4th Mar 2008 07:01
Ideal Shopping Direct PLC04 March 2008 FOR IMMEDIATE RELEASE 4 March 2008 IDEAL SHOPPING DIRECT PLC PRELIMINARY RESULTSFor the 52 weeks ended 30 December 2007 Ideal Shopping Direct Plc ("Ideal"), Britain's leading independent TV shoppingand online business, today reports preliminary Group figures for 2007 (underIFRS). Highlights 2007 2006 £'million £'million Growth % Sales 96.9 85.6 13.1%Gross Margin 42.2% 41.3% +86bpsLike for like underlying profit 10.7 7.4 44.6%Profit before tax 5.8 6.1 (6.2%)Earnings per share (basic) 13.9 15.0 (7.3%)Dividend declared per share 5.5p 4.25p 29.4% • 14.6% like-for-like sales increase, led by craft and leisure categories • Sustainable cost base established with broadcast and systems infrastructure now in place • Gross margin enhanced, in part reflecting the benefits of sourcing through Superstore • Strong cash flow resulted in cash balances of £16.7million despite significant investment in the Group's infrastructure. • Encouraging start to 2008 with sales +6.4% over 2007 • Uniquely positioned for further growth in digital retailing • Agreement with BT Vision to carry video on demand content announced today David Williams, Chairman, commented: "I am delighted that, in a year when we have been putting in place the keyfoundations for our future, we have still been able to drive strong growth insales and underlying profitability. As a digital retailer, Ideal is perfectlyplaced to benefit from the continuing drive towards convergence of broadcast andonline media. The BT Vision contract evidences our ability to take advantage ofthis trend. "This year has started well and we are confident that the investments made in2007 position us to make good progress in 2008 and beyond." Enquiries:Ideal Shopping Direct plc: Andrew Fryatt, Chief Executive Officer Tel: 08700 780704David Blake, Finance Director Buchanan Communications: Tel: 020 7466 5000Richard Darby/Nicola Cronk Chairman's statement I am delighted to report that the Group has delivered a strong set of resultsfor the 52 weeks ended 30 December 2007. Our overall sales growth of 13.1% atimproved margins has generated a pre-tax profit of £5.8 million, resulting inearnings per share of 13.9p. Excluding exceptional items and the changes inFreeview carriage, this is equivalent to a 44.6% increase in underlyingprofitability. This is a particularly impressive performance when you considerthat our main goal for 2007 was to put in place some of the key strategiccomponents that will underpin our future growth: our carriage contracts withFreeview and Virgin Media, and our new IT systems. Our main TV channel, Ideal World, can now be viewed by over 21 millionhouseholds, and this will rise to almost 26 million in the next four years asthe digital switchover completes, mainly via Freeview. We have secured ourcarriage on Freeview until 2018, and subsequent renegotiations by other channelsshow that we have done so at a price well below the current market rate. Last year's replacement of our IT systems will allow us to expand the businesswith ever increasing efficiency, whilst responding more effectively to the needsof our customers. In particular, it facilitates significant development in ouronline capability in 2008, led by our new Head of eCommerce. Our investment in Superstore, our sourcing and wholesale business, is nowproducing margin improvements, and we are managing working capital tightly. Ourcash balances at year end were £16.7million. As we progress towards the convergence of broadcast and online, Ideal's role asa digital retailer means that we are well positioned to build on our 2007growth. Nonetheless, we operate in what is perhaps the fastest-paced sector ofthe retail market, and, since becoming Chairman, I have initiated a strategicreview to ensure that we continue to maximise our opportunities in this excitingand rapidly evolving market. Dividend These results, together with our confidence in the business model, enable theBoard to recommend a final dividend of 3.75p, which takes the total dividend forthe year to 5.5p representing 29% growth over last year's dividend of 4.25p.This moves the Group onto a progressive and sustainable dividend policy for thefuture. Board Changes During the year, we have completed a restructuring of the Board in order tosupport the next stage of the Group's growth. Paul Wright and Val Kaye, Ideal'sco-founders, stepped down as non-executive Directors in the first half, havingalready relinquished their executive responsibilities the previous year. JimHodkinson resigned as Chairman in July 2007, and became Chairman on that date. David Blake joined us as Finance Director, taking over from Mike Camp in July2007. I would like to thank all of our current and previous directors for thecontribution they have made to the growth and development of the Group. Colleagues I am extremely grateful for the hard work and dedication of the whole team ingenerating these strong results, in a challenging retail environment. I wouldlike to thank all of our employees on behalf of the Board and our shareholders. Outlook Despite the toughening retail environment, 2008 has started well with goodgrowth on what was a very strong start to 2007. Our sales for the first nineweeks of the new financial year are 6.4% ahead of 2007, and 27% ahead of 2006.In more difficult times, our consumers increasingly enjoy the convenience ofbeing able to shop from their homes, and we are confident that the investmentsmade in 2007 position us to make good progress in 2008 and beyond." Finance Director's Report The Group's results for the year have been prepared under IFRS for the firsttime. Financial Results Group sales for the 52 weeks ended 30 December 2007 were £96.9million (2006£85.6m), an increase of 13.1%, and a 14.6% increase on a like-for-like basis. Gross margin was £40.9million (2006 £35.4million), or 42.2% of revenues (200641.3%), reflecting the positive combined impact of our improved sourcing andpurchasing and the removal of Freeview commission, partially offset by increasedpromotional activity. Overheads, excluding exceptionals, were 18.2% higher at £35.3million (2006£29.8million), mainly due to the impact of the new carriage agreements for theextended Freeview contract and the addition of the Telewest base to the VirginMedia Group's network in January 2007. A significant portion of our overheadsare contracted (Freeview, Sky, Virgin Media etc) and are subject to RPIincreases, with few directly-variable costs. This means that, by driving sales,we are able to leverage the operational effects of a robust and stable costbase, and deliver strong bottom line growth. Our operational gearing (overheadsas a percentage of sales) was 36.4% versus 34.8 % for 2006. However, on acomparable basis, underlying overheads increased by only 1.4% from £26.0millionto £26.4million, which reflects our tight cost controls. Reported profit before exceptionals and tax was £6.3million compared to£6.1million in the prior year; which represents a 3.0% increase. The exceptionalitems of £0.6million comprise Board restructuring costs (£0.4million) and therelocation of Superstore's Manchester office to Peterborough (£0.2million)during the year. Reported profit after exceptionals before tax was £5.8million compared to£6.1million in the prior year. On a comparable basis, profit before tax was£10.7million v £7.4million which represents a 44.6% increase. Taxation The taxation charge for the financial year was £1.6million (2006 £1.7 m)resulting in a full year effective tax rate of 28.3% (2006 28.2%). Earnings Per Share Basic earnings per share (EPS) were 13.9p (2006 15.0p), with diluted EPS at13.8p and 14.8p. Cash Flow, Debt and Capital Structure We finished the year strongly with £16.7million of gross cash (2006£18.7million) following rigorous management of stock, debtors and creditors.This was after significant increases in cash outflow for tax and dividendpayments, and capital expenditure on new IT systems and TV. Stock levels increased 28% to £6.8million (2006 £5.3million), reflectingappropriate stock investment in directly-sourced own brand goods and wholesaleranges for Superstore's third party business. Although both these activities useworking capital, the cost of this is more than offset by the increased margin weobtain from these products, and the Group still operates a negative workingcapital model. Cash deposit rates are reviewed weekly to maximise returns on a variety of timelength deposits. To minimise currency fluctuations, more than 75% of ourforecast US$ and Euro• denominated purchases have already been forward hedgedfor the year. Capital Expenditure & Revaluations Capital expenditure for the year was £2.7million, of which £1.4million wasIT-related and £0.8million was Broadcast-related. During the year, we revaluedour land and buildings, resulting in an increase of £2.3million in their value,reflecting the growth in the Peterborough commercial property market. Dividend The Board is recommending a final dividend of 3.75p per share (2006 2.75p),giving a total dividend of 5.5p (2006 4.25p). Subject to shareholder approval at the Annual General Meeting ('AGM') the finaldividend will be paid on 27 June 2008 to shareholders on the register at theclose of business on 6 June 2008. Chief Executive's Review Market trends It is estimated that in 2007 the UK television shopping market generated salesof over £950 million, with annual growth of between 5% and 7%. Our market shareis in excess of 10%. Growth in the market is being driven by: • Growth in access to digital television As the analogue to digital switchover occurs, all viewers must adopt Freeview,satellite or cable television, which will automatically give them access toIdeal World and, if they do so via Sky, to our other channels. • Growth in internet sales The number of UK households with a broadband connection continues to growrapidly, and is approaching 16 million (source: IMRG). UK Online sales areestimated to have exceeded £46 million in 2007, an increase of more than 50% inthe year. As online usage grows, the profile of the online population isevolving to more closely match that of our existing customer base. • Growing craft market We estimate that the UK craft market is worth in excess of £2 billion per yearat retail sales value. This market is very fragmented, and we estimate that weare amongst the top 4 players in the market, after only 5 years of operation. Operational review With the move onto new Freeview and Virgin contracts, and the introduction ofnew systems, 2007 was a year in which we put in place the foundations tounderpin our future growth. The benefits of this began to be realised in thesecond half of the year, when we delivered like-for-like sales growth in excessof 16%. This was despite the toughening of the underlying retail market, andreflects both underlying productivity improvements and a strong promotionalfocus. Our like-for-like sales growth exceeded 14% for the full year, withgrowth in all our key categories. During the year we have continued our strategy of focusing on the following keyelements: O Ideal World O Create and Craft O Superstore O Infrastructure Ideal World At the start of 2007 we successfully launched the Ideal World channel onto theTelewest cable base (which, together with the former NTL cable business, is nowbranded Virgin Media). This added around 1.3 million new Virgin Media householdswhich can receive our channel 24 hours a day. In addition, according to figuresproduced by Ofcom, through the first nine months of 2007 1.6 million additionalhouseholds gained access to Freeview, and hence to our main channel, IdealWorld. This means that today we broadcast into over 21.5 million homes,representing 86% of all UK households. We have focused on three key sales tools: driving underlying productivity,better use of promotions, and continuing our programme of sourcing anddeveloping new ranges. Productivity has been driven by the use of our improved IT systems which give usgreater analytical ability. This data enables us to more actively manage ourschedules, thereby maximising sales productivity and increasing our margins.For example, with the recent trends in the retail jewellery market, coupled withthe increase in gold prices, we have actively reduced the airtime given tojewellery, reducing its sales and gross margin, but enhancing sales and marginoverall. Sales by category % sales growth Leisure 80%Craft 14%Home 10%Health & Beauty 7%Fashion 6%Jewellery (11%) In several of our categories, sales and margin benefited from our continuingfocus on developing our own product brands. These include; "Simply Yoghurt"yoghurt making kits, the "Skin Naturally" skincare range, and "Flex & Soft"comfort and fashion footwear. Our promotional programme has been highly effective, primarily utilisingmultibuy offers and free or discounted postage offerings. Despite these offers,we are pleased that margins have still increased. During 2007 we brought almost 5,000 new products to air, continually refreshingour on-air offer. This combination of driving existing ranges, over 90 new products each week, andcompelling promotional offers, has combined to achieve outstanding sales resultsin the second half of the year, and achieve record levels of new customeracquisition. 380,000 new customers were added in 2007, with the monthly rate ofacquisition increasing steadily through to the end of the year. Create and Craft Our second channel, Create and Craft, has a very strong brand presence in the UKcraft market, which is worth in excess of £2 billion per year. This market isvery fragmented, such that we are in the top four craft retailers in the UK. The Create and Craft brand addresses the needs of regular and dedicatedcrafters, who prefer to buy from retailers that really understand their needs,and who can provide inspiration for their crafting projects. Our craft offer includes live shows on Ideal World, pre-recorded shows on the "Create and Craft" channel (on Sky), a standalone retail website, asubscription-based craft club, with over 23,000 members, and a range of "Createand Craft" branded products sold on air and wholesaled to independent craftretailers. The growth in the Create and Craft Club, from just over 10,000 members at thestart of 2007, has been a key driver of our craft sales. We plan to grow thissubstantially in 2008. Our craft model combines the benefits of a strong brand and a truly multichannelproposition, and the success of this approach suggests that it could beapplicable to other categories in the future. Superstore The acquisition of Superstore in 2006 was designed to rapidly enhance our directsourcing capability, and in 2007 we put in place the additional resources inChina to support this. We now have 15 employees there who seek out products onour behalf and work "hands on" to ensure that strict quality controls are alwaysmet. Initially, the main category focus has been on craft products, but we arebeginning to source for other categories too. The direct sourcing model doesincrease the amount of stock that we purchase on firm sale (as opposed to ourmore traditional 'sale or return basis'), but it remains a single digitpercentage of our business, and the small increase in stock is significantlyoutweighed by the enhanced margins and better quality assurance. In May 2007, Superstore began delivering craft ranges into Wilkinsons. Thiscomplements our supply of craft products to Asda, which began in 2006. Whilstthis national account business supports the volumes of our internal craftpurchasing, the strategic benefits of the Superstore business remain the marginenhancement from direct sourcing and the increased reach of the "Create andCraft" brand. Infrastructure During the first half of the year, we completed the improvement and upgrade ofour IT systems (ISIS) in order to handle significantly higher volumes in thebusiness. This has been an important long-term project and our new platform hassignificantly greater data storage capacity and performance capability. We havealso upgraded our automated call centre facility (IVR), to offer "upsells" tocustomers and allow them to trace the status of their order. Furtherenhancement is planned for 2008. With the rapid growth of new business, 2008 is the year in which we mustdetermine the longer term solution to our warehousing requirement. We haveapplied for planning permission to extend our current warehouse facilities, butare continuing to review this opportunity against other warehousing solutions inthe first half of 2008. New Opportunities As previously announced, we began discussions with BT Plc last year, to becomethe flagship TV shopping channel on BT Vision. We are pleased to report that aformal agreement was signed in January 2008, and we expect to launch onto thisnew exciting IPTV platform with a video on demand offer in quarter 3 2008. We believe that our online growth opportunity may even exceed the potential fromTV shopping, and we are committed to realising this. In January 2008, weappointed a new Head of eCommerce, and have commenced a programme to overhaulour websites by the middle of this year. Already more than 20% of our sales aretaken online, and we anticipate that our online sales will approach 30% of themix by the end of this year. In November 2007, we opened an "Ideal World" outlet store in Peterborough,enabling us to clear end of line stocks above cost prices. Future prospects Having put the foundations in place during 2007, we anticipate continued growthin 2008. On Ideal World, we will continue to drive the introduction of ownbrands and directly sourced products, so as to drive margins and increaseloyalty, and we will test new categories of products and services that webelieve are relevant to our customers. Our Create and Craft brand will continueto benefit from our truly multichannel approach, with increased airtime andonline focus, and growth in Club membership. In Superstore, the main focus is on doubling the volume of directly sourcedmerchandise for Ideal, with commensurate margin benefits. In third party sales,we are focused on driving the efficient use of working capital in supporting ourkey accounts, whilst we roll out our Create and Craft branded offer toindependent craft stockists. In terms of infrastructure, we continue to develop both our IT and telephonysystems. By the end of 2008 we plan to repatriate our customer service centrefrom India, and utilise both IVR and web to enhance our ordering and customerservice capabilities. "Convergence" of digital technologies has been referenced in the media for thelast few years, but 2008 looks as if it will be the first year that it willreach some critical mass. We are perfectly placed to exploit the integration ofbroadcast and online media, and our launch onto the BT Vision platform laterthis year is a key step in our evolution as a digital retailer. The operational gearing of the business means that growing our sales and marginproduces a disproportionate benefit to profit, and with our significantinvestments in infrastructure now complete, we expect to drive up net margins in2008. Financial statements Consolidated Income Statement 52 weeks 52 weeks ended ended 30 December 31 December 2007 2006 £'000 £'000 NotesSales Revenue 96,871 85,638Cost of Sales (56,008) (50,255)Gross profit 40,863 35,383 Distribution costs (3,639) (3,027)Administrative expensesExceptional items 2 (570) 0Other (31,362) (26,397)Other expenses (283) (417)Operating profit 5,009 5,542 Finance costs (69) (97)Finance income 485 594Other financial result 332 101Profit from continuing operations 5,757 6,140 Profit from continuing operations beforeexceptional items 6,327 6,140 Tax expense net 3 (1,628) (1,733) Net profit for the period 4,129 4,407 Attributable to equity shareholders of IdealShopping Direct plc 4,129 4,407 Earnings per share Continuing operations:Basic 4 13.9 15.0Diluted 4 13.8 14.8 The company has not presented its own income statement as permitted by section230 of the Companies Act 1985. The parent company's profit attributable toshareholders amounted to £3.5m (2006: £4.8m). Consolidated Balance Sheet 30 December 2007 31 December 2006 £'000 £'000 Assets Non-currentGoodwill 1,523 1,523Other intangible assets 3,083 1,510Property, plant and equipment 9,904 9,420Deferred tax assets 71 94 14,581 12,547 CurrentInventories 6,766 5,310Trade and other receivables 5,616 2,595Current tax assets 97 0Cash and cash equivalents 16,697 18,684 29,176 26,589 Total assets 43,757 39,136 EquityEquity attributable to shareholders of Ideal Shopping Direct PlcShare Capital 894 888Share Premium 308 193Other reserves 2,642 2,166Retained earnings 19,423 16,496Total equity 23,267 19,743 LiabilitiesNon-currentBorrowings 1,863 2,202Deferred tax 705 486liabilitiesObligations under finance leases 0 260 2,568 2,948 CurrentProvisions 449 340Trade and other payables 16,253 14,860Borrowings 339 339Current tax 572 424liabilitiesObligations under finance leases 309 482 17,922 16,445 Total liabilities 20,490 19,393 Total equity and liabilities 43,757 39,136 Statement of changes in equity Group statement of changes in equity: 2007 Share Share Other Retained Total Capital Premium reserves earnings Equity £'000 £'000 £'000 £'000 £'000 1 January 2007 888 193 2,166 16,496 19,743 Revaluation of Land and Buildings - - 439 - 439 Deferred Tax Adjustment - - - (22) (22) Income taxes relating toitems charged or credited to equity - - (40) - (40) Net income recogniseddirectly in equity 888 193 2,565 16,474 20,120 Profit for the 52 weeks ended30 December 2007 - - - 4,129 4,129 Total recognised incomeand expense for the period 888 193 2,565 20,603 24,249 Employee share based compensation 6 115 - - 121 Dividends - - - (1,333) (1,333) Increase in Share Option Reserve - - 77 153 230 30 December 2007 894 308 2,642 19,423 23,267 Group statement of changes in equity: 2006 Share Share Other Retained Total Capital Premium reserves earnings Equity £'000 £'000 £'000 £'000 £'000 1 January 2006 887 180 1,643 13,152 15,862 Revaluation of Land and Buildings - - 257 - 257 Income taxes relating toitems charged or credited to equity - - (13) (33) (46) Net income recognised 887 180 1,887 13,119 16,073directly in equity Profit for the 52 weeks ended31 December 2006 - - - 4,407 4,407 Total recognised incomeand expense for the period 887 180 1,887 17,526 20,480 Employee share based compensation 1 13 - - 14 Increase in share option reserve - - 279 - 279 Dividends - - - (1,030) (1,030) 31 December 2006 888 193 2,166 16,496 19,743 Consolidated statement of cash flows For the 52 weeks ended 30 December 2007 2007 2006 £'000 £'000Operating activitiesResult for the period after tax 4,129 4,407Adjustments 2,506 2,236Change in inventories (1,385) 159Change in trade and other receivables (3,021) 191Change in trade and other payables 1,393 (550)Change in provisions 109 (139)Cash generated from operations 3,731 6,304 Income tax paid (1,482) (3,026)Net cash from operating activities 2,249 3,278 Investing activitiesAdditions to property, plant and equipment (808) (582)Additions to other intangible assets (1,860) (450)Acquisition of Superstore TV net of cash acquired 0 (1,720)Interest received 485 594Net Cash used in Investing Activities (2,183) (2,158) Financing activitiesRepayment of bank loans (339) (337)Discharge of finance lease liability (433) (543)Interest paid (69) (97)Dividends paid (1,333) (1,030)Financing outflows (2,174) (2,007) Proceeds from share issue 121 14Net change in cash and cash equivalents (1,987) (873) Cash and cash equivalents, beginning of period 18,684 19,557Cash and cash equivalents, end of period 16,697 18,684 Notes 1) Basis of preparation The financial statements set out above in respect of 30 December 2007 does notconstitute statutory accounts as defined in Section 240 of the Companies Act1985. The financial information contained in this announcement has beenextracted from the 2007 financial statements upon which the auditor's opinion isunqualified and does not include any statement under Section 237 of theCompanies Act 1985. The preliminary announcement has been prepared under the historical costconvention, except it has been modified to include the revaluation of certainnon-current assets, financial assets and liabilities. A policy of revaluationin respect of property has been adopted as at 30 December 2007 as the directorsconsider this the most appropriate policy. This policy has been appliedretrospectively, and where appropriate the 2006 comparatives have been amendedaccordingly. The 2007 financial statements are the first financial statements prepared by thegroup in accordance with accounting standards as adopted for use in the EU andas such take account of the requirements and options in IFRS 1 (First-timeAdoption of International Financial Reporting Standards) as they relate to the2006 comparatives included therein. 2) Exceptional items The following amounts have been included in the income statement line for thereporting periods presented; 2007 2006 £'000 £'000Board Restructuring Expenses 420 -Superstore TV Limited Relocation Costs 150 - 570 - 3) Income tax expense The relationship between the expected tax expense based on the effective taxrate of the Group at 30% (2006: 30%) and the tax expense actually recognised inthe income statement can be reconciled as follows; 2007 2006 £'000 £'000 Result for the year before 5,757 6,140 tax Tax rate 30% 30%Expected tax expense 1,727 1,842 Adjustment for tax-rate differences (29) - Adjustment in respect of prior periods (14) (86) Other temporary differences 40 (76) Utilisation of tax losses (178) - Share options 43 16 Other non-deductible expenses 39 37Actual tax expense, net 1,628 1,733 Comprising Current tax expense 1,509 1,791 Deferred tax (expense), income, resulting from the - origination and reversal of temporary differences 119 (58)Total 1,628 1,733 4) Earnings per share and dividends Both the basic and diluted earnings per share have been calculated using the netresults attributable to shareholders of the Group as the numerator. None of thedilutive shares relate to interest or similar expense recognisable in profit orloss for 2006 or 2007. To calculate the diluted earnings per share figure, the weighted average ofdilutive employee share options expected to vest have been added. The numberrepresents management's best estimate at the balance sheet date, which is alsoused for calculating employee remuneration expense relating to share basedpayment transactions. 2007 2006 Number NumberReconciliation of average number of shares used forbasic and diluted earnings per share Weighted average number of ordinary shares used for basic earnings per share 29,663,505 29,431,917 Weighted average number of dilutive shares under option 235,269 406,035 Weighted average number of ordinary shares for diluted earnings per share 29,898,774 29,837,952 During 2007 the Group paid dividends of £1,333,000 to its shareholders (2006£1,030,035). This represents a payment of 4.50p per share (2006 3.50p pershare). The Directors propose final dividend payment of £1,112,381 (3.75p per share)resulting in a full year dividend of 5.5p for 2007. As the distribution ofdividends by the Group requires approval of the shareholders' meeting, noliability in this respect is recognised in the 2007 consolidated financialstatements. No income tax consequences are expected to arise as a result of thistransaction. 5) Cash flow statement The following non-cash flow adjustments have been made to the pre-tax profit forthe year to arrive at Group operating cash flow; 2007 2006 £ '000 £ '000 Depreciation & Amortisation and impairmentcharges of tangible and intangible assets 1,064 721Employee equity-settled share options 230 279Tax expense net 1,628 1,733Finance Income (485) (594)Finance Cost 69 97 2,506 2,236 Copies of the annual report and accounts will be posted to the shareholders indue course Annual General Meeting The Annual General Meeting will be held on 7 May 2008 at 10.00 a.m. at theoffices of Buchanan Communications, at 45 Moorfields, London, EC2Y9AE Notice is sent to shareholders separately with this report. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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