17th May 2007 07:00
Findel PLC17 May 2007 17th May 2007 Findel plc ("Findel", "the Company" or "the Group") Preliminary Results For the 12 months ended 31st March 2007 Findel plc, one of the country's leading Home Shopping and Educational Suppliesbusinesses, today announces its Preliminary Results for the twelve months ended31st March 2007. Business Highlights • Record year: delivered on strategy to develop cash with order business and strengthened market leading positions in Educational Supplies & Healthcare divisions • Educational Supplies: focused on improving service and strengthening customer offering; small strategic acquisition • Healthcare: developed systems and as a result is well placed for growing market; complementary acquisition made • Home Shopping: considerable activity through strategic acquisitions of Letterbox, Kitbag.com, Confetti, I Want One of Those.com, Kleeneze and The Cotswold Company • Integration programme on track with significant benefits expected • Disposed of non-core activities resulting in focused, streamlined business • Home Shopping Internet sales in core credit business now over 30% - predicted to be 50% of divisional sales in current year • Strategic review outcome due end Summer 2007 Financial Highlights • Sales up 11% to £587m (2006: £528m) • Benchmark* Profit before Tax up 10% to £56m (2006: £50.7m) • Profit before Tax £17.5m (2006: £35.1m) • Benchmark* earnings per share up 4% to 50.17p (2006: 48.33p) • Final dividend up 10% at 15.6p (2006: 14.2p) bringing total for year to 19.8p (2006: 18.0p) per share Keith Chapman, Chairman of Findel plc said: "Findel has gone through a period of significant change over the past year. Wehave made several strategic acquisitions of industry leading brands includingLetterbox, Kitbag.com, IWOOT and Kleeneze which have transformed our HomeShopping Division. We have established through these acquisitions a substantialcash with order business and have grown our internet sales into a core saleschannel. We are currently undergoing a major integration programme to maximisethe synergies from these acquisitions. "We have strengthened our Educational Supplies and Healthcare divisions throughtwo key acquisitions. Although Education experienced a difficult market, wecontinued to streamline the business and develop our unique offering to ensurewe remain the market leader in the sector. The development and commissioning ofthe new management information system means that we are well placed in thegrowing Healthcare division to take advantage of current favourable marketconditions. "We have delivered considerable progress this year and strengthened our positionin all three of our core markets. We remain excited about the year ahead andthe opportunities for the Group." For further information, please contact: Patrick Jolly, Chief Executive Today: +44 (0) 207 831 3113Findel plc Thereafter: +44 (0) 1943 864686 Jonathon Brill/Billy Clegg Today: +44 (0) 207 831 3113Financial Dynamics Chairman's Statement This has been another record year for your Company. Overall sales for thefinancial year ended 31 March 2007 were 11% higher at £587m (2006: £528m).Benchmark* profit before tax increased by 10% to £56m from £50.7m. As a resultof the high level of corporate activity and restructuring giving rise to anumber of one off costs, profit before tax reduced to £17.5m (2006: £35.1m). Benchmark* earnings per share increased to 50.17p (2006: 48.33p) the prior yearhaving benefited from a lower tax charge. Basic earnings per share were 19.33p(2006: 35.58p). This has been a year of considerable strategy-led change designed to enhance thefuture prospects for the Group's businesses. At the beginning of the year I saidthat we wanted to move strategically into the cash with order market and we havetaken some significant steps with the acquisition of a number of businesses.Additionally, a number of actions were taken to prepare for this expansion inrelation to which we incurred net non-recurring costs in the first half of£24.2m. As part of our strategic review of all divisions, we have also sold ordiscontinued a number of non-core businesses to improve the overall efficiencyof the Group. The total net non-recurring cost in the second half of the yearwas £12.4m after recognising a gain of £7.8m for negative goodwill arising onthe acquisition of certain businesses from European Home Retail plc. The principal non-recurring costs in the year were the disposal of our outletstores (£16.5m), a warehouse reorganisation in Home Shopping and the exit of allthird party fulfilment contracts (£7.5m), the final element of thereorganisation in Educational Supplies (£4.3m), the loss on disposal of HomeFarm Hampers (£2.4m), losses in terminated businesses including in Home FarmHampers (£6.0m), and the initial phase of the major project to integrate ourcash with order acquisitions (£4.7m). Home Shopping Home Shopping sales from ongoing businesses increased by 29% to £338.4m (2006:£262.8m). Following the closure of the Home Farm Hampers business and the exitfrom all third party fulfilment contracts, all remaining activities previouslyreported as the Services division are now incorporated in the Home Shoppingdivision results. The acquired cash with order businesses contributed £70m tosales. Benchmark* operating profit increased by 29% to £48.4m (2006: £37.4m).For Home Shopping and Services combined, sales increased by 23% to £368.3m(2006: £299.5m) and operating profit was £20.3m (2006: £39.2m). Our core home shopping credit business enjoyed a successful year with productsales increasing by 5%. I am delighted to report that the customer base is nowover 1.5m with retention rates at a record 70%. Sales to established customersgrew by 8% with average order value growing by 4%. Bad debt remains in line withbudgeted levels at less than 8% of sales. All this has been achieved at a timewhen marketing expenditure was reduced from £34m to £29m. The continued strong growth in sales from the internet is extremely encouraging.These now represent 30% of all sales in our core credit business, an increase of35%. Additionally, last year tests on the internet proved it to be successful asa recruitment medium and our plans for this year are designed to buildsubstantially on this. The focused internet skill sets brought in with our cashwith order businesses will bring additional benefits to our credit business andwe see this as a continuing exciting area of development. Next year we expectover 50% of the division's sales to be transacted over the internet. A year ago Home Shopping operated only a credit model. During the year weacquired Kleeneze, Kitbag.com, Confetti, I Want One of Those.com, Letterbox andThe Cotswold Company and consequently have built a cash with order business withannualised sales of over £150m. A very significant integration exercise is being undertaken and is proceeding toplan. It is our intention over the next 12 months to maximise the synergiesavailable from the acquired businesses. The central functions for the internetbrands are being brought together under a new umbrella company, Findel Directwhich will provide centralised finance, warehousing, distribution, systemssupport and administration. However, in order to maintain brand integrity wewill retain brand management for both marketing and buying within each business.We have freed up a large part of our Chadderton site to house Findel Direct. In addition, we are moving Kleeneze warehousing, customer service andadministration functions to our main site in Accrington. The customer serviceand administration functions are currently moving and will be completed in July.The warehousing and logistics functions will be moved by the end of August. Theincorporation of Kleeneze into our state of the art facility in Accrington willbring additional savings and further utilise its capacity. The Home Shopping division is now well positioned with both a credit and cashwith order offer. Divisional like for like sales in our credit business in thefirst 6 weeks of the new financial year are 7% ahead with product sales 13%ahead. Overall divisional sales following our acquisitions are some 64% ahead oflast year. Educational Supplies The Educational Supplies division saw a slight reduction in ongoing sales to£168.2m (2006: £173.8m) with benchmark* operating profit at £22.7m (2006:£24.2m) reflecting a difficult market caused by a combination of factors; theway the government introduced the new multi year budgets, delays in providingthis year's funding, or simply as noted by the schools' minister in March, thefact that schools are not spending to their budgets and have once again built upnet surpluses to £1.6bn. Statutory sales were £169.6m (2006: £175.0m) andstatutory operating profit was £16.4m (2006: £7.0m). Findel is the market leader in Educational Supplies and has the best brands inthe market. Over the past two years we have streamlined the business and haveimproved our service to what we consider to be the optimum level for a cataloguebusiness. We are developing more unique product than ever before and thisrepresents a key strength of our business. Unique product generates interest,refers teachers back into our main brand catalogues and importantly alsoprotects margin. We continue to look for strategic acquisitions which enhance or strengthen ourpresence in the market and we recently acquired Philograph Publications Ltd,whose Philip and Tacey brand specialises in sales to independent schools. Research commissioned by Findel from independent agency Laing & Buisson suggeststhat our total addressable market in the UK is in the order of £1.8bn, giving usa market share of close to 10%. Around 75% comes from state establishments,largely primary and secondary schools. Of the remaining 25%, the majority comesfrom the private sector or from pre-school education providers such asnurseries, creches, playgroups and childminders. The supply base to the Educational Supplies market is highly fragmented and wehave no national competitors of any size in our sector. Taking into accountregional suppliers we estimate we have well over 1,000 direct competitors. Mostof these are small operators often dealing in a very limited product range. Theexistence of these generally inefficient competitors offers us scope forsignificant growth through consolidation of the market. We saw an upturn in demand in the final quarter of last year which has continuedinto the new financial year, with divisional demand for the first six weeks ofthe financial year 6% ahead of last year. I believe that our refreshed productrange, improved service, increasing sophistication in the use of our datawarehouse and thoroughly revitalised business present us with a strongopportunity for a return to growth this year. Healthcare NRS, our healthcare business, has gone through a period of consolidation andsystem development. Divisional sales were £48.8m (2006: £53.2m) with benchmark*operating profit at £1.8m (2006: £3.6m). Statutory operating profit was £1.0m(2006: £3.6m). Although sales and profit in the 2006 financial year were down,impacted by internal reorganisation and the introduction of our new operationalpda based IT system, ICON, the action we have taken will be reflected in futuresales and profitability. During the year, NRS management worked hard with contractors to develop and rollout ICON and this is now installed across our entire contract base. Whilst thedevelopment of this has been very time consuming, the benefits will beconsiderable. With ICON we will be able to track and trace product throughoutits lifecycle thereby optimising product re-use and obtain live data on thelocation of stock, vehicles and drivers resulting in significantly improvedservice levels. It will also provide a new web based management informationsystem with significantly enhanced information flow. Over time the introductionof this system will significantly enhance profitability. During the year, NRS was awarded the largest ICES contract to come to market,Cambridgeshire and Peterborough, which is a five year contract at over £5m ayear, with a two year extension. This contract went live on 1 April 2007. Wesuccessfully negotiated contract extensions to the value of £33m across fivecontracts. In addition, NRS has been awarded ISO accreditation, which will beincreasingly important in our bid for new tenders. At the half year we reported that part of our strategy was to expand into theprovision and service of wheelchairs. This led to the successful acquisition ofSynergy Managed Equipment Services which provides a managed wheelchair productsand support service to the healthcare market. NRS is the leader in the Integrated Community Equipment Supplies market withover 45% of the market in the private sector. I believe that the actions takenthis year will strengthen that position in what will become a very fast growingsector. Sales in the new financial year have shown meaningful improvement andare already some 6% ahead of last year. Dividends The directors are recommending a final dividend of 15.6p per share (2006: 14.2p)a 10% increase. This will be paid on 5 July 2007 to shareholders on the registerat 8 June 2007. This would make a total dividend for the year of 19.8p (2006:18p per share) an increase of 10%. Employees The success we have enjoyed would not have been possible without the continuedenthusiasm and loyalty of all our employees. On behalf of the Board and theShareholders I would like to express our sincere appreciation to them. Board Changes On 4 July 2006 I was pleased to welcome Mike Hawker to the board as a NonExecutive Director. Mike has over 25 years experience in home shopping havinglatterly been Chief Executive of Otto (UK). Having served over three full terms on the Board as a Non-Executive Director,John Padovan has decided not to offer himself for re-election at the AnnualGeneral Meeting. During his time on the Board John has made an invaluablecontribution and on behalf of the Board and myself, I should like to thank himfor all his assistance and wise counsel. The Board is actively seeking to appoint an additional Non-Executive Director. Strategic Review The last six months have been extremely busy both corporately and operationallyand have delayed a final decision on the future corporate structure of theGroup. However, we are now sufficiently advanced in dealing with the integrationof our acquisitions to be able to focus on this question and expect to concludethe review by the end of this summer. Prospects The Educational Supplies division and Healthcare division are both marketleaders and the work we have undertaken in both these divisions over the lasttwo years positions them well for future growth, and we are currently seeingsome signs of early progress. In Home Shopping, the credit business has performed well and I am particularlypleased by the rapid development of our cash with order business and oursignificantly enhanced internet penetration. Cash with order opens an entire newchannel to market for the division whilst the internet also provides significantopportunities for sales growth and customer recruitment. Currently Group sales including our acquisitions are 32% ahead of the equivalentsix week period last year. This year has been a strategically important period for the Group and the boardis confident that we will continue to make further progress in the current year. K ChapmanChairman * Benchmark results are stated excluding the results of businesses sold orterminated in the period, amortisation of acquired intangibles, netrestructuring charges, exceptional items, profits and losses on sale ofinvestments, profits and losses on sale of businesses, gain from negativegoodwill, share-based payment expenses and net fair value remeasurementadjustments to financial instruments. Consolidated Income Statement Notes Year to Year to 31/03/07 31/03/06 Unaudited Audited £000 £000 Revenue 2From ongoing businesses 555,424 489,831From terminated businesses 31,354 37,965 586,778 527,796 Cost of sales (304,067) (285,671) Gross profit 282,711 242,125 Trading costs (216,446) (180,164)Share of profit of associates 990 1,941Amortisation of intangible assets (1,637) (930)Negative goodwill arising on acquisitions in the year 7,787 -Exceptional items 3 (18,775) (13,177)Loss on disposal of businesses 4 (19,496) -Share-based payment expense (309) (30) Operating profit 2 34,825 49,765Finance income 6,966 5,522Finance costs (24,332) (20,220) Profit before tax Benchmark 56,038 50,711Losses from terminated businesses (6,066) (2,514)Amortisation of intangible assets (1,637) (930)Negative goodwill arising on acquisitions in the year 7,787 -Exceptional items (18,775) (13,177)Loss on disposal of businesses (19,496) -Share-based payment expense (309) (30)Derivative remeasurements (83) 1,007Total profit before tax 17,459 35,067 Profit before tax 17,459 35,067Income tax expense (1,393) (4,933) Profit for the year 16,066 30,134 Attributable to:Equity holders of the parent 16,198 29,660Minority interest (132) 474 16,066 30,134 Earnings per share 5Basic 19.33p 35.58p Benchmark 50.17p 48.33p All results relate to continuing operations. Consolidated Statement of Recognised Income and Expense Year to Year to 31/03/07 31/03/06 Unaudited Audited £000 £000 Currency translation differences (663) 365Net (expense) / income recognised directly in equity (663) 365 Profit for the period 16,066 30,134 Total recognised income and expense for the period 15,403 30,499 Attributable to:Equity holders of the parent 15,535 30,025Minority interest (132) 474 15,403 30,499 Consolidated Balance Sheet At 31/03/07 At 31/03/06 Unaudited Audited £000 £000ASSETS Non-current assetsProperty, plant and equipment 70,451 62,954Goodwill 64,683 48,427Other intangible assets 78,207 34,685Investments in associates 6,312 10,324 219,653 156,390Current assetsInventories 102,365 101,068Trade and other receivables 247,566 232,506Derivative financial instruments 274 254Cash and cash equivalents 7,624 2,284 357,829 336,112 Total assets 577,482 492,502 LIABILITIES Current liabilitiesTrade and other payables 97,587 76,827Current tax liabilities 2,227 3,627Obligations under finance leases 522 518Bank overdrafts and loans 33,000 19,082Derivative financial instruments 127 24Provisions 1,681 - 135,144 100,078Non-current liabilitiesBank loans 289,211 244,172Retirement benefit obligation 14,876 18,024Deferred tax liabilities 15,009 7,024Obligations under finance leases 464 986 319,560 270,206 Total liabilities 454,704 370,284 NET ASSETS 122,778 122,218 EQUITY Capital and reservesShare capital 4,250 4,245Capital reserves 50,846 50,219Hedging and translation reserves (404) 259Retained earnings 68,086 67,313 Equity attributable to equity holders of the parent 122,778 122,036 Minority interest - 182 TOTAL EQUITY 122,778 122,218 Consolidated Cash Flow Statement Year to Year to 31/03/07 31/03/06 Unaudited Audited £000 £000Operating activities Operating profit 34,825 49,765 Adjustments for: Depreciation of property, plant and equipment 8,384 6,910Amortisation of intangible assets 1,637 930Negative goodwill arising on acquisitions in the year (7,787) -Loss on disposal of businesses 19,496 -Share-based payment expense 309 30Gain on disposal of property, plant and equipment (1,188) (4,049)Pension contributions less income statement charge (2,843) (2,307)Share of profit of associates (990) (1,941) Operating cash flows before movements in working capital 51,843 49,338(Increase) / decrease in inventories (4,191) 2,229Increase in receivables (6,483) (29,928)Decrease in payables (6,229) (5,118) Cash generated from operations 34,940 16,521Income taxes paid (1,729) (7,874)Interest paid (15,751) (15,364) Net cash from operating activities 17,460 (6,717) Investing activitiesInterest received 740 256Proceeds on disposal of property, plant and equipment 2,183 4,567Purchases of property, plant and equipment (14,131) (16,360)Acquisition of subsidiaries (43,221) - Net cash used in investing activities (54,429) (11,537) Financing activitiesDividends paid (15,425) (13,924)Dividends paid to minority interests - (954)Repayments of obligations under finance leases (518) (27)Proceeds on issue of shares 165 495New bank loans raised 54,472 35,000Movement on securitisation loan 5,039 4,783 Net cash from financing activities 43,733 25,373 Net increase in cash and cash equivalents 6,764 7,119 Cash and cash equivalents at the beginning of the year (6,798) (14,022) Effect of foreign exchange rate changes (870) 105 Cash and cash equivalents at the end of the year (904) (6,798) Notes to the Group Financial Information 1. Basis of preparation of consolidated financial information The Group financial information has been approved by the board, but has not beenreviewed or audited by the auditors. The Group financial information has been prepared in accordance withInternational Financial Reporting Standards ("IFRS") as adopted for use withinthe European Union and in accordance with the accounting policies included inthe Annual 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. Whilst the financial information included in this preliminary announcement hasbeen computed in accordance with IFRS, this announcement does not itself containsufficient information to comply with IFRSs. 2. Segmental analysis Ongoing Terminated Year to 31/ Ongoing Terminated Year to 31/ businesses businesses 03/07 businesses businesses 03/06 Total Total £000 £000 £000 £000 £000 £000 RevenueHome Shopping 302,347 2,104 304,451 224,046 3,962 228,008Services 36,016 27,850 63,866 38,774 32,758 71,532Home Shopping - 338,363 29,954 368,317 262,820 36,720 299,540prospective*Educational Supplies 168,224 1,400 169,624 173,785 1,245 175,030Healthcare 48,837 - 48,837 53,226 - 53,226 555,424 31,354 586,778 489,831 37,965 527,796 Operating profitHome Shopping 45,385 (1,732) 43,653 34,877 (3,025) 31,852Services 2,992 (4,461) (1,469) 2,559 (18) 2,541Home Shopping - 48,377 (6,193) 42,184 37,436 (3,043) 34,393prospective*Educational Supplies 22,719 (486) 22,233 24,152 (216) 23,936Healthcare 1,848 - 1,848 3,632 - 3,632Share of profit of 990 - 990 1,941 - 1,941associates 73,934 (6,679) 67,255 67,161 (3,259) 63,902 Amortisation of intangible assets (1,637) (930)Negative goodwill arising on acquisitions in the 7,787 -yearExceptional items (18,775) (13,177)Loss on disposal of businesses (19,496) -Share-based payment expense (309) (30) 34,825 49,765 Share of profit of associates relates to the Home Shopping business segment.Amortisation of intangible assets relates to the Educational Supplies businesssegment (£930,000) (2006: £930,000) and the Home Shopping 2. Segmental analysis (continued) business segment (£707,000) (2006: £nil). Negative goodwill arising in the yearrelates to the Home Shopping business segment. Segment information relating tothe Exceptional items and the Loss on disposal of businesses is discussed innotes 3 and 4. Share-based payment expenses cannot be allocated to a specificbusiness segment. After allocation of these items, the segmental results are as follows: HomeShopping, profit of £23,108,000 (2006: £33,793,000); Educational Supplies,profit of £16,425,000 (2006: £6,951,000); Healthcare, profit of £987,000 (2006:£3,632,000); and Services, loss of £2,855,000 (2006: profit of £5,419,000)leaving unallocated expenses of £2,840,000 (2006: £30,000). The amounts shown above for the Home Shopping business segment include revenueof £69,974,000 and operating profit of £4,938,000 in relation to acquisitions. The negative goodwill arises on the acquisition of the trade and assets ofKleeneze, Kitbag and I Want One of Those.com and has been written back to theincome statement in accordance with IFRS 3 ("Business Combinations"). * Following the closure of the Home Farm Hampers business and the exit from allthird party fulfilment contracts, the remaining activities currently reported asthe Services business segment will be incorporated into the Home Shoppingbusiness segment, in accordance with the treatment used for internal managementreporting purposes. The amounts reported above as "Home Shopping - prospective"show how the results would look had this presentation been adopted during thecurrent and prior year. 3. Exceptional items Year to Year to 31/03/07 31/03/06 £000 £000 Aborted transaction costs (1,632) -Warehouse reorganisation costs (11,243) -Restructuring costs (7,207) (16,055)Profit on land sale 1,307 2,878 (18,775) (13,177) Aborted transaction costs cannot be allocated to a specific business segment.Warehouse reorganisation costs relate to the Home Shopping business segment(£10,382,000) and the Healthcare business segment (£861,000). Restructuringcosts relate to the Home Shopping business segment (£1,726,000) (2006: £nil),the Educational Supplies business segment (£4,332,000) (2006: £16,055,000) andthe Services business segment (£250,000) (2006: £nil), with the remainder(£899,000) (2006: £nil) unable to be allocated to a specific business segment.Profit on land sale relates to the Services business segment. 4. Loss on disposal of businesses Year to Year to 31/03/07 31/03/06 £000 £000 Home Shopping retail operation (16,500) -Home Farm Hampers (2,443) -AzTech (546) -Liquidation of overseas subsidiary (7) - (19,496) - The loss on the sale of the Home Shopping retail operation and the loss onliquidation of the overseas subsidiary relate to the Home Shopping businesssegment. The loss on the sale of Home Farm Hampers relates to the Servicesbusiness segment. The loss on the sale of AzTech relates to the EducationalSupplies business segment. 5. Earnings per share Year to Year to 31/03/07 31/03/06 £000 £000 Basic earnings 16,198 29,660Losses from terminated businesses (net of tax) 4,246 1,760Amortisation of intangible assets (net of tax) 1,147 930Negative goodwill arising on acquisitions in the year (7,787) -Exceptional items (net of tax) 13,654 8,621Loss on disposal of businesses (net of tax) 14,312 -Share-based payment expense and derivative remeasurements (net of tax) 275 (684)Benchmark earnings 42,045 40,287 Weighted average number of shares 83,799,565 83,359,631 Earnings per share - basic 19.33p 35.58p Earnings per share - benchmark 50.17p 48.33p 6. Dividends Year to Year to 31/03/07 31/03/06 £000 £000 Amounts recognised as distributions to equity holders in the periodFinal dividend for the year ended 31 March 2006 of 14.20p (2005: 12.90p) 11,904 10,755per shareInterim dividend for the year ended 31 March 2007 of 4.20p (2006: 3.80p) 3,521 3,169per share 15,425 13,924 The proposed final dividend of 15.60 pence per ordinary share in respect of theyear ending 31 March 2007 was approved by the board on 10 May 2007. Inaccordance with IFRS it has not been included as a liability as at 31 March2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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