior year adjustment

 

As a result of the Group's adoption of IAS 38 (amended) Intangible Assets, the Directors have reviewed the accounting policy in respect of catalogue marketing expenditure. As a result of this amendment the Directors believe that it is no longer appropriate for them to continue to capitalise expenditure relating to the production of catalogues and recognise this expenditure only on despatch of the catalogue.

 

The Group has now adopted an accounting policy for such costs which it believes is in line with IAS 38 (amended) and will recognise costs related to catalogues when such items are available to the Group.

 

The effect of this change was to reduce the prior year reserves for the 53 weeks ending 2 January 2009 by £211,000. The taxation impact of the prior year adjustment is to reduce the deferred tax charge by £40,000 at 2 January 2009. Overall this reduced the net assets by £171,000 at 2 January 2009.

 

12 Related party

 

Mr T H S Trotter is Chairman of Smithfield Consultants Limited, who were paid £24,000 (53 weeks ending 2 January 2009: £25,000) during the period for financial public relations consultancy services.

 

Key management are defined as the Board. For further information see the Remuneration Report in the Annual Report and Accounts.

 

The Group started using in 2008 a new web platform for its Internet transactions from eCommera, a joint venture of West Coast Capital. The cost of this service in the 52 weeks ended 1 January 2010 was £356,000 (53 weeks ending 2 January 2009: £295,000).

 

13 Directors' Responsibilities in respect of the Financial Statements

 

The financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit for the Company and the undertakings included in the consolidation taken as a whole; and 

 

Pursuant to Disclosure and Transparency Rules, Chapter 4, the Company's annual report contain 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 that they face.

 

The contents of this announcement, including the responsibility statement above, have been extracted from the annual report and accounts for the 52 weeks ending 1 January 2010 which can be found at www.flyingbrands.com and will be despatched to shareholders on Tuesday 23 March 2010. Accordingly the responsibility statement makes reference to the financial statements of the Company and the group and to the relevant narratives appearing in that annual report and accounts rather than the contents of this announcement.

 

 

Stephen Cook Anthony Gee

Chief Executive Finance Director

 

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