21st Sep 2007 10:00
Intimas Group PLC21 September 2007 Intimas Group plc Interim results for the six months to 30 June 2007 Intimas Group plc ("Intimas" or "the Group") is a designer and supplier ofladies' intimate apparel, with a portfolio of brands comprising Lepel, Ted BakerIntimates, Discover Mademoiselle and Charnos Lingerie KEY POINTS • Difficult trading environment, due to poor weather and impact of higher interest rates • Total group sales of £6.97m (2006: £8.42m) - down 17% • Loss before taxation of £2.21m after £0.7m stock write-down (2006: profit of £156,000) • New senior management team in place • Pension scheme deficit eliminated as at 30 June 2007 • Opening of two high street concept stores at Nottingham and Derby in October • Group now accredited as a nightwear supplier to Marks & Spencer Michael Hobbs, Chairman, comments: "We expect some improvement in trading during the second half, but still expectthe Group to report a small loss for this period and, consequently, for the yearas a whole. Nevertheless, there are some encouraging developments underway thatwe believe will help significantly improve our performance next year." 21 September 2007 ENQUIRIES: Intimas Group plc Tel: 0115 983 6000 Michael Hobbs, ChairmanCarol Duncumb, Chief ExecutiveTim Laughton, Finance Director College Hill Tel: 020 7457 2020 Gareth David INTIMAS GROUP PLC Interim Results for the six months to 30 June 2007 CHAIRMAN'S STATEMENT Introduction The first half of the current year has proven an exceptionally challengingperiod for the Group, as a combination of poor weather for much of the summerand higher interest rates hit consumer confidence and spending. Total Groupsales fell 17% to £6.97m (2006: £8.42m) and we incurred a loss before taxationof £2.21m (2006: profit of £156,000) after taking a £700,000 provision againstold stock. There is no getting away from the fact that these are disappointing results. OurChief Executive, Carol Duncumb, accepts that she and her new team have a majortask ahead to convince shareholders that they can turn this business around andachieve the sort of results expected. The Board has been extremely challengingof her plans and feels confident that we now have the right team and thestrategy in place to move the business forward. The Board is taking an even more critical look at the performance of thebusiness and expects to see results improving significantly as we go through2008. That is not much comfort to shareholders who expected to see tradingperformance improve in 2007 but a more realistic expectation in light of thecurrent market place and the significant change the Group has been goingthrough. Trading Statement During the first half of the current year we have felt, along with our retailcustomers, the harsh reality of a squeeze in consumer spending largely borne outof interest rate rises. This was compounded by the freak summer weather patternwhich further impacted retail sales. Both these factors resulted in an overall loss of confidence, with many of ourretail customers nervous to commit to an ongoing buying strategy until the fullimpact of summer trading downturn could be assessed. There is no doubt that theretail supply base has been hit hard, as retailers flexed their buying volumesand lead times to mitigate their own position where possible. To compound this already difficult situation, renewed corporate activity withour largest customers led to additional reviews of their buying strategy andslower decision making. The inevitable consequence was lost lead time on orderbooks and continuing battles over tightening trading terms. Moreover, the lossof the Contessa account (sold to La Senza in autumn 2006) was a major blow, witha full year profit impact felt this year. Within our branded business, we recognised at the beginning of the year thatinvestment was needed in order to both secure and advance the brands' currentmarket positions. Decisions were made against a backdrop of positive responsesto early presentations at trade shows at which the industry in general feltbuoyant. However, this confidence quickly gave way as the initial positivespring retail trading turned into a dramatic downturn. Despite this, we decidedto continue with the decision to re-brand our major brand, Lepel, with change oflogo, fixture displays and brochures, although recognising that the improvedprofit effects will not be felt until 2008. Charnos also struggled in the first half with problems inherited from theprevious management team in terms of product design and fit which adverselyaffected continuity and fashion repeat orders. At the same time, an ambitiousand expensive marketing programme had been committed to, resulting in a verypoor profit performance for the first half. Private Label began the year with a strategy to realign its activities away fromover reliance on few customers towards developing a broader base to maximise itsfuture potential and de-risk the division. Although poor high street tradingconditions affected first half performance, the new management team are workinghard to establish a stronger future order book. However, much of thisinitiative will not be felt until the latter part of the year. The Groupremains confident in its strategic decision to invest in the ongoing managementstructure of this division to exploit the opportunities that still exist tosupply beautiful, fashionable product to high street retailers. Ongoing Strategy As can be seen from the Trading Statement, we are in uncertain times in respectof our traditional market place and have seen major shifts in terms of buyingpatterns and trading terms. We had already highlighted earlier in the year thatwe were continuing to update and review our strategy, not least because we havemade significant changes to the senior management team. The team is nowsettling down and beginning to work on exploiting some very excitingopportunities, many of which will start to benefit the business in the firsthalf of 2008. However, with this level of senior management change, there have also beenhealthy challenges to existing processes and policies. In particular, the new team has challenged the volumes of prior season stock.It is clear that, over a number of years, the business has not made sufficientprovision to deal with the effective and timely clearance of end of seasonstock. We are making a provision of £700,000 to recognise the cost ofaccelerated clearance. Our clearance outlets will be focused on the profitableclearance of end of season stock and we are actively pursuing new openings. Brands The business continues to be brand-led. We have a strong portfolio of brandsthat are clearly positioned to complement each other and offer sufficient pointsof difference to ensure very little overlap. Our new Group Brand Director, JaneDenereaz, has been working hard to stabilise the brand division, followingsignificant personnel changes, and to further professionalise our sales andmarketing function. Under Jane Denereaz, Lepel has undergone a significant investment into new,strong brand identity, including all aspects of branding, from labelling, to afull in-store fixture programme. It is still early, but already we arewitnessing a positive consumer reaction, with many retailers reporting anincreased sell-through. This has to be capitalised on during the autumn, with astrong push by our sales teams to sell repeat orders from our key line stocks. Lepel has also actioned a subtle repositioning away from over-dominance offashion lines towards styles considered to be more core, with potentiallystronger repeat activity. This acts as a better safeguard in de-risking thebrand in a market downturn, whilst establishing a strong core, volume drivenbusiness in the future. Charnos is in early stages of recovery. The re-launch of the important Superfitcollection is currently underway and we await feedback on sell-through, whilstbacking it with strong in-store visual display. The full year outlook forCharnos is disappointing, as the brand has been hampered by issues relating tofit, design and over-ambitious marketing spend implemented by the formermanagement team, compounded by a turnover downturn in the first half. The new management team has worked very hard to resolve issues and rein inexpenditure for the rest of this year without severely impacting ongoingdevelopment. We have recently launched our Spring and Summer 2008 collectionsand, at the recent Harrogate trade show, Charnos attracted significantattention. I am confident that the turnaround is underway and that thiswonderful heritage brand will regain its position as a premium lingerie label. Private Label Since the appointment of Aileen Webster as Group Private Label Director at thebeginning of the year, we have seen some significant developments. For thefirst time in the Group's history, we have established a relationship with M&Sto supply private label nightwear. We have been accredited as an official M&Ssupplier and will deliver our first orders in December 2007. This is asignificant development for the Group and will help to grow the private labelnightwear business substantially next year. We have made additional investment into the sales and technical team of ourprivate label lingerie division to support the anticipated growth in thisbusiness. We are seeing significant growth with existing customers and thedevelopment of new relationships. Retail As highlighted in previous statements, the development of new channels ofdistribution is hugely important to the Group, especially where our traditionalroutes to market are constantly changing. As a Group, we are determined to getmore control over market distribution while continuing to develop brandawareness and strong wholesale relationships. As part of this development wehave created our own Intimas retail format and will be launching this onto thehigh street in October 2007. Our first store will open on Low Pavement inNottingham city centre, followed quickly by our second store in a new extensionof the Eagle Shopping Centre in Derby. The stores are slightly different formats and sizes that will test differentlevels of service and product offer. The Nottingham store, at over 2,000 squarefeet, has been designed to carry a full product offer (lingerie, nightwear andswimwear) of all Group owned brands and, where necessary, a limited number ofbought in brands. We aim to provide an exceptional level of customer servicethat will include the specialist areas of maternity, bridal and post-operativeservices whilst capitalising on our expertise in fit. The environment, serviceand product offer is tailored to establish a mid to mass market appeal, whereproduct quality, fit, design and price are all key. This format, if successful,could be established in a limited number of major city centres around thecountry. The Derby store is smaller, at 1,200 square feet, but is being tested as themost likely solution for selected high street roll-out. The range and serviceswill be edited to offer best selling ranges with lots of core lines enhanced byconstantly changing fashion options. These concept stores are very important in testing a selective roll-out strategyto towns and cities where our brands are either not represented by independentretailers or severely under-represented. The key here is to achieve greatersales and awareness for all our brands and, ultimately, help both wholesalecustomers and national accounts. Pension In this period we have seen a further improvement in our pension scheme deficit.At the 30th June 2007 we had a small surplus in the Scheme of £48,000 on anIAS 19 basis, compared to a £5.5m deficit last year. Outlook We expect some improvement in trading during the second half, but still expectthe Group to report a small loss for this period and, consequently, for the yearas a whole. Nevertheless, there are some encouraging developments underway thatwe believe will help significantly improve our performance next year. MICHAEL HOBBS Chairman 21 September 2007 Group Income Statement (unaudited) Half year ended Half year ended Year ended 30 June 2007 30 June 2006 1 December 2006 £'000 £'000 £'000 Revenue 6,971 8,417 21,261 Operating (loss)/profit (2,445) (27) 1,063 Operating (loss)/profit includes: Pension settlements and funding costs - - 953 Negative goodwill on acquisition of business - 506 506 Reorganisation costs (100) - (97) Other (2,345) (533) (299) Finance incomeFinance income 646 707 1,409Finance costs (415) (524) (1,026)Net finance income 231 183 383 (Loss)/profit before taxation (2,214) 156 1,446Income tax expense (note 4) - (107) (302)(Loss)/profit for the period from continuing operations (2,214) 49 1,144Profit for the period from discontinued operations 317 1,738 1,722Distribution from closure of associate - 80 81(Loss)/profit for the period (1,897) 1,867 2,947 Earnings per share (note 5)Continuing operations (2.1p) 0.1p 1.1pDiscontinued operations 0.3p 1.7p 1.7pTotal (1.8p) 1.8p 2.8p Group Statement of Recognised Income and Expense (unaudited) Half year ended Half year Year ended 30 June 2007 ended 31 December 2006 30 June 2006 £'000 £'000 £'000 (Loss)/profit for the period (1,897) 1,867 2,947Actuarial gain on pension scheme 1,100 980 737Movement on deferred tax asset relating to pension scheme (331) (294) (222)Currency translation differences on overseas net investments - 23 21Total recognised income and expense (1,128) 2,576 3,483 Group Balance Sheet (unaudited) 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 2,510 1,781 2,167Intangible assets 1,804 1,815 1,831Deferred tax assets 1,213 1,670 1,546Pension Scheme surplus (note 7) 48 - -Total non-current assets 5,575 5,266 5,544 Current assetsInventories 5,032 5,321 5,005Trade and other receivables 3,518 7,477 6,522Cash and cash equivalents 4,661 7,246 8,433Assets held classified as for sale - - -Total current assets 13,211 20,044 19,960 TOTAL ASSETS 18,786 25,310 25,504 EQUITYIssued capital 5,270 5,270 5,270Share premium 89 89 89Capital redemption reserve 415 415 415Retained earnings 11,210 11,431 12,338TOTAL EQUITY 16,984 17,205 18,112 LIABILITIESNon-current liabilitiesPension Scheme deficit (note 7) - 5,518 1,480 Current liabilitiesTrade and other payables 1,698 2,587 5,703Other financial liabilities 104 - 209Total current liabilities 1,802 2,587 5,912 TOTAL LIABILITIES 1,802 8,105 7,392 TOTAL EQUITY AND LIABILITIES 18,786 25,310 25,504 Group Cash Flow Statement (unaudited) Half year ended Half year ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Cash flows from operating activities(Loss)/profit for the period (1,897) 1,867 2,947 Adjustments for: Depreciation, amortisation and impairment 218 116 254 Foreign exchange (gains)/losses (105) 184 395 Negative goodwill on acquisition of subsidiary - (506) (506) Finance income (646) (707) (1,409) Finance costs 415 524 1,026 Taxation - 107 302 Profit for the period from discontinued operations (317) (1,738) (1,722) Distribution from closure of associate - (80) (81) (2,332) (233) 1,206Changes in working capital(Increase)/decrease in inventories (27) (583) (267)Decrease/(increase) in trade and other receivables 3,004 857 (1,924)(Decrease)/increase in trade and other payables (1,415) (1,378) (625) 1,562 (1,104) (2,816) Cash generated from operations (770) (1,337) (1,610)Pension contributions in excess of operating charge (335) (378) (905)Pension settlements (2,353) - (1,397)Net cash from operating activities (3,458) (1,715) (3,912) Cash flows from investing activitiesInterest received 138 187 383Proceeds from sale of asset held for resale - - 3,732Distribution from closure of associate - 80 81Funds received from discontinued lease arrangement 82 - -Acquisition of property, plant and equipment and intangible (534) (159) (699)assetsAcquisition of a subsidiary - (642) (647)Net cash from investing activities (314) (534) 2,850 Net decrease in cash and cash equivalents (3,772) (2,249) (1,062)Cash and cash equivalents at 1 January 8,433 9,495 9,495Cash and cash equivalents at 30 June/31 December 4,661 7,246 8,433 Notes to the accounts 1 First reporting under International Financial Reporting Standards The AIM rules require that the next annual consolidated financial statements ofthe company, for the year ending 31 December 2007, be prepared in accordancewith International Financial Reporting Standards (IFRSs) as adopted by the EU ("adopted IFRSs"). On 21 September 2007 the Group published an analysis of the impact of adoptingIFRS from 1 January 2006. This is available from the Group's website atwww.intimas.co.uk. This included income statement, balance sheet and openingbalance sheet reconciliations, as well as details of the accounting policiesapplied in restating its financial statements for the year ended 31 December2006 and the six months ended 30 June 2006. IFRS 1 permits companies adopting IFRS for the first time to take exemptionsfrom the full requirements of IFRS in the transition period. The following arethe Group's significant accounting policy choices arising from IFRS 1: • Business combinations prior to 1 January 2006 have not been restatedto comply with IFRS 3: Business combinations; • Cumulative translation differences on foreign operations are deemedto be zero at 1 January 2006. Any gains or losses recognised in theconsolidated income statement on subsequent disposal of foreign operations willtherefore exclude translation differences arising prior to the transition date. • Certain items of property, plant and equipment have been measured atfair value at 1 January 2006 and that fair value has been deemed to be its costat that date. 2 Basis of preparation This interim financial information has been prepared on the basis of therecognition and measurement requirements of adopted IFRSs as at 30 June 2007that are effective (or available for early adoption) at 31 December 2007, theGroup's first annual reporting date at which it has decided to use adoptedIFRSs. However, the adopted IFRSs that will be effective (or available for earlyadoption) in the annual financial statements for the year ending 31 December2007 are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the year ending 31 December 2007. The Comparative figures for the year ended 31 December 2006 are not thecompany's statutory accounts for that financial year. Those accounts, whichwere prepared under UK GAAP, have been reported on by the company's auditors anddelivered to the registrar of companies. The report of the auditors was (i)unqualified, (ii) did not include a reference to any matters to which theauditors drew attention by way of emphasis without qualifying their report, and(iii) did not contain a statement under section 237 (2) or (3) of the CompaniesAct 1985. The financial statements are presented in Sterling and all values are rounded tothe nearest thousand pounds (£000). They are prepared on the historical costbasis except for the revaluation to fair value of certain financial instruments. 3 Abridged accounts The results for the year ended 31 December 2006 are an abridged version of thefull accounts for that year. The interim report is unaudited. The full 2006accounts incorporating an unqualified audit report have been filed with theRegistrar of Companies. 4 Tax charge The tax charge for the six months ended 30 June 2007 has been based on theestimate of the tax charge for the full year results with the effective rate oftax applied to the half-year result before tax. Notes to the accounts (continued) 5 Earnings per share Earnings per share has been calculated on the earnings for the period divided bythe weighted average number of shares in issue: Half year ended Half year ended Year ended 30 June 2007 30 June 2006 31 December 2006 Earnings for basic earnings per share (£'000) (1,897) 1,867 2,947Weighted average number of ordinary shares (Number) 105,394,178 105,394,178 105,394,178 6 Reconciliation of movements in shareholders' equity Half year Half year ended Year ended 30 June 2006 ended 30 June 2007 31 December 2006 £'000 £'000 £'000 Opening shareholders' equity 18,112 14,629 14,629(Loss)/profit for the period attributable to shareholders (1,897) 1,867 2,947Actuarial gain on pension scheme net of tax 769 686 515Currency translation differences on overseas net investments - 23 21Closing shareholders' equity 16,984 17,205 18,112 7 Pension scheme surplus/(deficit) 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Deficit at the beginning of the period (1,480) (6,872) (6,872)Movement in the period: Current service costs (15) (20) (37) Contributions 350 398 942 Settlements - - 3750Net credit/(charge) to other finance income and costs 93 (4) -Actuarial gain in statement of recognised income and expense 1,100 980 737Surplus/(deficit) at the end of the period 48 (5,518) (1,480) For the purpose of this exercise, the value of the Scheme's liabilities as at 30June 2007 was estimated by projecting the results of the latest formalvaluation, carried out by the Scheme Actuary as at 1 January 2006, usingapproximate methods and including adjustments that are consistent with therequirements of IAS 19 and market conditions as at 30 June 2007. 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