5th Mar 2007 07:01
Ideal Shopping Direct PLC05 March 2007 Ideal Shopping Direct Plc 5 March 2007 2006 Preliminary Results Ideal Shopping Direct plc ("Ideal"), the UK's leading independent TV shoppingbusiness, today reports preliminary results for 2006. Highlights 2006 2005 % growth Turnover £85.6m £79.2m 8.1%Reported operating profit £5.6m £6.8m (18.3)%Core business underlying operating profit £7.7m £7.5m 2.0%Profit before tax £6.1m £7.2m (15.8)%Earnings per share (basic) 14.4p 17.3p (16.8)%Dividends declared per share 4.25p 3.0p 41.7%Cash and deposits (net of borrowings) £15.4m £15.4m - • Like for like sales growth of 7.3%, in spite of subdued trading in the run up to Christmas • Online sales grew to 21% of total (2005: 16%) • 160% growth in Create & Craft Club membership contributing to 17% overall growth in craft business • Profit impacted by non-recurring costs, including the closure of loss making Jewellery Vault channel • Significant progress in securing future platforms: • Freeview contract renegotiated and secured to 2018 • Extension of carriage onto Telewest cable agreed from February 2007 • Acquisition and integration of Superstore TV Ltd ("Superstore"), with existing key contracts renewed and significant new business won • 42% increase in annual proposed dividend • Strong trading start to 2007 Jim Hodkinson, Chairman, commented: "After Ideal's dramatic growth in 2004 and2005, last year was a year of consolidation, reflecting shifts in both externaland internal drivers of our business. As the TV shopping market continues tomature, we are adopting a more flexible trading stance to keep pace withcustomer needs and demands and to accelerate our multi-channel activity.Internally we have increased our focus on organic growth and on building theGroup's infrastructure so that it can support a much larger business goingforward. We have refined our strategy and made excellent progress in itsdelivery. I am pleased to say that the Group has made a positive start in 2007,ahead of our expectations, and I look forward to updating shareholders morefully at the time of our AGM in May." Enquiries: Ideal Shopping Direct Plc Tel: 08700 780704Jim Hodkinson, Chairman Reputation Inc Tel: 020 7758 2800Tom Wyatt Financial results Sales Turnover for the year was 8.1% ahead of last year at £85.6m. On a comparablebasis core business sales grew by 7.3% in the year, in spite of subdued tradingin the run up to Christmas. Our analysis of Ideal's 2006 sales, and knowledge ofour competitors' performance, suggests that the TV shopping market is maturingand evolving. In response to this, we have been trialling a more aggressivepromotional stance in the New Year, with excellent initial results, and theselessons are being taken forward into 2007. Margin Reported gross margin for the year was 41.3% (2005: 42.1%). Up until the end of2006 margins have been adversely affected by the increasing commissions paid onsales through our Freeview and online channels, the two strongest growing areasof sales. Underlying product margins were weaker in the first half compared with2005, but we were able to reverse this in the second half of the year. Theconsolidation of Superstore's wholesale margin diluted Group margin by 0.1% inthe year. In 2007 the two dilutive commission arrangements will fall away. Operating costs Although relatively little of Ideal's cost base is directly variable with salesvolume, we have invested significantly over the last two years in upgrading thecapacity and capability of the business in the areas of logistics, buying,e-commerce, direct marketing and compliance. This has been necessary both toservice a growing business and to meet our strategic ambitions for continuedgrowth. The annualisation of these investments has seen continuing coreoperating costs increase by 7.5% over 2005. Operating profit We took the painful decision in May to close the loss making Jewellery Vaultchannel, which had been launched in July 2005 but did not reach the criticalmass necessary to cover its operating costs. A combination of Jewellery Vault'soperating losses, the subsequent closure costs and other one time expensesimpacted reported profit in the year by £1.5m. We have also consolidated a smalloperating loss in 2006 for Superstore, and have implemented a new accountingstandard for share based payments (FRS20). Before these items, underlyingoperating profit for the core business was £7.7m, slightly ahead of theequivalent figure for 2005 of £7.5m. Comparable operating profit £m 2006 2005 Core J Vault Superstore Total Core J Vault TotalUnderlying operating profit 7.7 (0.8) (0.2) 6.7 7.5 (0.5) 7.0FRS20 (0.3) (0.3) (0.2) (0.2)Closure costs (0.5) (0.5)Project start up costs (0.2) (0.2)Operating profit before 7.2 (1.3) (0.2) 5.7 7.3 (0.5) 6.8goodwill amortisationGoodwill amortisation (0.1) (0.1)Reported operating profit 7.2 (1.3) (0.3) 5.6 7.3 (0.5) 6.8Interest 0.6 (0.1) 0.5 0.4 0.4Reported Profit before tax 7.8 (1.3) (0.4) 6.1 7.7 (0.5) 7.2 Cashflow Operating cashflow was healthy through the year, enabling the business to fundinvestments in infrastructure and growth. Capital expenditure of £1.05m (2005:£1.75m) included £0.48m investment in the new systems platform. We invested £1.6m in the acquisition of Superstore in June, and a further £1.1min working capital for the business to replace expensive manufacturing financeand to fund the growing order pipeline. Superstore's business model requires anearly investment in stock at the point of shipment, several weeks ahead ofreceiving payment. Having exhausted brought forward losses in 2005 our cashflow suffered from taxpayments of £3.0m (2005: nil). Further, we not only settled our 2005 liabilitybut also started making payments on account for 2006. This pattern willnormalise in 2007. Net cash balances at the end of the year were level with 2005at £15.4m. 2006 final dividend The Board has proposed a final dividend of 2.75p per ordinary share (2005: 2p)to add to the 1.5p paid at the interim (2005: 1p). Subject to the approval ofshareholders at the Annual General Meeting on 1 May 2007, the dividend will bepaid on 8 June 2007 to shareholders on the Register as of 11 May 2007. Market developments Data from OfCom shows that the growth of UK households with digital TV, now at73% of the total, continues to be driven by Freeview, with over 14 million settop boxes or integrated digital TVs in the market, of which 5 million are secondboxes. It is anticipated that the majority of households to be converted betweennow and digital switchover in 2012 will do so via Freeview. Although OfComchanged the basis of measurement during the year, their most recent report showsannual growth of 12.4% in digital households. There is no reliable third party measurement of the TV shopping market, but itis evident that the rate of growth slowed in 2006, especially in the secondhalf. We estimate that market growth was significantly lower than in 2005 andthat our performance represented a small share gain. This change in our marketconfirms our strategy of focusing on conversion of existing digital householdsand on driving the value of our customer base. Competitor TV shopping channelsbroadcasting on Sky continue to come and go, with 4 new channels in 2006 but 6closures. 2007 has already seen one further channel closure, and one channelrevert to pre-recorded rather than live output, underlining the difficulty ofachieving critical mass. The future of broadcasting across the world is evolving, and convergence betweenTV and the internet, particularly via IPTV, will become increasingly importantover the next few years. Ideal's channels are already viewable on the internet,and we are exploring the opportunities for TV shopping through broadband withmedia and technology business partners. Trading Ideal World The Ideal World channel, which is now available to over 99% of UK digitalhouseholds, continues to be our main source of new customers. The rate of newcustomer acquisition slowed following the explosive growth of Freeview in 2004and 2005, but we still welcomed more than 25,000 customers a month to Idealoverall. Average basket size and average shopping frequency both moved forward:these are measures of high focus for us in 2007. From the end of January 2007 wehave been pleased to start welcoming Telewest cable customers to Ideal World andwe look forward to sharing the "family, friendship and fun" of the channel withmany new customers through the year. We have also made healthy progress onservice performance. Consumer expectations on ease of ordering, stockavailability, accuracy and delivery times are rising continuously, and we areinvesting to meet those needs as a part of our strategic infrastructuredevelopment. Ideal World recorded steady sales growth of 7% for the year. The Fashion &Footwear category led our sales development in 2006, with growth of over 30%,although it was slower in the final quarter. New additions to the range includebranded accessories and some own label clothing. We also experienced strongsales development in Jewellery and Homewares. Within Leisure & Technology, salesof satellite navigation systems, the "hot" technology product of 2005, were notas strong last year, and we deliberately de-emphasised other technology salesbecause of the dilutive effect on margin. Health & Beauty sales have continuedto suffer from the tightening of the advertising regulatory regime. Craft Our total craft business (including sales of craft on Ideal World and thespecialist Create & Craft channel) grew by 17% over the year. We have hadparticular success with our innovative Create & Craft Club: members subscribefor a bi-monthly online magazine which is packed with crafting ideas and videodemonstrations, and they also qualify for an online discount on their craftshopping with us. We have taken the Club out to craft event days and shows,increased access by developing a CD-Rom version for crafters who don't havebroadband, and developed our marketing via conventional craft magazines. Totalmembership grew by over 160% across the year and is now in excess of 10,000.Craft Club members are regular heavy purchasers and continue to be a key part ofour online sales growth. Our multi-channel strategy for the craft market is progressing well. In additionto craft sales through Ideal World, Create & Craft and online the Group iswholesaling craft products to multiple retailers and in February of this yearlaunched a wholesale proposition for the independent retail trade. This approachallows us to secure scale sourcing benefits and to cross promote the Create &Craft brand. Ideal Vitality Ideal Vitality sales reduced by 26%, obstructed by increasingly strict ASAregulation, which prevents us from airing previously strong selling products.Nonetheless, the channel continues to make a positive contribution to profit. Wehave taken steps to reposition this brand and to increase the emphasis on onlinesales. Online Online sales continue to grow strongly in all categories, and represented 21% oftotal product sales in the year (2005: 16%). We have improved site navigationand added new features to the sites, and anticipate that this development willaccelerate in 2007 following replacement of the technical platform for thesites. Superstore Superstore was acquired by the Group in June 2006 to enhance our direct sourcingcapability. The business won a contract to supply craft products to Asda justprior to acquisition and has now secured a similar contract with Wilkinsons.Superstore commenced sourcing products for Ideal (at enhanced margins) fromDecember 2006. The business is expected to make a significant contribution togroup profit in 2007 from both its third party wholesaling activity and intraGroup sourcing. Closure of the Manchester office of Superstore and transfer ofthe operation to Peterborough was completed in January 2007, and the sourcingoffice in China has been expanded to handle the growing volumes. Strategic delivery Our strategic goal at Ideal is to create a strongly profitable business capableof sustained growth by leveraging the unique advantages of TV shopping acrossdistance selling channels, including the convergence of broadcast and onlinechannels. Over the last two years we have placed considerable operational emphasis onbuilding the infrastructure of the business to support both current and futurevolume growth. This has involved investment in people, systems, skills andprocesses. Moving forward, our strategy is to: • Develop and deliver to the wider UK TV shopping market a compelling broad range proposition ("Ideal World") • Establish and grow branded specialist retail franchises that leverage the Ideal World base, for example Create & Craft • Enhance and drive the efficiency of the business infrastructure • Explore opportunities to widen our market to new customer groups In the period under review we have passed some important milestones in thedelivery of this strategy, including: • Conclusion of a new contract with National Grid Wireless for Freeview carriage until 2018, and a 5 year agreement with ntl:Telewest (now Virgin Media) for carriage on their cable network • Acquisition of Superstore TV, facilitating entry into the craft wholesale channel • Commencement of direct Far East sourcing to secure margin gains • Introduction of new customer service policies, with an immediate impact on the quality of the customer experience and the efficiency of our call centres We look forward to accelerating the implementation of our strategy in 2007,focusing particularly on: • An expanded online product offer for Ideal World and Ideal Vitality • Expansion into service products, including holidays and overseas property • The development and launch of a Create & Craft branded range for independent retailers • Implementation of our new systems platform • The renewal of our communications and online infrastructure • Implementation of a medium term logistics expansion solution • Collaboration with media and technology partners to develop TV shopping for IPTV Our strategy recognises that we must drive the relevance of our offering tocustomers and the quality of our operational delivery with a much higher focuson our customer proposition. We have made strong progress in the year in callanswering, delivery times and query resolution. These steps are indicative ofour determination to put in place the essential building blocks for long termsustainable growth whilst maintaining a flexible and responsive trading stance. Prospects We have put in place the foundations for sustained future growth. The renewal ofour Freeview contract and the extension on to Telewest cable have secured ourposition in a market which continues to grow and evolve, but has also meantaccepting a step up in our cost base in 2007. We expect our cash margin growthto offset and exceed this over the year. Key actions to achieve this include: • Improved sourcing using Superstore's Far East supply chain • Extending our craft offer into new channels • Implementing more efficient systems and ways of working • Enhancing and extending our core Ideal World proposition These opportunities give us confidence in the future, but we recognise that therapid evolution of our market requires us to maintain a high level offlexibility in both our tactical and strategic approach. We are pleased withcustomer response to a more promotion led trading stance in the early weeks ofthe new year, which has delivered comparable sales growth of 20% and cash margingrowth of 12% in the first two months of 2007 compared with the same months lastyear. While this cannot be taken as a full year performance indicator, we lookforward to making further progress in 2007. Consolidated Profit and Loss AccountFor the Year ended 31 December 2006 Note 2006 2005 £'000 £'000 Restated Turnover 85,638 79,191 Cost of sales (50,255) (45,822) Gross profit 35,383 33,369 Net operating expenses (29,829) (26,569) Operating profit 5,554 6,800 Net interest 497 389 Profit on ordinary activitiesbefore taxation 6,051 7,189 Tax on profit on ordinary activities 3 (1,812) (2,114) Profit transferred to reserves 4,239 5,075 Basic earnings per share 5 14.4p 17.3p Diluted earnings per share 5 14.2p 17.0p All of the above relates to continuing operations. Acquisitions in the year arenot material to the consolidated profit and loss account and are not separatelydisclosed on the face of the profit and loss account. Consolidated Balance SheetAs at 31 December Note 2006 2006 2005 2005 £'000 £'000 £'000 £'000 Restated RestatedFixed assetsIntangible assets 6 1,434 -Tangible assets 9,112 8,794 10,546 8,794Current assetsStocks 5,310 5,254Debtors 2,595 2,208Current asset investment 10,000 -Cash 8,684 19,557 26,589 27,019Creditors: amounts falling duewithin one year (16,105) (17,175) Net current assets 10,484 9,844 Total assets less current liabilities 21,030 18,638 Creditors: amounts falling dueafter more than one year (2,462) (3,294) Provisions for liabilities (460) (741) 18,108 14,603 Capital and reservesCalled up share capital 888 887Share premium 193 180Share option reserve 522 244Profit and loss account 16,505 13,292 Shareholders' funds 18,108 14,603 Consolidated Cash Flow StatementFor the Year ended 31 December 2006 Note 2006 2005 £'000 £'000 Restated Net cash inflow from operating activities 7 6,334 6,913 Returns on investments and servicing of financeInterest received 593 506Interest paid (14) -Finance lease interest paid (83) (117) Net cash inflow from returns on investments and servicing of 496 389finance Taxation (3,026) - Capital expenditure and financial investmentPurchase of tangible fixed assets (1,061) (897)Sale of tangible fixed assets - 5 Net cash outflow from capital expenditure and financial (1,061) (892)investment Net cash outflow from acquisitions - purchase of subsidiary 6 (1,720) -undertaking Dividends paid (1,030) (586) FinancingIssue of shares 14 101Repayment of borrowings (337) (339)Capital element of finance lease payments (543) (546) Net cash outflow from financing (866) (784) Management of liquid resources - purchase of short term deposits (10,000) - (Decrease)/increase in cash (after purchase of short term (10,873) 5,040deposits) Statement of total recognised gains and lossesFor the year ended 31 December 2006 2006 2005 £'000 £'000 Restated Profit for the financial year 4,239 5,075 Prior year adjustments 135 - Total gains and losses recognised since last financial 4,374 5,075statements Notes 1 Basis of preparation The financial information set out above in respect of 31 December 2006 does notconstitute statutory accounts as defined in Section 240 of the Companies Act1985. The financial information contained in this announcement has beenextracted from the 2006 financial statements upon which the auditor's opinion isunqualified and does not include any statement under Section 237 of theCompanies Act 1985. The preliminary announcement has been prepared in accordance with applicableaccounting standards and under the historical cost convention. The principal accounting policies of the Group are set out in the Group's 2005annual report and financial statements. The policies in this preliminaryannouncement have remained unchanged from the 2005 financial statements, withthe exception of the policy relating to the treatment share based payments whichhas been changed in accordance with the provisions of FRS 20 as set out in note2 below. 2 Prior year adjustment During the period the Group adopted FRS20. Under the new standard, share optionsare expensed during the vesting period, and this has resulted in a restatementof comparative figures. In the current period, £278,602 has been expensed tooperating profit. The comparative figure for the period ended 31 December 2005was £214,577. The comparative year tax charge has been reduced by £135,000 inrespect of this change. Opening profit and loss reserves in the comparative yearhave been reduced by £29,988. 3 Taxation on profit on ordinary activities The tax charge represents: 2006 2005 £'000 £'000 Restated Corporation tax at 30% (2005: 30%) 1,860 1,574Adjustment for prior year tax (86) - Total current tax 1,774 1,574 Deferred tax:Origination and reversal of timing differences 38 540 Tax on profit on ordinary activities 1,812 2,114 4 Dividends 2006 2005Dividends on ordinary shares £'000 £'000Paid during the year - 2005 final 588 292 - 2006 interim 442 294 1,030 586 Proposed after the year-end (not recognised as a liability) 810 586 5 Earnings per share The calculation of the basic earnings per share is based on the earningsattributable to ordinary shareholders divided by the weighted average number ofshares in issue during the year. The calculation of diluted earnings per share is based on the basic earnings pershare adjusted to allow for the issue of shares on the assumed conversion ofdilutive options. Reconciliation of the earnings and weighted average number of shares used in thecalculations are set out below: 2006 Earnings Weighted Per share average number amount £ of Shares Pence Earnings attributable to ordinary shareholders 4,239,000 29,431,917 14.4Dilutive effect of securities:Options 406,035 (0.2) Diluted earnings per share 4,239,000 29,837,952 14.2 2005 Earnings Weighted Per share average number amount £ of Shares Pence Restated Earnings attributable to ordinary shareholders 5,075,000 29,315,219 17.3Dilutive effect of securities:Options 535,381 (0.3) Diluted earnings per share 5,075,000 29,850,600 17.0 6 Acquisition On 1 June 2006 the Group acquired the entire issued share capital of SuperstoreTV Limited, an importer and wholesaler of consumer goods. Total considerationfor the acquisition was £1.6m, of which £1.1m was satisfied by the repayment ofparent company loans. The purchase has been accounted for by the acquisitionmethod of accounting. Goodwill of £1.5m arising on acquisition has beencapitalised and is being amortised over 10 years. 7 Net cash inflow from operating activities 2006 2005 £'000 £'000 Operating profit 5,554 6,800Depreciation 752 861Amortisation of goodwill 89 -Share based payments 278 215(Increase)/decrease in stocks 159 (1,425)(Increase)/decrease in debtors 191 (1,132)Increase/(decrease) in creditors (689) 1,594 Net cash inflow from operating activities 6,334 6,913 8 Report and accounts Copies of Company's annual report and accounts will be posted to theshareholders shortly. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
International Distributions Services