6th Sep 2007 07:02
Ideal Shopping Direct PLC06 September 2007 6 SEPTEMBER 2007 IDEAL SHOPPING DIRECT PLC 2007 HALF YEAR RESULTS Ideal Shopping Direct Plc ("Ideal"), Britain's leading independent TV shoppingand craft wholesale business, today reports half year Group figures for 2007(under IFRS). HIGHLIGHTS 2007 2006Growth * Like-for-like Revenues £45.7m £40.7m 12.3% * Total Revenues £46.4m £42.3m 9.7% * Gross Margin £19.5m £17.3m 13.2% * Like for like Profit Before Taxation £4.3m £3.6m 19.8% * Profit Before Taxation £1.4m £2.5m (44.0)% * Basic Earnings per share 3.1p 6.1p (49.2)% * Interim Dividend 1.75p 1.5p 16.7% • Strong core business revenue growth across retail and wholesale • 9% growth in new retail customer acquisitions • Underlying gross margin up 0.3% • Net impact of higher carriage costs of extended Freeview contract and new Virgin (Telewest) channel approximately £2.5 m • Superstore acquisition delivering strong margin benefits and paying back ahead of expectations • Interim dividend increased by 16.7% David Williams, Chairman, commented: "2007 is an important year of transition for the Group. We are implementing anumber of key initiatives to both strengthen the business and create a solidplatform for its continuing growth. We signalled previously that results for the current year would reflect theinitial higher rental costs of the extended Freeview contract and our reportedhalf year results include 50% of the full year costs. However, I am highlyencouraged that our adoption of a more aggressive marketing and promotionalstance and the continuing introduction of new products and services have drivendouble digit like for like sales growth in the first half of the year whilstalso improving our trading margins." Andrew Fryatt, Chief Executive, said: "The second half began well, with continuing double-digit sales growth in July.However, August has been more difficult. TV viewing figures were lower thanexpected, especially over the two hotter weekends, and August sales wereactually down against last year. Total sales in the first 9 weeks of the secondhalf were up 2%. Although we have seen a return to double-digit growth more recently, we aretaking a slightly more cautious view of second half prospects. We will continueto focus on controlling costs and driving sales aggressively and remainconfident that the initiatives taken this year leave us well placed toprofitably expand the Group's market position." Enquiries: Ideal Shopping Direct plc:Andrew Fryatt, Chief Executive officer Tel: 08700 780704David Blake, Finance Director Landsbanki Securities (UK) Limited:Jeff Keating Tel: 020 7426 9000Fred WalshSebastian Jones Reputation Inc:Tom Wyatt Tel: 020 7758 2800 IDEAL SHOPPING DIRECT PLC 2007 HALF YEAR RESULTS 2007 is an important year of transition for the Group, and one which is seeingthe implementation of a number of key initiatives to strengthen the business andcreate a solid platform for its continuing growth. We now operate in twodistinct markets, retail sales which are TV focused yet with an increasinglyimportant web presence, and Superstore which is wholesale based with a growingdirect Far East supply chain. Strategically, we have made significant progressin the three areas that will enable the Group to leverage its position in themarket. Most importantly for Ideal World, we have commenced the first year of ourextended Freeview contract which secures our position on this delivery platformuntil 2018 on Channel 22. Already, over 40% of our business originates fromcustomers using Freeview, and with nearly 80% of all new digital TV householdsopting for Freeview (through set-top boxes, PVRs and integrated digital sets),this figure will only grow as the remaining 5.5m non-digital households switchover by 2012. Our reported half year results reflect the negative impact of the higherFreeview carriage fee we are now paying. However, we are highly encouraged thatwe have continued to generate significant top-line growth from the business, andthat our recent adoption of a more aggressive marketing and promotional stancehas driven double digit like for like sales growth in the first half of theyear. We have also attracted a record number of new customers with over 170,000acquisitions in the same period. As a result, we believe we have increased ourshare of the TV shopping market to 10% in spending terms. Freeview is now available to over 8 million households and together with our Skyand Virgin Media platforms, our total TV offering reaches 20 million homes. Thesecurity of these carriage contracts along with our investment in state of theart TV facilities, represents a strong competitive advantage and a significantbarrier to entry in the TV shopping market. Secondly, we have completed the improvement and upgrade of our IT systems inorder to handle significantly higher volumes in the business. We have beenpreparing the systems changeover for over a year and we are pleased to reportthat we now have the systems in place to meet the key challenges of TV andonline retailing - handling high volumes, fast turnaround, excellent customerservice and reliable distribution. Thirdly, we have continued the development of some strategic investments in thebusiness, all of which have important parts to play in delivering our futurepotential. These include the ongoing development of our online business, whichnow accounts for nearly a quarter of our total retail sales. With theprogressive convergence of TV and online technologies, we are particularly wellplaced to maximise the potential of these interrelated opportunities. PERFORMANCE Revenues Revenues for the Group for the 26 weeks to July 1st 2007 were £46.4m, anincrease of 9.7% compared to last year. On a like-for-like basis revenues wereup 12.3% compared to the first half of 2006, which was itself up 10.1% on theprevious year. Our main TV channel, Ideal World, achieved strong growth in revenue through our6 product categories, led by Fashion, Leisure and Craft. Our other categories,Home, Health & Beauty and Jewellery all grew, but at a lower rate as we changedthe product mix on TV. Mesh Dual Core PCs have proved extremely popular withcustomers, with our value for money offering delivering over £1.5m sales andcontributing to our first ever £1m day. We have also seen great success withinnovative offerings, such as Virgin Hot Air Balloon Flights. Our traditionalproducts, such as Bissell Carpet Cleaners and Kenwood Mixers have remainedpopular too. We have also continued successfully 'up selling' on such products. Craft revenues, including our Create and Craft TV channel, are now the largestcontributor to sales, fuelled in part by the continued growth of our successfulCreate and Craft Club. Our own 'Bundled Craft Packs', directly imported fromChina by Superstore all ready for warehouse dispatch, have been very successful.We had a record 'Pick of the Day' launch on craft during May where sales for oneitem exceeded £0.3m. Online has become the fastest growing sales channel for the business, both as ameans of ordering from the TV and as a channel in its own right, and nowaccounts for 23% of sales (2006:20%). Our sourcing and wholesale business, Superstore, commenced deliveries of craftand other products to Ideal, and craft products to Wilkinsons, in the first halfwith excellent early results. For the period, Superstore essentially broke evenbut with the new contracts now in place, and the continuing business with Asda,it will make a significant contribution to second half profit. Our highlysuccessful 'Back to School' and 'Kids Craft & Colouring' ranges have provedpopular and we continue to expand our offering of such items. Margins Despite a more aggressive stance in our promotional activity, from postage &packing offers to 'buy one get one free' specials, our underlying marginperformance remains robust, increasing by 0.3% over the first half of 2006. Withthe elimination of Freeview sales commission costs in 2007 the headline marginincreased to 42% from 41%. The full fixed carriage costs of Freeview are now inoverheads. In the second half of 2007 we will begin to realise the marginbenefits of Far East sourcing via Superstore. Overheads During June, the business successfully migrated onto the new Sage-based systemsplatform, which will underpin the future growth of the Group as well as removingsignificant future web sales commission costs (2006 £0.5m). As previously announced, 2007 is the first year of the extended Freeviewcarriage contract for our Ideal World TV channel. We chose to bring forward the2008 cost review to gain three major advantages over the old contract; anoverall lower fee increase (which is now annually RPI based), the removal ofsales commission and an extended term now until 2018. This has meant an upwardstep change in overheads which affects 2007 profits. However, from 2008 onwards as the new 'fixed term' nature of the costs become adecreasing proportion of our growing sales, we will begin to realise thefinancial upside of the extended contract terms. We have also incurred additional carriage costs for extending our coverage ontothe expanded Virgin TV network (which includes the old Telewest customer base).Sales are building steadily and the margin from these will offset the additionalcarriage cost for this platform in the second half of 2007. We incurred just over £0.2m of costs associated with the board restructuring.There was also £0.1m of costs associated with the relocation of Superstore fromManchester to Peterborough. Excluding these specific items, the underlying increase in overhead costs was5.9%, mainly due to higher depreciation costs, increased marketing and webactivity, warehouse logistics for the development of our supply chain andsourcing development within our buying department. These will prove to be avaluable investment in growing our business. Profits Reported Profit before tax was £1.4m, down 44% on 2006. Basic EPS was 3.1pversus 6.1p. These results reflect the impact of the additional Freeview and Virgin TVcarriage costs which more than accounts for the shortfall in Profit Before Taxagainst the first half of last year. Last year we reported a first half profitof £3.6 million, before Jewellery Vault closure costs: this year, on acomparable basis, and before the extra carriage costs, profit before tax wouldhave been up £0.7m to £4.3m, representing 19.8% growth. Inventory Following the purchase of Superstore in June 2006, the business has focusedincreasingly on direct importing, mainly from China. This enhances our margins.This is associated with a different supply chain model whereby we carry greaterinventory levels at certain times of the year to reflect the lead times for FarEast sourcing. As a result, at the end of the first half, we held £0.8m of additional inventoryin our warehouse to support second half sales. There was also £1.8m ofadditional Superstore directly imported inventory to support Wilkinsons, Asdaand the independent craft trade through the balance of the year. Excluding these items, and on a basis comparable to last year, inventoriesincreased by £1m to £6.4m, versus £5.4m in 2006. In total, overall stockamounted to £9.0m. With the seasonality of the sourcing model, this level willbe significantly reduced by year end. Cash Net cash balances were £10.6m (2006: £13.8m) after investing £2.6m in directlyimported stock, a further £1.1m in working capital mainly for Superstore, andtax payments of £0.5m. This resulted in net cash outflow of £3.1m from operatingactivities. Capital expenditure was £1.6m in the half, and £0.8m was paid individends. The Group remains focused on generating cash from all activities andon consolidating its cash balances. Dividend The Board is pleased to recommend an increased interim dividend of 1.75p perordinary share (2006: 1.5p), to be paid on 19th October 2007 to shareholders onthe register on 21st September 2007. Superstore Superstore is proving an excellent addition to the Group and we continue toinvest further to extend the sourcing function beyond craft to support otherIdeal world ranges. As we envisaged, Superstore is playing an increasinglyimportant part in delivering the advantages and margin benefits of directsourcing to the Group. We are on track to achieve payback by the end of thisyear - significantly sooner than originally expected and reflecting the speedwith which we have realised operational synergies. Superstore is also developing its existing profitable third-party wholesalebusiness with major new customers such as Wilkinsons, alongside existing highprofile customers like Asda. We are beginning to take these learnings to newretail customers in the high street. Development We have been active in developing a number of new own brand ranges across ourcategory mix, enhancing margins whilst improving quality and differentiating ourranges further. For example, we recently launched our own UK produced BeautySkin Care Range called 'Skin Naturally' based on natural ingredients. Thisexciting range has been developed in conjunction with beauty expert LeanneCooper, who will also be the face of the brand. We have just completed the first large scale market research study of ourmarket. The results of this are being used to focus activity in the balance ofthe year and to drive a review of the strategic growth opportunities availableto the business, in particular through increasing the online component of ourmulti-channel proposition. The strong growth in sales has confirmed the need to plan for additionallogistics capacity over the next few years. We have developed an internal optionof extending land adjacent to the existing premises, with an estimated capitalcost of around £8m. With the changing nature of our supply chain and inventorymix, this is now being benchmarked against alternative logistic solutions beforecommitting to the build. Board & Staff We have successfully completed a restructuring of the Board in order tostrengthen and balance the management team. Paul Wright and Val Kaye stepped down in the first half and David Blake hasrecently joined us as finance director, taking over from Mike Camp who steppeddown in July. Finally, David Williams became Chairman on July 13th. We would like to thank all our staff throughout the business for their effortsthroughout this busy period. It is particularly pleasing that all the changeshave been successfully delivered with no detrimental effect on the continuingrapid growth of the business. OUTLOOK Our revenue growth and robust margins in the first half have outstripped boththe retail market in general, and our TV shopping competitors. Maintaining thatsuperior performance will allow us to offset a significant proportion of ourstep change cost increase this year. There are several factors that increase the second half weighting in 2007: astrong profit contribution from Superstore, the increasing penetration into theold Telewest customer base, the removal of web sales commission, and therealisation of the Far East sourcing benefits. The second half began well, with continuing double-digit sales growth in July,but August has been more difficult. TV viewing figures were lower than expected,especially over the two hotter weekends, and August sales were actually downagainst last year. Total sales in the first 9 weeks of the second half were up2%. Although we have seen a return to double-digit growth more recently, we aretaking a slightly more cautious view of second half prospects. We will continueto focus on controlling costs and driving sales aggressively and remainconfident that the initiatives taken this year leave us well placed toprofitably expand the Group's market position. Consolidated interim income statementFor the 26 weeks ended 1 July 2007 26 Weeks 26 Weeks 52 weeks ended ended ended 1 July 2 July 31 December 2007 2006 2006 £'000 £'000 £'000 Revenue 46,392 42,272 85,638 Cost of sales (26,852) (25,008) (50,255) Gross profit 19,540 17,264 35,383Administrative expenses (18,412) (15,007) (29,740) Operating profit 1,128 2,257 5,643Finance costs (42) (57) (97)Finance income 265 310 594 Profit before taxation 1,351 2,510 6,140 Taxation (427) (705) (1,733) Profit for the period 924 1,805 4,407 Earnings per share - basic 3.1 p 6.1 p 15.0 p Earnings per share - diluted 3.1 p 6.0 p 14.8 p Consolidated interim balance sheetAs at 1 July 2007 1 July 2 July 31 December 2007 2006 2006 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 7,571 7,826 7,602Goodwill 1,523 1,627 1,523Intangible assets 2,717 1,153 1,510Deferred tax assets 64 124 94 11,875 10,730 10,729Current assetsInventories 9,019 5,359 5,310Trade and other receivables 3,922 2,454 2,595Cash and cash equivalents 13,008 16,631 18,684 25,949 24,444 26,589 Total assets 37,824 35,174 37,318 LIABILITIESNon-current liabilitiesBorrowings 2,032 2,505 2,202Deferred tax liabilities 182 487 312Obligations under finance leases 78 0 260Provisions and other liabilities 340 475 340 2,632 3,467 3,114Current liabilitiesBorrowings 339 339 339Trade and other payables 15,588 13,322 14,860Current income tax liabilities 501 1,816 424Obligations under finance leases 414 530 482 16,842 16,007 16,105 Total liabilities 19,474 19,474 19,219 Total net assets 18,350 15,700 18,099 EQUITYCapital and reservesShare capital 893 888 888Share premium 262 191 193Share option reserve 665 398 522Retained earnings 16,530 14,223 16,496Total equity 18,350 15,700 18,099 Consolidated interim statement of changes in equity Share Share Share option Retained capital premium reserve earnings Total £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2006 887 180 243 13,152 14,462 Profit for the 26 weeks ended 2 July - - - 1,805 1,8052006Shares issued 1 11 - - 12Employee share option scheme - - 155 - 155Dividends - - - (588) (588)Deferred tax - - - (146) (146)Balance at 2 July 2006 888 191 398 14,223 15,700 Profit for the 26 weeks ended 31 - - - 2,602 2,602December 2006Shares issued - 2 - - 2Employee share option scheme - - 124 - 124Dividends - - - (442) (442)Deferred tax - - - 113 113Balance at 31 December 2006 888 193 522 16,496 18,099 Profit for the 26 weeks ended 2 July - - - 924 9242006Shares issued 5 69 - - 74Employee share option scheme - - 143 - 143Dividends - - - (814) (814)Deferred tax - - - (76) (76)Balance at 1 July 2007 893 262 665 16,530 18,350 Consolidated interim cash flow statementFor the 26 weeks ended 1 July 2007 26 Weeks 26 Weeks 52 weeks ended ended ended 1 July 2 July 31 December 2007 2006 2006 £'000 £'000 £'000Operating activitiesProfit after tax 924 1,805 4,407Depreciation and amortisation 435 376 752Transfer to share option reserve 143 154 278Income tax paid (523) 0 (3,026)Changes in working capital: Inventories (3,709) 109 159 Trade and other receivables (1,328) 475 191 Trade and other payables 1,152 (2,625) 1,043 Net cash generated from operating activities (2,906) 294 3,804 Investing activitiesPurchases of property, plant and equipment (939) (485) (583)Purchases of intangible assets (671) (64) (478)Purchase of subsidiary undertaking 0 (1,647) (1,720) Net cash used in investing activities (1,610) (2,196) (2,781) Financing activitiesRepayments of borrowings (170) (167) (337)Repayments of finance lease obligations (250) (282) (543)Proceeds from share issue 74 13 14Dividends paid (814) (588) (1,030) Net cash used in financing activities (1,160) (1,024) (1,896) Net decrease in cash and cash equivalents (5,676) (2,926) (873) Cash and cash equivalents at beginning of period 18,684 19,557 19,557 Cash and cash equivalents at end of period 13,008 16,631 18,684 Notes to the consolidated interim financial statements 1 Basis of preparation The Group's consolidated financial statements, until 31 December 2006, were prepared in accordance with UK Generally Accepted Accounting Principles (GAAP). With effect from 1 January 2007, the Group is required to prepare consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union. These consolidated interim financial statements are for the 26 weeks ended 1 July 2007. They have been prepared in accordance with recognition and measurement principles of IFRS because they form part of the period covered by the Group's first IFRS financial statements for the year ended 31 December 2007. The principal IFRS accounting policies of the Group, together with reconciliations and descriptions of the effect of the transition from UK GAAP to IFRS can be found on pages 9 to 19. The accounting policies have been consistently applied to all the periods presented in these consolidated interim financial statements UK GAAP differs in some areas from IFRS. In preparing these consolidated interim financial statements management has amended certain accounting and valuation methods, previously applied in UK GAAP financial statements, to comply with IFRS. Comparative figures presented in respect of 2006 have been restated to reflect these amendments. These consolidated interim financial statements have been prepared under the historical cost convention, except in relation to share based payments which are stated at their fair value. The financial information set out in these statements in respect of the year to 31 December 2006 does not constitute the Company's financial statements for that year. The statutory financial statements for the year ended 31 December 2006 have been delivered to the Registrar of Companies and the auditors' report thereon was unqualified and did not contain statements under section 240 of the Companies Act 1985. The financial statements for the 26 weeks ended 1 July 2007 and the six months ended 2 July 2006 are unaudited. 2 Segment information At 1 July 2007 the Group was organised into wholesale and retail business segments, both operating within the UK. Segment results for the 26 weeks to 1 July 2007 are as follows: Retail Wholesale Consolidation Unallocated Group £'000 £'000 £'000 £'000 £'000 Revenue 44,880 2,281 (769) 0 46,392 Operating profit 1,079 49 - - 1,128 Finance costs (42) (42) Finance income 265 265 Profit before taxation 223 1,351 Taxation (427) Profit for the period 924 3 Share issues During the period under review share options granted under the Company's share based compensation plan have been exercised . These share options increased ordinary shares issued and fully paid at the end of the period under review by £4,652. 4 Earnings per share The calculation of basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period. The calculation of diluted earnings per share is based on the basic earnings per share adjusted to allow for the issue of shares on the assumed conversion of dilutive options. Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below: 26 Weeks 26 Weeks 52 weeks ended ended ended 1 July 2 July 31 December 2007 2006 2006 Weighted average number of shares in issue during 29,508,196 29,423,846 29,431,917 the period Impact of share 156,545 543,830 406,035 options Number of shares for diluted 29,664,741 29,967,676 29,837,952 earnings Earnings attributable to ordinary 924,051 1,804,595 4,406,597 shareholders Earnings per share - basic 3.1p 6.1p 15.0p Earnings per share - diluted 3.1p 6.0p 14.8p 5 Dividends An interim dividend on the ordinary shares of 1.5p per share in respect of the year ended 31 December 2006 was declared on 22 September 2006 and paid on 20 October 2006. A final dividend on the ordinary shares of 2.75p per share in respect of the year ended 31 December 2006 was declared on 1 May 2007 and paid on 8 June 2007. Transition to International Financial Reporting Standards and Summary ofSignificant International Financial Reporting Accounting Policies 1 Basis of transition to IFRS The Group's financial statements for the year ended 31 December 2007 will be the first annual financial statements that comply with International FinanciaI Reporting Standards (IFRS as adopted by the European Union. Interim financial statements have been prepared for the 26 weeks to 1 July 2007 on the basis described in the Notes to the Consolidated Interim Financial Statements. In accordance with IFRS 1 (First time adoption of International Financial Reporting Standards), the Group's accounting policies and recognition and measurement principles under IFRS have been applied retrospectively at the date of transition. A permitted exemption to retrospective application has been claimed in respect of IFRS 2 (Share based payment) which has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 January 2006. The Group's date of transition to IFRS is 1 January 2006 and an IFRS opening balance sheet has been prepared at that date. A summary of the principal IFRS accounting policies follows these notes. 2 Reconciliations between IFRS and UK GAAP The following reconciliations, which provide quantification of the effect and details of the impact of the transition to IFRS, are attached: * Profit for the 26 weeks to 2 July 2006 * Profit for the 52 weeks to 31 December 2006 * Equity at 1 January 2006 (Date of transition to IFRS) * Equity at 2 July 2006 * Equity at 31 December 2006 * Schedule of movements in total equity 3 Explanations of differences between IFRS and UK GAAP Reclassification Software development costs reclassified as intangible assets: * At 1 January 2006 (£1,059,000) * At 2 July 2006 (£1,153,000) * At 31 December 2006 (£1,510,000) Current asset investment reclassified as cash and cash equivalents at 31 December 2006 (£10,000,000). Amortisation Reversal of goodwill amortisation (£89,000), charged under UK GAAP in the year to 31 December 2006, not permitted under IFRS. Deferred tax The requirements of IAS 12 (Income Taxes) in respect of current tax are close to UK GAAP. IAS 12, however, takes a balance sheet approach to accounting for deferred tax based on temporary differences between the accounting base and tax base of assets and liabilities. This is conceptually different to UK GAAP treatment. All taxation adjustments to the financial statements on the transition to IFRS relate to deferred tax. Principal Accounting Policies The Group has adopted International Financial Reporting Standards (IFRS) from 1January 2007, as adopted by the European Union (EU). This document discloses the principal accounting policies applied in thepreparation of the interim financial statements. These policies have beenapplied to all the periods presented in the interim financial statements. Basis of preparation The group's consolidated financial statements were prepared in accordance withthe United Kingdom Accounting Standards (United Kingdom Generally AcceptedAccounting Practice) until 31 December 2006. The date of transition to IFRS was1 January 2006. The comparative figures in respect of 2006 have been restated toreflect changes in accounting policies as a result of adoption of therecognition and measurement principles of IFRS. The disclosures required by IFRS1 concerning the transition from UK GAAP to IFRS are given in the reconciliationschedules, presented and explained in this document. The accounting policies have been applied consistently throughout the Group forthe purposes of preparation of these condensed consolidated financialstatements. Practice is continuing to evolve on the application and interpretation of IFRS.Standards currently in issue and endorsed by the EU may be subject tointerpretations issued by IFRIC (International Financial ReportingInterpretations Committee). For this reason, it is possible that the financialinformation for the 26 weeks ended 1 July 2007 and the restated information forthe year ended 31 December 2006 may be subject to change before their inclusionin the group's 2007 annual report, which will contain the group's first completefinancial statements prepared in accordance with IFRS. IFRS transitional arrangements The group adopted IFRS with a transition date of 1 January 2006. Comparativefigures for the year ended 31 December 2006 and period to 2 July 2006,previously reported in accordance with UK GAAP, have been restated to complywith IFRS. Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and its subsidiaries made up to 1 July 2007. Subsidiaries are fully consolidated from the date on which control istransferred to the Group. The purchase method of accounting is used to account for the acquisition ofsubsidiaries by the Group. The cost of an acquisition is measured as the fairvalue of the assets given, equity instruments issued and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to theacquisition. Identifiable assets acquired and liabilities and contingentliabilities assumed in a business combination are measured initially at theirfair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group's shareof the identifiable net assets acquired is recorded as goodwill. Inter-company transactions, balances and unrealised gains on transactionsbetween group companies are eliminated on consolidation. Unrealised losses arealso eliminated unless the transaction provides evidence of an impairment of theasset transferred. Accounting policies of subsidiaries have been changed where necessary to ensureconsistency with the policies adopted by the Group. In the Company's balance sheet the investments in subsidiaries are stated atcost less provision for impairment losses. The results of subsidiaries areaccounted for by the Company on the basis of dividends received. Intangible assets Intangible assets are measured initially at cost and are amortised on astraight-line basis over their estimated useful lives. Carrying amounts arereduced by provisions for impairment where necessary. Acquired computer software licences are capitalised on the basis of the costsincurred to acquire and bring to use the specific software. These costs areamortised over their estimated useful lives. Directly attributable costs relating to software development include employeecosts and an appropriate portion of relevant overheads. The costs of internallygenerated software developments are recognised as intangible assets and aresubsequently measured in the same way as externally acquired licences. However,until completion of the development project, the assets are subject toimpairment testing only. Amortisation commences upon completion of the asset, and is shown withinAdministrative expenses in the Income Statement. Amortisation is currently at20%. Costs associated with maintaining computer software programmes in use arerecognised as an expense when incurred. Property, plant and equipment Property, plant and equipment comprises freehold land and buildings, fixtures,fittings and equipment and is stated at historical cost less accumulateddepreciation. Historical cost includes expenditure that is directly attributableto the acquisition of the items. Depreciation is provided on the straight line basis, at the following rates, inorder to write off the cost, less estimated residual value, of each asset, otherthan freehold land, over its expected useful economic life: Buildings 2%Motor vehicles 25%Plant and equipment 10% - 33% Freehold land is not depreciated. Assets held under finance leases are depreciated over their expected usefuleconomic lives on the same basis as owned assets or, where shorter, over theterm of the relevant lease. Depreciation methods, residual values and useful lives are re-assessed annuallyand, if necessary, changes are accounted for prospectively. The gain or loss arising on the disposal or retirement of an asset is determinedas the difference between the sales proceeds and the carrying amount of theasset and is recognised in the income statement. Impairment of property, plant and equipment, goodwill and intangible assets Property, plant and equipment and intangible assets with finite useful lives arereviewed for impairment at each reporting date whenever events or changes incircumstances indicate that the carrying amount may not be recoverable. Goodwill and intangible assets with an indefinite useful life and thoseintangible assets not yet available for use are reviewed for impairment at leastannually. An impairment loss is recognised for the amount by which the asset's carryingamount exceeds its recoverable amount. The recoverable amount is the higher ofan asset's fair value less costs to sell and value in use. For the purposes ofassessing impairment, assets are grouped at the lowest levels for which thereare separately identifiable cash flows (cash generating units). Foreign currencies Transactions in foreign currencies are translated into sterling at the rate ofexchange ruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are translated into sterling at the rates ofexchange ruling at the balance sheet date. Gains and losses arising on translation are included in the income statement forthe period. Borrowing costs Borrowing costs that are directly attributable to the acquisition, constructionor production of a qualifying asset are capitalised as part of the cost of thatasset. Other borrowing costs are expensed in the period in which they are incurred Inventories Inventories are stated at the lower of cost and net realisable value. Cost isbased on the first-in first-out principle and includes expenditure incurred inbringing the inventories to their present location and condition. Net realisablevalue is based on estimated selling price less further costs of disposal. Taxation Current tax is the tax currently payable based on taxable profit for the yeartogether with any adjustments to tax payable in respect of prior years. Deferred tax is calculated using the liability method on temporary differences.Deferred tax is generally provided on the difference between the carryingamounts of assets and liabilities in the financial statements and thecorresponding tax bases used in the computation of taxable profit. Deferred taxliabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that theunderlying deductible temporary differences will be able to be offset againstfuture taxable income. Tax losses available to be carried forward are assessedfor recognition as a deferred tax asset. Current and deferred tax assets and liabilities are calculated at tax rates thatare expected to apply to their respective period of realisation, provided theyare enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component oftax expense in the income statement, except where they relate to items that arecharged or credited directly to equity in which case the related deferred tax isalso charged or credited directly to equity. Financial Assets Financial Assets are divided into trade and other receivables and cash and cashequivalents. The designation of financial assets is re-evaluated at everyreporting date at which a choice of classification or accounting treatment isavailable. Provision against trade receivables is made when there is objective evidencethat the group will not be able to collect all amounts due to it in accordancewith the original terms of those receivables. Employee benefits The Group operates defined contribution pension schemes. Contributions payableare charged to the income statement in the period to which they relate. Thesecontributions are invested separately from the Group's assets. Provisions Provisions are recognised when a present legal or constructive obligation hasarisen as a result of past events and it is probable that an outflow ofresources will be required to settle the obligation and the amount can bereliably estimated. Revenue Revenue represents the total invoice value, excluding value added tax, of goodssold and services rendered during the period. Revenue is recognised for thesale of goods on dispatch to the customer. Provision is made for the profit onanticipated returns. Financial Liabilities Financial liabilities are obligations to pay cash or other financial assets andare recognised when the group becomes a party to the contractual provisions ofthe instrument. Financial liabilities categorised as at fair value throughprofit or loss are recorded initially at fair value, all transaction costs arerecognised immediately in the income statement. All other financial liabilitiesare recorded initially at fair value, net of direct issue costs. Financial liabilities categorised as at fair value through profit and loss areremeasured at each reporting date at fair value, with changes in fair valuebeing recognised in the income statement. All other financial liabilities arerecorded at amortised cost using the effective interest method, withinterest-related charges recognised as an expense in finance cost in the incomestatement. Finance charges, including premiums payable on settlement orredemption and direct issue costs, are charged to the income statement on anaccruals basis using the effective interest method and are added to the carryingamount of the instrument to the extent that they are not settled in the periodin which they arise. A financial liability is derecognised only when the obligation is extinguished,that is, when the obligation is discharged or cancelled or expires. Leases Finance leases Assets financed by leasing arrangements, which transfer substantially all therisks and rewards of ownership to the lessee, are capitalised in the balancesheet at their fair value or, if lower, at the present value of the minimumlease payments, each determined at the inception of the lease. The correspondingliability is shown as a finance lease obligation to the lessor. Leasing repayments comprise both a capital and a finance element. The financeelement is written off to the income statement so as to produce an approximatelyconstant periodic rate of charge on the outstanding obligation. Such assets aredepreciated over the shorter of their estimated useful lives and the period ofthe lease. Operating leases Leases where the lessor retains substantially all the risks and rewards ofownership are classified as operating leases. Rentals are charged to the incomestatement on a straight line basis over the period of the lease. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, togetherwith other short-term, highly liquid investments that are readily convertibleinto known amounts of cash and which are subject to an insignificant risk ofchanges in value. Share based compensation arrangements The Company operates an equity settled share based compensation plan. In accordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested as of 1January 2006. Equity-settled share-based payments are measured at fair value at the date ofgrant. The fair value is expensed on astraight-line basis over the vestingperiod, based on estimates of the number of options that are expected to vest. Fair value is determined by reference to Binomial probability models. The expected life used in the model is adjusted, based on management's estimatefor the effects of attrition rates and behavioural conditions. At each balance sheet date, the Company revises its estimate of the number ofoptions that are expected to become exercisable with the impact of any revisionbeing recognised in the income statement, and a corresponding adjustment toequity over the remaining vesting period. The proceeds received net of anydirectly attributable transaction costs are credited to share capital (nominalvalue) and share premium when the options are exercised. Reconciliation of profit for the 26 weeks ended 2 July 2006 Deferred UK GAAP tax IFRS £'000 £'000 £'000 Revenue 42,272 42,272 Cost of sales (25,008) (25,008) Gross profit 17,264 0 17,264Administrative expenses (15,007) (15,007) Operating profit 2,257 0 2,257Finance costs (57) (57)Finance income 310 310 Profit before taxation 2,510 0 2,510 Taxation (752) 47 (705) Profit for the period 1,758 47 1,805 Reconciliation of profit for the 52 weeks ended 31 December 2006 Amorti- Deferred UK GAAP sation tax IFRS £'000 £'000 £'000 £'000 Revenue 85,638 85,638 Cost of sales (50,255) (50,255) Gross profit 35,383 0 0 35,383Administrative (29,829) 89 (29,740)expenses Operating profit 5,554 89 0 5,643Finance costs (97) (97)Finance income 594 594 Profit before taxation 6,051 89 0 6,140 Taxation (1,812) 79 (1,733) Profit for the period 4,239 89 79 4,407 Reconciliation of equity at 1 January 2006 (Date of transition to IFRS) Reclassi- Deferred UK GAAP fications tax IFRS £'000 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 8,794 (1,059) 7,735Intangible assets - 1,059 1,059Deferred tax assets - 88 88 8,794 0 88 8,882Current assetsInventories 5,254 5,254Trade and other receivables 2,208 2,208Cash and cash equivalents 19,557 19,557 27,019 0 0 27,019 Total assets 35,813 0 88 35,901 LIABILITIESNon-current liabilitiesBorrowings 2,540 2,540Deferred tax liabilities 259 232 491Obligations under finance leases 754 754Provisions and other liabilities 479 479 4,032 0 232 4,264Current liabilitiesBorrowings 339 339Trade and other payables 14,630 14,630Current income tax liabilities 1,676 1,676Obligations under finance leases 530 530 17,175 0 0 17,175 Total liabilities 21,207 0 232 21,439 Total net assets 14,606 0 (144) 14,462 EQUITYCapital and reservesShare capital 887 887Share premium 180 180Share option reserve 243 243Retained earnings 13,296 (144) 13,152Total equity 14,606 0 (144) 14,462 Reconciliation of equity at 2 July 2006 Reclassi- Deferred UK GAAP fications tax IFRS £'000 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and 8,979 (1,153) 7,826equipmentGoodwill 1,627 1,627Intangible assets 0 1,153 1,153Deferred tax assets 0 124 124 10,606 0 124 10,730Current assetsInventories 5,359 5,359Trade and other 2,454 2,454receivablesCash and cash equivalents 16,631 16,631 24,444 0 0 24,444 Total assets 35,050 0 124 35,174 LIABILITIESNon-currentliabilitiesBorrowings 2,505 2,505Deferred tax 259 228 487liabilitiesProvisions and other 475 475liabilities 3,239 0 228 3,467Current liabilitiesBorrowings 339 339Trade and other payables 13,322 13,322Current income tax 1,816 1,816liabilitiesObligations under finance 530 530leases 16,007 0 0 16,007 Total liabilities 19,246 0 228 19,474 Total net assets 15,804 0 (104) 15,700 EQUITYCapital and reservesShare capital 888 888Share premium 191 191Share option reserve 398 398Retained earnings 14,327 (104) 14,223Total equity 15,804 0 (104) 15,700 Reconciliation of equity at 31 December 2006 Reclassi- Amorti- Deferred UK GAAP fications sation tax IFRS £'000 £'000 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and 9,112 (1,510) 7,602equipmentGoodwill 1,434 89 1,523Intangible assets - 1,510 1,510Deferred tax assets - 94 94 10,546 0 89 94 10,729Current assetsInventories 5,310 5,310Trade and other 2,595 2,595receivablesCurrent asset 10,000 (10,000) 0investmentCash and cash equivalents 8,684 10,000 18,684 26,589 0 0 0 26,589 Total assets 37,135 0 89 94 37,318 LIABILITIESNon-currentliabilitiesBorrowings 2,202 2,202Deferred tax 120 192 312liabilitiesObligations under finance 260 260leasesProvisions and other 340 340liabilities 2,922 0 0 192 3,114Current liabilitiesBorrowings 339 339Trade and other payables 14,860 14,860Current income tax 424 424liabilitiesObligations under finance 482 482leases 16,105 0 0 0 16,105 Total liabilities 19,027 0 0 192 19,219 Total net assets 18,108 0 89 (98) 18,099 EQUITYCapital and reservesShare capital 888 888Share premium 193 193Share option reserve 522 522Retained earnings 16,505 89 (98) 16,496Total equity 18,108 0 89 (98) 18,099 Schedule of movements in total equity 1 January 2 July 31 December 2006 2006 2006 £'000 £'000 £'000 Total equity under UK GAAP 14,606 15,804 18,108Reversal of goodwill amortisation charged under UK GAAP - - 89Deferred tax (144) (104) (98) Total equity under IFRS 14,462 15,700 18,099 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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