2nd Mar 2005 07:01
Ideal Shopping Direct PLC02 March 2005 Ideal Shopping Direct Plc ("The company") 2nd March 2005 2004 Preliminary Figures Ideal Shopping Direct Plc, Britain's leading independent multi-channel TV homeshopping business, today reports preliminary figures for 2004. 2004 2003 • Turnover £60.4m £42.7m Increase by 42% • Gross Margin % 43.5% 39.9% Up by 3.6 points • Profit before taxation £4.105m £0.123m Increase by £3.982m • Earnings per share 9.3p 1.3p Increase by 8.0p • Dividend 1.0 p Nil Increase by 1.0p Jim Hodkinson, Chairman, commented: "These results show the exciting potential in this business and reflect ourstrong market position. We have put measures in hand to generate further growthand to enhance the efficiency and profitability of our business model. Wecontinue to strengthen our senior management team with the appointment to theBoard of Andrew Fryatt as Chief Operating Officer and key appointments in thecritical areas of Head of Buying and Head of Logistics. The current year hasstarted well with performance being in line with our internal budgets. The focuson all elements of our business performance remains at a very robust level. I amconfident that we will be able to make further good progress during 2005." Enquiries: Ideal Shopping Direct Plc Tel: 08700 780704Jim Hodkinson, Chairman ReputationInc Tel: 020 7758 2800Tom Wyatt Chairman's Statement INTRODUCTION I am pleased to present my first annual report to shareholders as Chairman ofIdeal Shopping Direct Plc and delighted to be able to tell you that pre-taxprofits for the year ended 31 December 2004 were a record £4.1 million. Thiscompares with the reported profit of £0.123 million in 2003. This profitperformance has also had a strong impact on our balance sheet, which shows amuch improved net cash position at the year-end. It has been an exciting year for the company in which we began to see realbenefits from many of the necessary investments and initiatives put in placeduring 2003. In particular, the reorganisation of our buying, warehousing anddistribution facilities prepared the way for the significantly higher level ofturnover, which we have achieved since the launch last April of Ideal World onFreeview. Other improvements have been put in process, not least the planning for asignificant upgrade of the company's IT and management information systems whichwill be implemented this year. And while this will involve extra costs in theshort term, our current momentum encourages me to expect that the business willbe able to make further good progress during 2005. The Board has decided, in view of the improved trading picture and the company'sstrong cash position, that it should declare a maiden dividend for the year of1.0p. TRADING REVIEW Turnover was £60.4 million - an increase of 41.6% when compared to the £42.7million achieved last year. The percentage gross profit achieved was 43.5%compared to 39.9% for the prior year. Total operating costs increased from £17.1million to £22.2 million - an increase of 29.5% reflecting the increase in costsfrom Freeview and increased staffing levels to fulfil the increase in orderlevels. Operating profit was £4.1 million, compared with a small loss of £0.113 millionin 2003. Profit before tax for the year was also £4.1 million, against 2003's£0.123 million. Diluted earnings per share increased from 1.3p in 2003 to 9.3pin 2004. These figures show the very significant improvement in our results achieved inthe last year, but only begin to tell the story of the major changes which havebeen made throughout the business over the last eighteen months. Ideal Shopping Direct has a strong and well established position in the TVshopping market, a loyal and growing customer base, an executive management teamwith long experience of the home shopping industry and, with the rebuilding ofour new Peterborough headquarters "Ideal Home House" after the 2001 fire, stateof the art broadcasting facilities with plenty of capacity for development. In order to capitalise on these advantages and maximise the company's potential,we have made a series of fundamental changes in the way the company operates andorganises itself. These have included • continuing to refine and develop our processes in the critical areas of buying, warehouse and distribution; • innovation and investment in marketing channels, not least with the launch of our flagship channel, Ideal World, on Freeview, but also in exciting new web-based developments for our niche channels, Create and Craft, and Vitality. These changes have required the implementation of a series of new initiativeswhich have challenged and stimulated our senior management, and have receivedthe committed involvement of all our staff, at every level of the business. Ourlong serving employees have embraced the changes enthusiastically and have givenus fantastic support through this process and the new management we haverecruited to bring additional experience and expertise in key functions haveperformed well. We now have a team which has already shown its quality and has the capability togrow with our ambitious plans for expansion. This gives us the platform toexpand the business with confidence. DIVIDENDS The Board is pleased to recommend a maiden dividend of 1.0p per share (2003:nil). Subject to approval by shareholders at the Company's Annual GeneralMeeting on 4 May 2005, the maiden dividend will be paid on 11 May 2005 toshareholders on the Register as at 9 March 2005. BOARD CHANGES I joined the Board on 1 April 2004 as Non-executive Chairman, when Paul Wrightrelinquished this role to concentrate on his role as Chief Executive. Thesecond new Board member is Andrew Fryatt, who joined on 8 November 2004 as ChiefOperating Officer. Andrew has a background in retail, including senior roles atWoolworths, Tandy, Carphone Warehouse and T-Mobile, and will be focusing onensuring that our infrastructure, processes and procedures support ourcontinuing growth. STAFF On behalf of the Board, I would like to thank senior managers, managers andemployees throughout the company for their continued commitment and hard work,which has been a major contribution to the successful performance for the year. FUTURE PROSPECTS Ideal Shopping Direct is a business that has grown and will continue to thriveon innovation. 2005 will see a number of new initiatives launched, using bothour TV and web-based capabilities. But the core of the business still has atremendous opportunity for expansion, as our audience reach increases. Television shopping is now estimated to be an £800 million per annum business,and like other internet based "new channel" retailing activities, is estimatedto be growing at an annual rate significantly in excess of consumer spendinggenerally. We have a core customer base which is loyal and makes repeat purchases, with abroad and slightly above-average income mix. Most are married homeowners, manyhave older or grown-up children, and are interested in well marketed clothingand jewellery, health and beauty products, items for the home, for leisure, forrecreation and craft. In short, we already have a direct link with an estimated 14 million householdswith digital TV installation. Independent industry observers expect the 2008market will be 60% larger than 2003. We are well established on all three majordelivery channels, and particularly well placed on Freeview which is currentlygrowing at a very fast rate and much faster than satellite or cable. We are therefore exceptionally well placed to continue to hold and expand ourestablished position in this exciting growth market. We currently have anestimated market share of approximately 7.5%, and while significantly smallerthan our major competitor, we have the specialist marketing approach andflexibility to compete effectively. As many of the new entrants into this fieldare discovering, there is no substitute for experience and good management inwhat is a complex and very fluid market. I am confident that our investment in new systems, strong management, andenhanced processes and procedures will enable us to make even better use of theresources we have, so that we can grow sales and margin whilst controllingoverheads. We will continue to focus, improve, and expand upon our channels to market andremain confident of another successful year for growth and development of IdealShopping Direct plc. The current year has started well with performance beingin line with our internal expectations. The focus on all elements of ourbusiness performance remains at a very robust level. Jim HodkinsonChairman2 March 2005 Chief Executive's Statement 2004 was the year that we realised the benefits of reaching critical mass, a keylandmark in the TV shopping business. The record sales, margin and profit aretestimony to our ability to utilise an infrastructure that now supports three TVchannels, Ideal World broadcasting on Sky, NTL and Freeview with Create andCraft and Ideal Vitality broadcasting on Sky only, and three rapidly growingtransactional websites. TELEVISION ShOPPING Ideal World:Sky Digital Satellite Channel 634NTL Digital Cable Channel 855Freeview Channel 22 Ideal World remains the core of our TV shopping activities and has shown verysignificant further growth during 2004. Total turnover rose by 41.6% in theyear. Sales of Ideal World have now virtually doubled in the last two years. The channel turnover has received a significant boost in viewers from 23 April2004 when we started transmitting the channel on Freeview to an estimated threemillion new households. From April 2004 to December 2004 sales of Freeviewboxes have accelerated and it is estimated there are now five million soldproviding further opportunity for growth. The sales generated from this newroute to market have exceeded the Board's cautious expectations, deliveringsignificant additional sales and gross margin. To transmit Ideal World onFreeview the company incurs additional costs but given the existing fixed costsof programming, the level of additional sales generated is already producing acontribution after deduction of the additional platform costs. Sales through existing Sky and NTL transmissions have grown at a slower rate butwe have nevertheless continued to improve and develop a range of new marketinginitiatives, which underpin and strengthen our market position. Create and Craft:Sky Digital Satellite Channel 664 Create and Craft was our first niche channel, a new and complementary activitywhich works on a different business model and benefits from our ability to useexisting broadcasting assets during downtime to produce tested pre-recordedmaterial for later broadcast. We had identified a niche shopping audience forcraft products sold through Ideal World, and launched Create and Craft as a 24hour dedicated craft channel in April 2003. This niche channel has continued to grow. This performance reflects ourimproving understanding of what sells well in this format, but has alsobenefited from our innovative approach to marketing its offer. We have alsogrown our business dramatically using the worldwide web to transmit Create andCraft on the Internet and by providing customers with access to a widercatalogue of current product offers and an additional vehicle to place orders. Our investment in the launch of the channel on an interactive sales focused website has produced encouraging results, with web sales growing at a higher ratethan via the Create and Craft television channel. Both routes to market arecomplementary: the television channel directs customers to the web site forfurther information and detail on products, and the website encourages viewersto see the products displayed and demonstrated on the television channel. Ideal Vitality:Sky Digital Satellite Channel 661 Ideal Vitality is our second niche channel and is focused on selling health andbeauty products. It operates on the same business model as Create and Craft:products which have been tried and tested on Ideal World are marketed to anidentified niche audience, using pre-recorded material produced at low cost inour own broadcasting facilities. Ideal Vitality also has its own transactionalwebsite in the same way as Create and Craft. Our start-up costs for Ideal Vitality were very low because the concept wasinitially developed as a turnkey operation for Goldshield Plc. However, thisarrangement was terminated on short notice at the end of 2003 and, from thebeginning of the 2004 financial year, the Company took over the channel andrelaunched it as Ideal Vitality. Total sales in its first full year of operationhave been encouraging but were slower than expected in the first half as welearned what appealed well to its customers and recruited a dedicated team tofocus on the development and growth of this channel. With a strengthened teamnow running this channel, we are confident that we can significantly expand itssales base during this financial year. CONCLUSION The TV shopping market is evolving and growing rapidly. We anticipate a furtherperiod of sustained growth over the next 3-5 years. However, with the advanceof technology and the increasing importance of the Internet, the future ofbroadcasting will undoubtedly change and new and exciting opportunities emergefor retailing and new retailing models. From 2000 when we launched Ideal World, we saw this as a significant first stepfor us along the road of becoming a true multi-channel retailing enterprise ofits time. The last four years have been fairly traumatic and challenging and we arepleased with the unwavering dedication and commitment of all who comprise theenterprise which is Ideal Shopping to enable us to reach critical mass anddemonstrate the true potential of our business model. The recent arrival of Andrew Fryatt to fulfil the role of Chief OperatingOfficer will allow me to more fully focus on the future and a whole raft ofexciting new growth opportunities. Now with the foundations firmly laid and we believe with a strong managementteam in place, we look forward with real optimism to the exciting prospectsahead. There is undoubtedly much more potential to grow the existing businessand many other new opportunities which will be explored. P C WrightChief Executive2 March 2005 Finance Director's ReportPERFORMANCE This report and financial statements are for the year ended 31 December 2004. The financial results reflect the Board's continued focus on improving marginwhilst increasing its sales growth and strong cash management. Sales grew in total by 41.6% to £60.4m (2003: £42.7m) The gross margin achieved was 43.5% (2003: 39.9%). The company achieved an operating profit after interest but before taxation of£4.1m (2003: £0.1m) giving rise to diluted earnings per share of 9.3p comparedto 2003 of 1.3p. The distribution and administrative costs to sales ratio decreased to 36.7%(2003: 40.1%) reflecting an improvement in the operational gearing of theCompany. Taxation The overall tax charge is £1.349m (2003: £0.252m). The Company's actualcorporation tax liability is eliminated by the utilisation of tax losses broughtforward from previous years. The tax charge in the financial statements arisesdue to the reduction in the deferred tax asset as a result of the utilisation ofthe losses. It is anticipated that remaining brought forward losses will be realised in 2005and a level of tax will be payable for 2005 and onwards. Interest The net interest charge during the year decreased from £301,000 to £4,000 mainlydue to the company setting off its mortgage against its bank balances. Capital expenditure During the year the company invested £350,000 in the replacement and upgradingof its fixed assets. CASH FLOW AND WORKING CAPITAL Net cash inflow from operating activities was £9.2m (2003: £1.2m) primarilyreflecting the increase in trading and the continued tight cash management. The Company improved its stock turnover in the year to 8.9 compared to 5.8 timesin 2003, calculated by dividing cost of sales by average stock held. Treasury and Risk Management The principal risks to the company arise from exchange rate and interest ratefluctuations. No transactions of a speculative nature are entered into. Thecompany finances its operations through a mixture of retained profits and mediumand long-term asset backed finance. The debt instruments used for fixed assetpurchase are all at fixed rates of interest. Cash deposits during the year wereplaced at fixed rates of interest with varying maturity periods. The mostsignificant exposure to foreign exchange rate fluctuations relates to thepurchase of goods in foreign currencies. The Company's policy is to hedge substantially all the risks of such currencyfluctuations by using forward contracts. There has been no change since the yearend to the major financial risks faced by the Company or the Company's approachto the management of those risks. Mike CreedonFinance Director2 March 2005 Consolidated Profit and Loss AccountFor the Year Ended 31 December 2004 As restated 2004 2004 2003 2003 £'000 £'000 £'000 £'000 Turnover 60,382 42,655 Cost of sales (34,113) (25,654) Gross profit 26,269 17,001 Distribution costs (1,867) (1,564) Administrative expenses (20,293) (15,550)Net operating expenses (22,160) (17,114) Operating profit/(loss) 4,109 (113) Exceptional item - 537 Net interest (4) (301) Profit on ordinary activitiesbefore taxation 4,105 123 Tax on profit on ordinary activities (1,349) 252 Profit for the financial year 2,756 375 Dividends (292) - Retained profit transferredto reserves 2,464 375 Basic earnings per share 9.4p 1.3p Diluted earnings per share 9.3p 1.3p Consolidated Balance SheetAt 31 December 2004 2004 2004 2003 2003 £'000 £'000 £'000 £'000Fixed assetsTangible assets 7,908 8,884 Current assetsStocks 3,829 4,410Debtors: amounts falling duewithin one year 1,354 1,249Debtors: amounts falling dueafter more than one year - 1,582Cash 14,517 6,347 19,700 13,588Creditors: amounts falling duewithin one year (13,941) (10,597) Net current assets 5,759 2,991 Total assets less current liabilities 13,667 11,875 Creditors: amounts falling dueafter more than one year (3,367) (3,863) Provisions for liabilities and charges (794) (991) 9,506 7,021 Capital and reservesCalled up share capital 882 881Share premium 84 64Special reserve - 5,709Profit and loss account 8,540 367 Shareholders' funds 9,506 7,021 Consolidated Cash Flow StatementFor the Year Ended 31 December 2004 2004 2003 £'000 £'000 Net cash inflow from operating activities 9,225 1,225 Returns on investments and servicing of finance Interest received 236 110 Interest paid (103) (207) Finance lease interest paid (137) (204) Net cash outflow from returns on investments andservicing of finance (4) (301) Capital expenditurePurchase of tangible fixed assets (231) (703) Insurance proceeds in respect of tangible fixed assets - 537 Net cash outflow from capital expenditure (231) (166) Financing Issue of shares 21 70 Receipts from borrowings 212 200 Repayment of borrowings (235) (263) Capital element of finance lease payments (818) (659) Net cash outflow from financing (820) (652) Increase in cash 8,170 106 Notes 1 BASIS OF PREPARATION The financial information set out above in respect of 31 December 2004 does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The financial information contained in this announcement has been extracted from the 2004 financial statements upon which the auditors opinion is unqualified and does not include any statement under Section 237 of the Companies Act 1985. The preliminary announcement has been prepared in accordance with applicable accounting standards and under the historical cost convention. The principal accounting policies of the Group are set out in the Group's 2003 annual report and financial statements. The policies in this preliminary announcement have remained unchanged from the 2003 financial statements, with the exception of the policy relating to the presentation of advertiser sales and certain costs as detailed below. The treatment of advertiser sales has been amended to correctly reflect the role of the company as agent and not principal. Sales and cost of sales have been reduced by £2,114,000 (2003: £1,475,000) to reflect advertiser sales as net, not gross, transactions. There is no profit effect of this amendment. Certain elements of the cost of sales, administration and distribution costs of the group have been reclassified in order to give a more realistic view of the transactional costs associated with the sales of the business. The treatment of cost of sales has been amended to include credit card charges and sales commissions. Cost of sales has been increased by £715,000 (2003: £453,000) in respect of credit card charges and £16,000 (2003: £23,000) for sales commission. Equally administration costs have been reduced. Distribution costs have been adjusted to only include specific costs associated with the distribution of sales and remove any overhead element previously included. Distribution costs have been reduced by £926,000 (2003: £800,000) with administration costs increasing by the same amount. There is no profit effect of these amendments. 2 TAXATION ON PROFIT ON ORDINARY ACTIVITIES The tax charge/(credit) represents: 2004 2003 £'000 £'000 Corporation tax at 30% (2003: 30%) 45 21 Total current tax 45 21 Deferred tax: Origination of timing differences 1,304 40 Adjustments in respect of prior year - (313) Total deferred tax 1,304 (273) Tax on profit on ordinary activities 1,349 (252) The deferred tax charge of £1,304,000 represents partial release of the deferred tax asset established in respect of trading losses in prior years under FRS 19. 3 DIVIDENDS 2004 2003 £'000 £'000 Proposed dividend for the year ended 31 December 2004 of 1p (2003: nil) per share 292 - The proposed dividend is subject to approval by shareholders at the Annual General Meeting. 4 EARNINGS PER SHARE The calculation of the 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 year. 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. Reconciliation of the earnings and weighted average number of shares used in the calculations are set out below: 2004 Weighted average Per share Earnings number of amount £ Shares Pence Earnings attributable to ordinary shareholders 2,756,000 29,203,449 9.4 Dilutive effect of securities: Options - 379,884 (0.1) Diluted earnings per share 2,756,000 29,583,333 9.3 2003 Weighted average Per share Earnings number of amount £ Shares Pence Earnings attributable to ordinary shareholders 375,000 29,200,570 1.3 Dilutive effect of securities: Options - - - Diluted earnings per share 375,000 29,200,570 1.3 5 REPORT and Accounts Copies of Company's annual report and accounts will be posted to the shareholders shortly. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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