30th Nov 2006 07:01
Findel PLC30 November 2006 30 November 2006 FINDEL PLC Findel plc, one of the country's leading Home Shopping and Educational Suppliesbusinesses, today announces its interim results for the six months to 30September 2006. FINANCIAL HIGHLIGHTS 2006 2005 % change Revenues £228.7m £233.2m -2% Benchmark# Operating Profit £9.7m £9.4m +3% Benchmark# Profit before tax £1.9m £1.5m +31% Exceptional items: - Impairment loss on disposal group £(16.3)m - - Other exceptionals £( 7.9)m £(1.9)mPost exceptional Loss before Taxation £(23.0)m £(0.1)m Benchmark# Earnings per share 1.79p 1.56p +14.7% Basic Earnings per share (19.53)p 0.03p Interim Dividend 4.20p 3.80p +10.5% CORPORATE HIGHLIGHTS • Continued focus on growing Cash with Order business; now £50m annualised turnover• Acquisitions of: - Letterbox - Kitbag.com - I Want One Of Those.com - Confetti.co.uk - Kleeneze• Exit from clearance store outlets• Overall review and rationalisation of mail order warehousing facilities• £8m cash benefit from actions taken• Further consideration of demerger issue DIVISIONAL HIGHLIGHTS Home Shopping Division • Turnover £95.2m (£97.2m)• Benchmark# operating profit £3.6m (£3.3m)• Turnover (34 weeks to 24 November) - Total division up 17% - Like for like product sales up 4% - Online sales 29% (32% increase)• Cash with order turnover annualised over £50m Educational Supplies Division • Turnover £89.2m (£89.3m)• Benchmark# operating profit £5.1m (£5.0m) # Benchmark = before amortisation of intangibles £0.5m (2005: £0.5m), impairmentloss on disposal group £16.3m (2005: nil), exceptional items £7.9m (2005:£1.9m), share option expense £0.1m (2005: nil) and derivative remeasurements£0.1m (2005: profit of £0.7m) Keith Chapman, Chairman, commented: "The year to date has been one of intense activity for the Group. The strategicreview, and the actions we have taken as a result, mean that the Group is muchbetter placed to maximise its potential. In my statement in May I referred toour commitment to develop a cash with order business and we have madesubstantial progress towards that objective. We remain excited by the prospectsfor all our businesses. " - Ends - For further information: Patrick Jolly, Chief Executive Today: +44 (0) 207 831 3113Findel plc Thereafter: +44 (0) 1943 864686 Jonathon Brill/Billy Clegg +44 (0) 207 831 3113Financial Dynamics Chairman's Statement Financial Results Sales for the first six months of the financial year were £228.7m (2005:£233.2m) and benchmark* profit from operations increased to £9.7m (2005: £9.4m).The Group achieved a benchmark* profit before tax in the first six months of£1.9m compared to £1.5m in the same period last year. The Group has incurred oneoff net exceptional costs of £7.9m during the period and an impairment loss of£16.3m. Going forward, there will be a significant one off cash benefit ofapproximately £8m over the next 12 months arising from the actions taken(further detail of this is given in the strategic review section below). On astatutory basis the result for the period was a loss before taxation of £23.0m(2005: loss of £0.1m). Net finance costs rose to £7.9m (2005: £7.2m) impacted adversely by £0.9m offair value adjustments on derivative contracts. Strategic Review The year to date has been a period of intense activity for the Group and thefirst stages of our strategic review have now been completed. At this stage, wewould summarise the key points as follows: • Continued focus on growing our cash with order mail order business;• Exit from our clearance store outlets;• Overall review and rationalisation of our warehousing facilities for mail order;• Further consideration to be given to the issue of demerger. On 12 June the Group announced the acquisition of Letterbox Mail Order Limited,one of the UK's leading catalogue and internet retailers of innovativechildren's gifts and toys for a gross cash consideration of £7m. In the year to31 August 2005 Letterbox had revenues of £10m. On 13 October the Group announced it had acquired the following businesses andassets from the administrators of European Home Retail plc and its subsidiaries: • the trading business and assets of Kitbag Limited, one of Europe's largest online sports retailers;• the trading business and assets of I Want One Of Those.com Limited, one of the UK's most visited gifts and gadgets websites;• the remaining 40% of the share capital of Home Farm Hampers Limited not already owned by Findel;• the trading business and assets of Kleeneze UK Limited, a leading network marketing company. The total consideration of £34m paid for the European Home Retail businesses wassatisfied in cash. The unaudited net assets relating to these businesses were£19m and unaudited revenues for the year to 30 April 2006 were £113m. Thesebusinesses are expected to be earnings enhancing in the first full financialyear commencing on 1 April 2007. We have also increased our investment in Confetti Network Limited and now have acontrolling interest. This is an internet and catalogue business widely used bybrides to be. The acquisitions are firmly in line with the Group's stated strategy ofdeveloping its cash with order and internet businesses to complement the currenthome shopping division and increase the utilisation of its assets. Following the reorganisation last year of the Group's education division thestrategic review to date has concentrated on home shopping and healthcare. In home shopping we have historically dealt with a significant proportion ofproduct returns and surplus stock through our chain of outlet stores. Thisoperation was effective but utilised valuable warehouse resource, and was adistraction to management. This method also relied on the availability of shortterm retail leases which have become increasingly difficult to obtain onacceptable terms. We have therefore taken the strategic decision to dispose ofour outlet stores. We have also looked at the utilisation of our entire warehousing facilities toensure that the Group is able to support the development of our cash with orderbusiness. The costs of this are reflected in the exceptional item, but thebenefits will quickly become apparent as we integrate the acquisitions andextract purchasing, logistics and carriage synergies. As well as disposing of our chain of clearance shops and rationalising our homeshopping warehousing we have also decided to exit all third party fulfilmentcontracts. As a consequence the Group has incurred one off exceptional costsduring the period and an impairment loss on the disposal together with asignificant cash benefit, as set out above. The strategic review of the Group's operations and structure is now completeother than the question of demerger. As we announced in the AGM statement inJuly, we have been considering ways of further enhancing the Group's activitiesand in this regard the Group is still considering the possibility of a demergerof one of the Group's two principal divisions. The immediate focus of the Groupis concentrated on the successful integration of the businesses acquired and theimportant Christmas trading period. Although the strategic assessment of theGroup is continuing, these operational matters are necessarily taking precedencein the short term. We will report progress in due course. Dividend The directors have declared an interim dividend of 4.20p (2005: 3.80p), anincrease of 10.5% over last year. The interim dividend will be paid on 12January 2007 to shareholders on the register on 15 December 2006, with anex-dividend date of 13 December 2006. Home Shopping Sales in the first half were slightly lower than last year at £95.2m (2005:£97.2m) as new customer recruitment was spread over a more extended period andinto the second half. In the 34 weeks to 24 November divisional sales are 17%ahead of last year, with like-for-like product sales 4% ahead of last year. The division has seen significant development since I last reported to you. Wehave built a substantial presence in the cash with order market and the internetmarket with annualised sales following the acquisitions estimated to be inexcess of £50m. We also have seen further significant growth in internetpenetration in our core credit based business, with online orders increasing bya third to represent 29% of all incoming orders. With the acquired businesses,we anticipate that over 40% of all the division's future sales will be online.Furthermore, the acquisitions provide the ability to recruit new customersonline without the barrier of credit scoring. In our core business, the last eight months have seen us deliver on theobjectives set out at the beginning of the period. This year was always going tobe a challenge since we entered the year with a customer base some 9% lower thanthe previous year. Our targets at the beginning of the period under review wereto attract more sales from established customers and to increase recruitmentonce again. We have achieved both of these objectives. Sales to established customers to 24 November were 8% higher than last year.Repeat sales to the same customers were 14% higher. These sales have beenachieved whilst implementing an average 12% price reduction on over 1,000 lines.Customer retention at 70% (2005: 65%) is at the highest level we have everachieved. New customer recruitment is in line with our forecasts to grow ourcustomer base by 5%. Despite the increase in new customers, average order valueremains strong at £41.80 (2005: £41.16). Product personalisation has seen stronggrowth, with over two million products personalised this year to date, a 15%year on year increase. Personalisation is a key differentiating factor in thedivision's product offer. Our online presence continues to strengthen. Average order values receivedonline are 7% higher than for telephone orders and 21% higher than for writtenorders. Over the next few months we plan to extract maximum benefit from our newbusinesses. Synergistic benefits will be complemented by a sharing of knowledgeand skills. The new businesses comprise: • Letterbox - a catalogue and internet toy retailer. Its carefullyselected product range provides an attractive and innovative offering. Postacquisition, sales have grown over 14% compared with the same period last year; • I Want One of Those.com - an online retailer selling gifts andgadgets. Post acquisition, sales have grown over 40% compared with the sameperiod last year; • Kitbag.com - a highly regarded internet brand. In addition to its ownsite it manages online stores for a number of major football clubs. Postacquisition, sales have grown 30% compared with the same period last year; • Confetti.co.uk - the definitive destination site for brides to be. Wehave had an investment in this business for some years but have now taken acontrolling interest. We believe that we can significantly improve Confetti'sgrowth curve by the introduction of a wider range of product and more frequentcontact with the customer base; • Kleeneze is a leading network marketing company. Given its historicstrength and profitability we are convinced that the introduction of new productand improved service levels should greatly enhance its performance. Educational supplies Sales in the first six months were level at £89.2m (2005: £89.3m). As has beenwidely reported, educational funding continues to be an issue. Trade sourcessuggest that the entire industry is experiencing a lack of confidence fromschools. Nevertheless, during the period the division has achieved a great deal. We havefocused on realising the remaining benefits of the major restructuring of thedivision, and in laying the foundations for future growth. First time service level now runs consistently at a satisfactory 93%. Theintroduction of standard trading terms across the supplier base, together with anew vendor rating system, should enable us to further improve this. CustomerService has also been enhanced by the introduction of a new telephone callforecasting system and call centre procedures that have seen abandoned callsfall dramatically to levels not previously seen. The consolidation of the SKU base has significantly reduced our stock holdingcosts and risks by allowing a greater proportion of products to be despatcheddirectly from supplier to customer and has also produced improved buying terms.This is an ongoing process, and in 2007 98% of all new furniture products willbe by direct supply. We have invested heavily in new product development, and the benefits of thisinvestment are just starting to come through. The development of exclusiveproduct sets us apart from much of our competition and produces better margins.In the 2007 catalogues there will be over 100 exclusive new items across allproduct ranges developed by the team, with more in the pipeline. As well as product developed by the Group that will appear in next year'scatalogues, a large part of the overall range has been significantly refreshed,with over 4,000 new items in the 2007 catalogues. We also have a very aggressivemarketing campaign planned. We traditionally mail our curricular brands'catalogues in January and our commodity and capital brands in April. Next yearour catalogues will contain more pages, and will be mailed more frequently. Our strength in school sports is supported by the fact that the school sportsvoucher promotions run by two major national retailers are conducted by thedivision. These programmes have been extremely successful. Online sales for the division are growing significantly but remain at a lowlevel. We are very keen to expand this aspect of the business. We continue towork with schools and government, to assist them in this area. Healthcare Like-for-like sales, being sales on continuing contracts, were 2.5% ahead in thefirst six months, and in the 34 weeks to 24 November are 4% ahead of the sameperiod last year. However, since we have determined to only pursue contractsthat we believe offer long term growth at acceptable margins, we haverelinquished two unprofitable contracts. This action led to a reduction inoverall sales for the six months to £25.1m (2005: £26.6m). I am delighted to report that our tender for the Cambridgeshire contract hasbeen successful. This major contract which commences on 1 April 2007 willproduce revenues of £5m per year and is for an initial five year term. We have decided to add the provision and service of wheelchairs into our productrange. This is a very specialist market worth £35m annually in service charges.It is a logical extension to our business and fits well within our existingportfolio. Following the separation of NRS into a stand alone business we are introducing astate of the art PDA based stock tracking and management system. This system isnow operational in five contracts, and full implementation will be completed bythe end of the financial year. The information it gives will enable us to manageour contracts with Primary Care Trusts with much greater efficiency. Initialfeedback from our customers has been extremely positive. For the last eighteen months there have been very few new contracts coming tothe market. However, that is now changing. We currently have five tendersoutstanding where we are awaiting a decision, and understand that there will beat least another seventeen released between now and April 2008. Findel Services Sales in the division reduced to £19.2m (2005: £20.1m). Following the strategicreview we are withdrawing completely from the provision of third party services.The final contract will cease at the end of the current financial year. As aresult of this, and the potential impact on our Christmas hamper business of thecurrent negative publicity surrounding the hamper industry, we anticipate acontinuing sales decline from this division going forward but with no materialimpact on profitability. Prospects The year to date has been one of intense activity for the Group. The strategicreview, and the actions we have taken as a result, mean that the Group is muchbetter placed to maximise its potential. In my statement in May I referred toour commitment to develop a cash with order business and we have madesubstantial progress towards that objective. We remain excited by the prospectsfor all our businesses. * Benchmark measures are stated excluding amortisation of acquisitionintangibles £0.5m (2005: £0.5m), impairment loss on disposal group £16.3m (2005:£nil), exceptional items £7.9m (2005: £1.9m), share option expense £0.1m (2005:£nil) and derivative remeasurements £0.1m (2005: profit of £0.7m). K. ChapmanChairman30 November 2006 Consolidated Income Statement Note 6 months to 6 months to 30 Year to 30 Sept 2006 Sept 2005 31 March 2006 Unaudited Unaudited Audited £000 £000 £000Continuing operationsRevenue 2 228,697 233,227 527,796Cost of sales (124,356) (130,154) (285,671) Gross profit 104,341 103,073 242,125 Trading costs (94,929) (93,664) (180,164)Share of profit of associates 315 17 1,941Amortisation of intangible assets (519) (465) (930)Exceptional items 3 (7,851) (1,900) (13,177)Impairment loss on disposal group 4 (16,350) - -Share option expense (113) (15) (30) Operating (loss)/profit 2 (15,106) 7,046 49,765Finance income 3,045 3,110 5,522Finance costs (10,930) (10,292) (20,220) (Loss)/profit before taxBenchmark 1,945 1,490 48,197Amortisation of intangible assets (519) (465) (930)Exceptional items 3 (7,851) (1,900) (13,177)Impairment loss on disposal group 4 (16,350) - -Share option expense (113) (15) (30)Derivative remeasurements (103) 754 1,007Total (loss)/profit before tax (22,991) (136) 35,067 (Loss)/profit before tax (22,991) (136) 35,067Income tax credit/(expense) 6,536 49 (4,933) (Loss)/profit for the period (16,455) (87) 30,134Attributable to:Equity holders of the parent (16,354) 21 29,660Minority interest (101) (108) 474 (16,455) (87) 30,134(Loss)/earnings per share 5Basic (19.53)p 0.03p 35.58pBenchmark 1.79p 1.56p 46.22p Consolidated Statement of Recognised Income and Expense 6 months to 6 months to Year to 30 Sept 2006 30 Sept 2005 31 March 2006 Unaudited Unaudited Audited £000 £000 £000 Currency translation differences (391) 273 365 Net (expense)/gain recognised directly in equity (391) 273 365(Loss)/profit for the period (16,455) (87) 30,134 Total recognised income and expense for the period (16,846) 186 30,499 Attributable to:Equity holders of the parent (16,745) 294 30,025Minority interest (101) (108) 474 (16,846) 186 30,499 Consolidated Balance Sheet At 30 Sept 2006 At 30 Sept 2005 At 31 March 2006 Unaudited Unaudited Audited £000 £000 £000 ASSETSNon-current assetsGoodwill 51,329 48,410 48,427Other intangible assets 40,935 35,150 34,685Property, plant and equipment 64,293 58,579 62,954Investments in associates 10,639 8,400 10,324 167,196 150,539 156,390 Current assetsInventories 94,587 112,965 101,068Trade and other receivables 259,325 225,837 232,506Current tax recoverable 1,238 - -Derivative financial instruments 127 173 254Cash and cash equivalents 14,275 2,178 2,284 369,552 341,153 336,112 Assets held for resale 1,100 - - Total assets 537,848 491,692 492,502 LIABILITIESCurrent liabilitiesTrade and other payables 116,654 114,008 76,827Current tax liabilities - 4,022 3,627Obligations under finance leases 533 420 518Bank overdrafts and loans 55,446 92,184 19,082Derivative financial instruments - 197 24 172,633 210,831 100,078 Non-current liabilitiesBank loans 244,570 160,000 244,172Obligations under finance leases 725 900 986Deferred tax liabilities 9,215 5,616 7,024Retirement benefit obligation 16,861 18,945 18,024 271,371 185,461 270,206 Total liabilities 444,004 396,292 370,284 NET ASSETS 93,844 95,400 122,218 EQUITYCapital and reservesShare capital 4,248 4,244 4,245Capital reserves 50,591 50,175 50,219Hedging and translation reserves (132) 167 259Retained earnings 39,056 40,842 67,313 Equity attributable to equity 93,763 95,428 122,036holders of the parentMinority interest 81 (28) 182 Total equity 93,844 95,400 122,218 Consolidated Cash Flow Statement 6 months to 6 months to Year to 30 Sept 2006 30 Sept 2005 31 March 2006 Unaudited Unaudited Audited £000 £000 £000Operating activitiesOperating (loss)/profit (15,106) 7,046 49,765 Adjustments for:Depreciation of property, plant and equipment 4,114 3,391 6,910Amortisation of other intangible assets 519 465 930Impairment loss on disposal group 16,350 - -Share-based payment expense 113 15 30Gain on disposal of property, plant and equipment (1,198) (235) (4,049)Pension contributions less income statement charge (1,022) (1,185) (2,307)Share of profit of associates (315) (17) (1,941) Operating cash flows before movements in working 3,455 9,480 49,338capital(Increase)/decrease in inventories (9,308) (9,689) 2,229Increase in receivables (25,661) (26,412) (29,928)Increase/(decrease) in payables 36,437 32,262 (5,118) Cash generated from operations 4,923 5,641 16,521Income taxes recovered/(paid) 1,685 (3,906) (7,874)Interest paid (7,614) (7,797) (15,364) Net cash from operating activities (1,006) (6,062) (6,717) Investing activitiesInterest received 640 56 256Proceeds on disposal of property, plant and 47 387 4,567equipmentPurchases of property, plant and equipment (5,952) (4,971) (16,360)Acquisition of subsidiary (6,336) - - Net cash used in investing activities (11,601) (4,528) (11,537) Financing activitiesDividends paid (11,904) (10,756) (13,924)Dividends paid to minorities - (582) (954)Repayments of obligations under finance leases (280) (211) (27)Proceeds on issue of shares 102 7 495New bank loans raised 43,000 35,000 35,000Movement on securitisation loan 398 (681) 4,783 Net cash from financing activities 31,316 22,777 25,373 Net increase in cash and cash equivalents 18,709 12,187 7,119Cash and cash equivalents at the beginning of the (6,798) (14,022) (14,022)periodEffect of foreign exchange rate changes (82) 79 105 Cash and cash equivalents at the end of the period 11,829 (1,756) (6,798) Notes to the Group Financial Information 1. Basis of preparation of Group financial information The Group interim financial information has been approved by the board, but hasnot been reviewed or audited by the auditors. The Group financial information has been prepared in accordance withInternational Financial Reporting Standards ("IFRS") as adopted for use in theEuropean Union and in accordance with the accounting policies included in theAnnual Report for the year ended 31 March 2006, which have been appliedconsistently throughout the current and preceding periods. The financial information relating to the year ended 31 March 2006 comprisesnon-statutory accounts. The full financial statements for that year have beenreported on by the company's auditors and have been filed with the Registrar ofCompanies. The audit report was unqualified and did not contain a statementunder either s237(2) or s237(3) of the Companies Act 1985. 2. Segmental analysis 6 months to 6 months to Year to 30 Sept 2006 30 Sept 2005 31 March 2006 Unaudited Unaudited Audited £000 £000 £000 RevenueHome Shopping 95,229 97,214 228,008Educational Supplies 89,180 89,265 175,030Healthcare 25,098 26,643 53,226Services 19,190 20,105 71,532 228,697 233,227 527,796 Operating profitHome Shopping 3,636 3,339 31,852Educational Supplies 5,076 4,992 23,936Healthcare 1,112 1,786 3,632Services (412) (708) 2,541Share of profit of associates 315 17 1,941 9,727 9,426 63,902 Amortisation of intangible assets (519) (465) (930)Exceptional items (7,851) (1,900) (13,177)Impairment loss on disposal group (16,350) - -Share option expense (113) (15) (30) (15,106) 7,046 49,765 Amortisation of intangible assets relates to the Educational Supplies segment(£465,000) and the Home Shopping segment (£54,000). Segment information relatingto the Exceptional items and the Impairment loss on disposal group is discussedin notes 3 and 4. After allocation of these items, the segmental results are asfollows: Home Shopping, loss of £20,218,000; Educational Supplies, profit of£4,611,000; Healthcare, profit of £1,112,000; Services, profit of £769,000.Share option expenses cannot be allocated to a specific business segment. On 2 June 2006, the Group acquired Letterbox Mail Order Limited ("Letterbox").Letterbox contributed revenue of £1.9m and loss before tax of £0.2m between thedate of acquisition and the balance sheet date. These results are includedwithin the Home Shopping business segment. 3. Exceptional items 6 months to 6 months to Year to 30 Sept 2006 30 Sept 2005 31 March 2006 Unaudited Unaudited Audited £000 £000 £000 Aborted transaction costs (1,582) - -Warehouse reorganisation costs (note 4) (7,450) - -Restructuring costs - (1,900) (16,055)Profit on land sale 1,181 - 2,878 (7,851) (1,900) (13,177) Aborted transaction costs cannot be allocated to a specific business segment.Warehouse reorganisation costs relate to the Home Shopping business segment.Restructuring costs in the prior year relate to the Educational Suppliesbusiness segment. Profit on land sale relates to the Services business segment. 4. Impairment loss on disposal group The impairment loss on disposal group comprises a group of assets which formedthe retail operation for the disposal of excess stock arising out of the HomeShopping business. The sale was completed on 29 November 2006 and included allstocks which would have been sold through the retail outlets. The impairment loss on disposal group of £16,350,000 has been separatelypresented on the face of the income statement within continuing operations, asthe sale does not meet the definition of a discontinued operation containedwithin IFRS 5 ("Non-current assets held for sale and discontinued operations"). At the same time, the Group has reviewed its warehousing operations to improveefficiencies and to enable stocks from businesses acquired to be relocated. Thisresulted in the need to dispose of further stocks which have either beenincluded in the disposal group or will be sold through other channels. Theassociated cost of £7,450,000 has been included within Exceptional items in theperiod. 5. Earnings per share 6 months to 6 months to Year to 30 Sept 2006 30 Sept 2005 31 March 2006 Unaudited Unaudited Audited £000 £000 £000 Basic earnings (16,354) 21 29,660Amortisation of intangible assets 519 465 930Exceptional items (net of tax) 5,736 1,330 8,621Derivative remeasurements and share option expense 152 (517) (684)(net of tax)Impairment loss on disposal group (net of tax) 11,445 - - Benchmark earnings 1,498 1,299 38,527 Weighted average number of shares 83,745,230 83,332,618 83,359,631 Earnings per share - basic (19.53)p 0.03p 35.58p Earnings per share - benchmark 1.79p 1.56p 46.22p There is no material difference between basic and diluted earnings per share. 6. Dividends 6 months to 6 months to Year to 30 Sept 2006 30 Sept 2005 31 March 2006 Unaudited Unaudited Audited £000 £000 £000Amounts recognised as distributions to equityholders in the periodFinal dividend for the year ended 31 March 2006 11,904 10,755 10,755of 14.20p (2005: 12.90p) per shareInterim dividend for the year ended 31 March 2006 - - 3,169of 3.80p (2005: 3.50p) per share 11,904 10,755 13,924 The proposed interim dividend of 4.20p per ordinary share in respect of the yearending 31 March 2007 was approved by the board on 20 November 2006. Inaccordance with IAS 10 ("Events after the balance sheet date") it has not beenincluded as a liability as at 30 September 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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