7th Mar 2006 07:01
Ideal Shopping Direct PLC07 March 2006 Ideal Shopping Direct Plc 7 March 2006 2005 Preliminary RESULTS Ideal Shopping Direct Plc, Britain's leading independent multi-channel TV homeshopping business, today reports preliminary figures for 2005. HIGHLIGHTS 2005 2004 Growth • Turnover £79.2m £60.4m 31% • Operating Profit £7.0m £4.1m 71% • Profit before taxation £7.4m £4.1m 80% • Earnings per share (basic) 17.6p 9.4p 87% • Full year dividends declared 3.0p 1.0p 200% • Cash (net of borrowings) £15.4m £10.3m 49% • Strong turnover growth, benefiting from a full year Freeview contribution • Sales up 15% year-on-year on a like-for-like basis • Operating margin up to 8.9% from 6.8% • Full year pre-tax profits up 80% at £7.4m • Company remains strongly cash generative • Final dividend 2.0p (last year 1.0p) making full year total 3.0p (2004:1.0p) • Fourth TV shopping channel - Jewellery Vault - launched on July 1st 2005 • Continuing investment in management and business infrastructure • Voted "AIM Company of the Year" at PLC Awards 2005 Jim Hodkinson, Chairman, commented: "These results reflect a year of healthy progress for Ideal Shopping Direct.Organic sales growth remained strong, despite a softening of the retail marketgenerally, and the well documented growth in digital TV and in on-line retailingconfirms our positioning in the most dynamic sectors of retailing. The focus onall elements of our business performance remains at a very high level, and thesefactors give the Board every confidence that we will be able to make furthergood progress during 2006." Enquiries: Ideal Shopping Direct Plc Tel: 08700 780704Jim Hodkinson, Chairman Reputation Inc Tel: 020 7758 2800Tom Wyatt Chairman's Statement In last year's annual report to shareholders I was delighted to be able toreport a record profit and cash performance as the business began to leveragethe operational gearing of the television shopping model. It is equallygratifying to be able to confirm our progress with another strong set of resultsfor 2005. We have enjoyed a full year's sales contribution from the Freeview platform(which launched in April 2004) and have added new revenue streams to thebusiness, but have also delivered organic growth in like-for-like operations ofc.15%, despite the well publicised difficulties of the retail market as awhole. These factors moved turnover up 31% on 2004 (which was 42% up in turn on2003). We have invested significant amounts in the operational infrastructure ofthe business to give it the capability to scale up, but have still deliveredenhanced operating margins by growing revenues so rapidly. This resulted inrecord operating profits of £7.0m, up 71%, and profit before tax of £7.4m, up80%. Cashflow was also healthy and net cash balances at the end of the year wereover £15m. We declared a maiden dividend last year of 1p, and the Board now propose a finaldividend of 2p to add to the interim dividend of 1p for 2005. The profile of the Ideal Shopping Direct Board and senior management team haschanged significantly over the last fifteen months. Key appointments inlogistics, buying and other functions have been made to create a strongexecutive team under the leadership of Andrew Fryatt, who became Chief ExecutiveOfficer in September 2005. A new Finance Director, Mike Camp, joined Ideal inSeptember. Mike's background in Booker and RAC Consumer combines experience ofthe fmcg supply chain and large scale consumer service management. These changes have allowed the founder directors, Paul Wright and Val Kaye, tostep back from day to day executive responsibility. Val became a non executivedirector in May of last year, and Paul becomes non-executive deputy chairmanwith effect from today. The Company is hugely indebted to them for theircontribution, and their continuing presence on the Board will ensure that thebusiness retains the flow of new ideas that has characterised its developmentover recent years. Ideal's total workforce has grown to over 500 in the course of the last year.Their energy and commitment is a key resource and management have activelyinvested in developing and retaining their skills. On behalf of the Board Iwould like to thank the whole team: these excellent results are a testament totheir efforts. The well documented growth in digital TV and in on-line retailing confirms ourpositioning in the most dynamic sectors of retailing. The management team ismaintaining a high focus on continuing organic growth from range and serviceenhancement, on effective operations and infrastructure development, and on thedevelopment and trial of new business streams. The external picture remains amixed one however our performance in the current year is in line with ourinternal expectations and our positioning, capability and plans give the Boardevery confidence that we will be able to make further good progress during 2006. Jim HodkinsonChairman 2005 Annual Review PERFORMANCE OVERVIEW Turnover for the year of £79.2 million was up 31% on 2004. As reported at theinterims, 14% of this growth (£8.3m) was the result of sales from our Freeviewchannel up to the anniversary of launch in April. Additionally, our newJewellery Vault channel contributed £1.5m of sales since its launch in July.Like for like sales growth was therefore of the order of 15%. Aside from the dilutive effect of the Freeview royalty, margin was affected bytwo other factors: the launch of Jewellery Vault, whose business model has alower average margin; and the high levels of growth in the footwear andtechnology categories, which are at lower margins. Overall reported margintherefore fell by 1.36% points against 2004. However, despite significantinvestment in elements of our cost base, strong productivity gains and theoperational gearing of Ideal's core business model meant that costs fellsignificantly as a percentage of sales so that net operating margin increasedfrom 6.8% to 8.9%. Overall cash generation was healthy and net cash balancesgrew by £5.1m. MARKET DEVELOPMENTS The TV shopping market continues to outperform High Street retailing, and isestimated to have grown at around 15% over the last 12 months. Although thereis some evidence that this slowed in the second half, we anticipate that growthwill continue, partly fuelled by the ongoing increase in digital penetration asthe analogue signal is progressively switched off by 2012, and partly byincreasing usage amongst the existing digital household base. The growth in digital households, now at 68% of the total, continues to bedriven by Freeview, with 10 million set top boxes or integrated digital TVs inthe market, of which 3.6 million are second boxes. Sky still retains a lead innumber of households, but the gap is closing fast. In terms of its significance for TV shopping, there are 36 shopping channels onDigital satellite, but only 4 on Freeview, including Ideal World. The future of broadcasting across the world is evolving, and convergence betweenTV and the internet will become increasingly important over the next few years.Ideal Shopping Direct already streams its channels onto the internet, and willdevelop this avenue further in 2006. TRADING Our main channel, Ideal World, achieved a 25% increase, led by strong growth inFashion & Footwear and Leisure & Technology. Sales via our call centres and theautomated ordering system were supported by the expansion of our web propositionin the year, which is the preferred route now for an increasing number of ourcustomers. Create and Craft, our digital satellite niche craft and hobby channel, sawgrowth of 65% in the year. Again, web-based ordering has become increasinglyimportant here, and this was helped by the launch of the Create and Craft Club,which encourages online sales via a discount, in return for an annualsubscription, as well as delivering a bi-monthly online interactive magazinewhich features video projects. Ideal Vitality, which focuses on the health, beauty & fitness market on digitalsatellite, grew by 62%. Both Ideal Vitality and Create and Craft benefit fromsharing overheads with Ideal World, and thus make a very positive contributionto overall profit. Our fourth channel, Jewellery Vault, which sells jewellery via a falling-priceauction model, launched in July 2005 on Sky channel 638 for eight hours a day.Although it too benefits in part from shared overheads, the TV shopping modeldepends on achieving critical mass to reach profitability. Whilst we fullyexpect to achieve this over the next few months, the 2005 investment resulted ina £0.5m reduction in overall profit before tax. Underlying product margin for the year was affected by stronger than expectedgrowth in Footwear and Technology, which command lower than average margins. Wehave progressively strengthened our buying team over the last year andanticipate that this will improve our ranging, merchandising and sourcing in ourtarget categories. DEVELOPMENT In such a fast moving market, the pursuit of business development opportunitiesremains a key component of our strategy. 2005 saw the launch of the Create andCraft Club, which includes an interactive online subscription magazine,delivered via broadband and combining video and internet functionality. Inaddition, we launched Jewellery Vault in July 2005. Current projects being researched include an interactive online generalmerchandise catalogue, similar to a traditional mail order catalogue, but with abusiness model that limits the product sales risk and which utilises videoadverts, and also a second online club concept. In addition, we are indiscussion with a number of well known High Street brands, who are interested inhaving some presence on our TV shopping channels. EMPLOYEES The growth in the business has seen our employee numbers rise to over 500.Retaining, developing and motivating them is key to future success and in 2005important steps were taken to achieve this. A defined contribution pension planand SAYE option scheme were introduced last year as a part of a wider benefitspackage, and core skills training programmes have been enhanced. Theseinitiatives have contributed to a 40% reduction in staff turnover compared with2004. INVESTMENT The Company invested £1.75m in new and replacement fixed assets during thecourse of the year, including £0.9m in a major new computer systems project and£0.17m in site development. The first phase of the systems project went live inJanuary 2006. OPERATING COSTS The operating cost to sales ratio decreased to 33.3% (2004: 36.7%) as thebusiness continued to exploit the operational gearing of the television shoppingbusiness model. This is despite carrying a full year of the cost of operating onthe Freeview platform, six months of Jewellery Vault channel costs and continuedinvestment in people, infrastructure and new developments. Substantialproductivity gains were achieved in call centre and warehousing operationswhilst also shortening our call queues and delivery times. We anticipate furthergains from the investment being made in management and systems. TAXATION The overall tax charge is £2.3m (2004: £1.3m). The Company's actual corporationtax liability is mitigated by the utilisation of tax losses brought forward fromprevious years, however these losses have now been exhausted and it is thereforeanticipated that tax payments will commence in the course of 2006. CASH The business model for the new Jewellery Vault channel requires an increasedstockholding to provide the variety necessary for a fast moving auction showformat. Other stocks have increased by c.£0.4m (10%) to support increasedturnover. Supplier payment days outstanding have fallen from 64 to 50,reflecting changes in mix and short term fluctuations in payment patterns. Netcash inflow from operating activities was £6.9m (2004: £9.2m) and net cashbalances rose by £5.1m. Surplus cash balances have mostly been invested inshort-term bank deposits to maintain liquidity at minimum risk. EARNINGS AND DIVIDENDS Basic earnings per share increased by 87% and fully diluted earnings per shareby 86%. Continued growth and cash generation has encouraged the Board torecommend a final dividend of 2p per share to add to the interim dividend of 1p,compared to the single dividend of 1p for 2004. Subject to approval byshareholders at the Company's Annual General Meeting on 4 May 2006, the dividendwill be paid on 11 May 2006 to shareholders on the Register as at 10 March 2006. ACCOUNTING POLICIES The adoption of FRS 21 has resulted in a change in accounting policy in respectof proposed equity dividends, as discussed in notes 1 and 3 below. The Company anticipates implementing FRS 20 "Share Based Payments" in its 2006Financial Statements. The standard requires that the estimated fair value ofshare option grants be expensed through the Profit and Loss account in theperiod from grant to exercise. As the Company has historically used shareoptions as a part of executive incentivisation, the change in treatment may leadto the recognition of additional operating expenses. The Company also expects to implement International Financial ReportingStandards ("IFRS") in its Financial Statements for 2007. Planning for thistransition, and the collation of comparative figures, is underway. Andrew FryattChief Executive Mike CampFinance Director Consolidated Profit and Loss AccountFor the Year Ended 31 December 2005 Note 2005 2005 2004 2004 restated restated £'000 £'000 £'000 £'000 Turnover 79,191 60,382 Cost of sales (45,822) (34,113) Gross profit 33,369 26,269 Distribution costs (2,670) (1,867) Administrative expenses (23,684) (20,293)Net operating expenses (26,354) (22,160) Operating profit 7,015 4,109 Net interest 389 (4) Profit on ordinary activitiesbefore taxation 7,404 4,105 Tax on profit on ordinary activities 2 (2,250) (1,349) Retained profit transferredto reserves 5,154 2,756 Basic earnings per share 5 17.6p 9.4p Diluted earnings per share 5 17.3p 9.3p Consolidated Balance SheetFor the Year Ended 31 December 2005 2005 2005 2004 2004 restated restated £'000 £'000 £'000 £'000Fixed assetsTangible assets 8,794 7,908 Current assetsStocks 5,254 3,829 Debtors 2,208 1,354 Cash 19,557 14,517 27,019 19,700Creditors: amounts falling duewithin one year (17,295) (13,649) Net current assets 9,724 6,051 Total assets less current liabilities 18,518 13,959 Creditors: amounts falling dueafter more than one year (3,294) (3,367) Provisions for liabilities and charges (757) (794) 14,467 9,798 Capital and reservesCalled up share capital 887 882Share premium 180 84Profit and loss account 13,400 8,832 Shareholders' funds 14,467 9,798 Consolidated Cash Flow StatementFor the Year Ended 31 December 2005 Note 2005 2004 £'000 £'000 Net cash inflow from operating activities 6,913 9,225 Returns on investments and servicing of finance Interest received 506 236 Interest paid - (103) Finance lease interest paid (117) (137) Net cash inflow/(outflow) from returns on investments andservicing of finance 389 (4) Capital expenditurePurchase of tangible fixed assets (897) (231) Sale of tangible fixed assets 5 - Net cash outflow from capital expenditure (892) (231) Equity dividends paid 4 (586) - Financing Issue of shares 101 21 Receipts from borrowings - 212 Repayment of borrowings (339) (235) Capital element of finance lease payments (546) (818) Net cash outflow from financing (784) (820) Increase in cash 5,040 8,170 Notes 1 BASIS OF PREPARATION The financial information set out above in respect of 31 December 2005 does notconstitute statutory accounts as defined in Section 240 of the Companies Act1985. The financial information contained in this announcement has beenextracted from the 2005 financial statements upon which the auditors 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 2004annual report and financial statements. The policies in this preliminaryannouncement have remained unchanged from the 2004 financial statements, withthe exception of the policy relating to the treatment of dividends which hasbeen changed in accordance with the provisions of FRS 21. Under the newstandard, if the company declares dividends to shareholders after the balancesheet date the company does not recognise those dividends as a liability at thebalance sheet date. Previously where dividends were proposed after the balancesheet date but before authorisation of the financial statements they wererecorded as balance sheet liabilities. The provisions of FRS 21 also requirethat dividends recognised in the year are disclosed as a movement on reserves,and not on the face of the consolidated profit and loss account. This changeresults in a restatement of the 2004 treatment of dividends declared. 2 TAXATION ON PROFIT ON ORDINARY ACTIVITIES 2005 2004 £'000 £'000 Corporation tax at 30% (2004: 30%) 1,694 45 Total current tax 1,694 45 Deferred tax:Origination and reversal of timing differences 556 1,304 Adjustments in respect of prior year - - Total deferred tax 556 1,304 Tax on profit on ordinary activities 2,250 1,349 The deferred tax charge of £556,000 represents release of the deferred tax assetestablished in respect of trading losses in prior years under FRS 19 and othertiming differences. 3 PRIOR YEAR ADJUSTMENT As disclosed in note 1, FRS21 was adopted in the year. Under the previousaccounting policy the maiden dividend of £292,000 (1p per ordinary share), whichwas proposed after the 2004 balance sheet date, was treated as a liability atthat date. Under FRS 21 this dividend is not treated as an appropriation ofprofit in 2004 or as a liability in the 2004 balance sheet. The comparativefigures in these financial statements have been restated accordingly. In the current period dividends of £588,000 have been proposed after the balancesheet date. Under the previous accounting policy these would have been shown asa liability and deducted from the profit for the year. Under the new accountingpolicy these are not accrued and are disclosed only in note 4. 4 DIVIDENDS 2005 2004 restatedDividends on ordinary shares £'000 £'000Paid during the year - 2004 final 292 - 2005 interim 294 __________ __________ 586 - ============= =============Proposed after the year-end (not recognised as a liability) 588 292 ============= ============= The proposed dividend is subject to approval by shareholders at the AnnualGeneral Meeting. 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: 2005 Earnings Weighted average Per share number of amount £ Shares Pence Earnings attributable to ordinary shareholders 5,154,000 29,315,129 17.6Dilutive effect of securities:Options - 535,381 (0.3) Diluted earnings per share 5,154,000 29,850,510 17.3 2004 Earnings Weighted average Per share number of amount £ Shares Pence Earnings attributable to ordinary shareholders 2,756,000 29,203,449 9.4Dilutive effect of securities:Options - 379,884 (0.1) Diluted earnings per share 2,756,000 29,583,333 9.3 6 REPORT and Accounts Copies of Company's annual report and accounts will be posted to theshareholders shortly. 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