Bos Glb Hldgs Regulatory News (BOS)

28 Apr 2005 07:01

Body Shop International PLC28 April 2005 THE BODY SHOP INTERNATIONAL PLC Preliminary Results for the 52 weeks to 26 February 2005 • Earnings per share up 22%• Improved sales trends and increased profit achieved in all four regions• Strong operating cash inflow• Major investment programme in stores with global roll-out of new brand imagery and store design• Continuing strong performance in The Body Shop At Home• Implementation of SAP progressing well - Total retail sales up 5% at £708.7 million, comparable store sales up 2%- The Body Shop At Home sales up 31% to £46.9 million- Operating profit up 19% to £36.2 million- Earnings per share growth of 22% to 13.1 pence- Operating cash inflow up by 61% to £66.7 million- Net debt reduced to £4.7 million (2004: £9.4 million)- Final dividend of 3.8 pence recommended, giving a total of 5.7 pence for the year (2004: 5.7 pence) "2005 is our third consecutive year of strong growth in operating profit andearnings per share. Over the last three years, we have achieved positive growthin sales, profitability and cash flow through the successful creation of acustomer driven culture with a strong focus on execution. The Body Shop is today a well-balanced global business and we now have theopportunity to build on our strong trading performance through a major growthand expansion strategy. The first phase of this expansion strategy is the £100million investment programme in new stores, store refurbishments and informationsystems that we began last year, which will significantly expand our existingretail business over the next two years. In addition, we are planning entryinto new markets and further development of the complementary sales channels ofThe Body Shop At Home and e-commerce that enable customers to access The BodyShop in a variety of ways. We are planning for a 15-20% growth in operating profit in the current financialyear, with a somewhat slower growth in earnings due to an increase in theeffective tax rate." Adrian Bellamy Peter SaundersExecutive Chairman Chief Executive Officer 28 April 2005 For media enquiries, please contact: The Body Shop International PLCBill Eyres,Head of Global Corporate PR,Tel: 01903 844040 Brunswick GroupWilliam Cullum,Tel: 020 740 4595 For investor enquiries, please contact: Angela Bawtree,Tel: 01903 846333 Letter from the Executive Chairman and Chief Executive Officer Overview 2005 is our third consecutive year of strong growth in operating profit andearnings per share. Over the last three years, we have achieved positive growthin sales, profitability and cash flow through the successful creation of acustomer driven culture with a strong focus on execution. The Body Shop is today a well-balanced global business and we now have theopportunity to build on our strong trading performance through a major growthand expansion strategy. The first phase of this expansion strategy is the £100million investment programme in new stores, store refurbishments and informationsystems that we began last year, which will significantly expand our existingretail business over the next two years. In addition, we are planning entry into new markets and further development ofthe complementary sales channels of The Body Shop At Home and e-commerce thatenable customers to access The Body Shop in a variety of ways. Significant newmarket opportunities include Russia, where we are close to signing an agreementwith a business partner and anticipate opening our first store in September. Weare also working on entry into China and other markets in Europe and the MiddleEast. Through strong expansion of The Body Shop At Home and e-commerce, alongsideongoing store development, our customers will have access to The Body Shop as amulti-channel global business. The Body Shop At Home continues to achievestrong growth and will be extended into new markets. Our new e-commercebusiness in the USA (www.thebodyshop.com) performed well ahead of expectationsin its first few months of trading and sales are expected to more than doublethis year. We will build on this experience to broaden e-commerce coverage intoother key markets over the next two years. Our multi-channel strategy isimproving our brand's positioning with our customers and proving accretive toall channels. Results Summary We are pleased to report that sales trends improved across all four regionsduring the past year, with total retail sales growth up by 5% to £708.7 millionand comparable store sales up by 2%. The improvement in trend accelerated inthe second half of the year, with comparable store sales up by 4% on the sameperiod in the previous year. Sales through The Body Shop At Home continued toshow positive growth during the year, with a 31% increase to £46.9 million. The Americas region recorded flat comparable store sales, with growth of 1% inthe USA. Canada continued to see a negative trend (-3%) through the acquisitionprocess, but this trend is now improving as the integration of the Canadianbusiness progresses and we can begin to capitalise on the strong brand equity. Asia Pacific continued to benefit from a strong brand positioning in thesemarkets with positive comparable store sales growth in South East Asia (+14%),Hong Kong (+12%), Taiwan (+11%) and Australia (+4%). Japan achieved an improvedperformance (+2%), although Korea continued to show a negative trend incomparable store sales (-8%) given the highly competitive nature of this market. The Europe, Middle East and Africa region also improved sales trends, withstrong comparable store sales in the Middle East (+12%) and the Nordic countries(+5%). In central Europe, France performed well (+7%), whilst Germany showedsignificant improvement to -1% despite the overall retail environment. InSouthern Europe, sales improved in Spain (+1%), but Italy continued to prove adifficult market (-8%). Progress in the UK has been particularly significant, with comparable storesales improving from -13% in fiscal 2004 to flat in this past fiscal year with+4% in the second half of the year. The UK team have achieved this through astrong focus on distinctive customer service, complemented by improved in-storeexecution and targeted marketing initiatives. A net 38 new stores were opened during the year, bringing the total to 2,045 in52 countries at the year end. Of the total, 733 were company-owned (2004: 596),with 127 stores having being acquired through the purchase of the Canadian andHong Kong head franchise businesses and other individual franchised stores,primarily in the UK. New store openings will accelerate significantly in thecurrent year, with around 120 openings planned across the four regions of whichapproximately two thirds will be company-owned. Operating profit increased by 19% to £36.2 million, with profit before tax 21%higher at £34.5 million (2004: £28.5 million). This result was achieved after areduction of £3.1 million in profit before tax due to the weakness of the USdollar. Earnings per share grew by 22% to 13.1 pence, after a lower effective tax rateof 20.9% compared with 23.9% in 2004. This rate reflects benefits from thecontinuing utilisation of brought forward operating losses in the US business,the majority of which have now been fully realised. As a result, the effectivetax rate is expected to rise to around 26% in the current year, with a furtherincrease likely to occur in the subsequent year. We achieved strong growth in operating cash flow to £66.7 million (2004: £41.4million) as a result of the £5.9 million increase in operating profit, togetherwith a cash inflow of £10.2 million from continuing attention to the managementof working capital. After a more than doubling of capital expenditure to £25.5million and a net cash outflow of £19.3 million for acquisitions (primarilyassociated with the purchase of the Hong Kong and Canadian head franchisebusinesses), we achieved a net cash inflow of £4.7 million. Net debt thereforereduced to £4.7 million (2004: £9.4 million) at the period end. The Directors are proposing to hold the final dividend at 3.8 pence per share(2004: 3.8 pence). Brand Repositioning Over the last three years, we have pursued a strategy of repositioning The BodyShop brand to the 'masstige' sector of the consumer market. This 'masstige'positioning differentiates The Body Shop by offering customers a shoppingexperience that combines excellent service with a comprehensive range ofnaturally-inspired personal care products that offer performance, indulgence andgreat value. We communicate to our customers with passion, integrity and humourin an exciting, inspiring and informative shopping environment. With our pointsof sale in dedicated shops, our customers' homes and on the internet, ourcustomers can shop whenever, wherever they wish. Our 'masstige' positioning isunderpinned by our strong commitment to the wellbeing of our fellow humans andpreservation of the planet. This repositioning of The Body Shop brand hasrequired product innovation, a new brand identity and new shop design, thedevelopment of a multi-channel service and compelling values campaigns to ensurewe better meet our customers' needs now and in the future. Product and Marketing Development In support of our 'masstige' brand strategy, we have delivered to our customersover the past year a range of new innovative products that deliver benefits andefficiencies comparable with those associated with prestige brands atsurprisingly more affordable prices. These new product introductions have beena key driver of our sales growth. Particular successes include a performance Hair Care range including CommunityTrade natural ingredients; Skin Focus, a high performance skin treatment range;and Invent Your Scent, an innovative concept that allows customers to blendtheir own fragrances. We continue to be highly committed to sourcingingredients through our Community Trade programme. Olive is a major newingredient in our core moisturising Bath and Body range; and the recentlylaunched Spa Wisdom range of home-spa products contains six Community Tradeingredients. The positive customer response to our product innovation is underpinned by someof the awards we have received in recent months, which include: a CosmopolitanBeauty Award 2005 for our Almond Oil Daily Hand and Nail Cream in Sweden; ElleBeauty Awards for our Almond Oil Intensive Hand Rescue, Papaya Body Scrub andCocoa Butter Body Scrub in Canada; @Cosme 2004 number one awards for our CreateMe Pact Powder Foundation and Body Butters in Japan; and In Style magazine'sBest Beauty Buys 2005 'Best Inexpensive Brush Line' for our make-up brushes inthe UK. Our global marketing programmes are designed to support the 'masstige'positioning of the brand. Promotions are developed to offer added value,sampling opportunities and gifts with purchase to encourage customer loyalty.The Love Your Body loyalty programme is proving highly successful in buildingcustomer loyalty, with approximately 860,000 members in the USA, 500,000 in theUK and more than 160,000 in four countries across Europe. The programme hasrecently been launched in Canada and Singapore and will be extended into HongKong and 12 more European markets in the current year. Store Development A new store design has been developed to offer customers an improved in-storeexperience at The Body Shop, with a strong focus on product merchandising andcustomer service. The new design has been successfully trialled during thesecond half of last year in eight key locations around the world, receiving apositive response from our customers. The financial performance is well aboveour hurdle rate for capital investments, with similar fit-out costs to those ofour existing stores and an improved return on investment. We are planning for the new store design to be rolled out to some 250 stores inthe current year, of which broadly half will be new stores and half will berefurbishments. Of the total, 75-80 will be located in each of the UK andEuropean regions, approximately 65 will be in the Americas and 30-35 will be inAsia Pacific. We have created a new brand identity for The Body Shop to further improve thecustomer experience and this is now being progressively introduced across thebusiness. The new identity consists of a new logotype, typography and colourspecification, together with a MADE WITH PASSION umbrella for our values andproduct stories. It now features in all new stores both internally andexternally, on all in-store promotional material and on product packaging. We have also developed a new Make-up merchandising fixture that is more sensitive to customer shoppinghabits as it displays our cosmetic product ranges more effectively. The newfixture has been successfully trialled in the eight new design stores and ineight other stores around the world. We plan to roll it out to all storesduring the current financial year. Total capital expenditure will increase by over £18 million to £44 million inthe current year, of which some three quarters will finance new stores,refurbishments and relocations. Expected borrowing requirements are amplycovered by the new £130 million revolving credit facility. Developing a Multi-Channel Organisation We believe that The Body Shop At Home will be a significant driver of totalgrowth over the next few years in both existing and new markets. We willcontinue to build on our successes in the USA and the UK through increasedcross-channel marketing and recruitment drives. We are also planning to extendthe model into new markets this year, including Germany. Our new e-commerce business in the USA (www.thebodyshop.com) performed wellahead of expectations in its first few months of trading. Sales are expected tomore than double in the current year, which will enable the business to producea small profit in its first full year of operation. We will build on thevaluable experience we are gaining in multi-channel retailing to broadene-commerce coverage into other key markets such as the UK. Systems Development We are in the process of implementing a major investment programme ininformation systems. The strategy behind this investment programme is to gainmaximum efficiencies by leveraging one back office system across the three saleschannels, ensuring that the same processes are used across the global business.We believe strongly in measuring our performance and using that intelligence tobetter look after our customers and manage our business. The most significant element of this systems investment programme is the globalimplementation of SAP (an Enterprise Resource Planning system). The first threephases of SAP have been successfully implemented over recent months, of whichthe first module introduced groundbreaking use of technology for both The BodyShop and SAP in the collection and storage of point of sale data. The finalphases are due to roll out from June 2005. Completion of this project will bemarked by the upgrade of our US business in mid 2006 to the global version ofSAP for The Body Shop. Having successfully implemented an earlier version of SAP into the USA over fiveyears ago, our team has valuable experience for implementation of the new globalsystem. The £15 million capital investment is supported by a robust 'best inclass' business case process driven by the operational management teams, with ahigh level of buy-in from all parts of the business. Through this detailedapproach, we believe that we have mitigated the risk of non-performance or lowreturn. The implementation of our systems projects, including SAP, is on course. We areconfident of achieving the expected benefits, which are reviewed and challengedon a monthly basis. These benefits include increased efficiencies across thebusiness, ranging from reduced operating costs and improved stock turn to salesand profit growth. Together, they more than justify the cost of the investment.Other current projects include the implementation of updated point of servicesystems in the UK and the USA. Franchising and Acquisitions Franchising continues to be a very important part of our global organisation,with franchised stores representing some 60% of total retail sales. We deeplyvalue the contribution made by our franchisees around the world, as they havebrought market experience and leverage well beyond the level that we could haveaccomplished without them. From time to time, we have the opportunity to make strategic acquisitions in keymarkets where a franchisee is interested in selling the business to pursue otherinterests or retirement. During the past year, we have made two strategicacquisitions with the purchase of the head franchise businesses in Hong Kong andCanada. Both have performed ahead of our expectations and will positivelycontribute to earnings per share in the first year of ownership. We have alsoacquired a number of individual stores from franchisees in our company-ownedmarkets, including 41 in the UK. Since the year end, we have purchased the companies operating The Body Shop inthe Netherlands, Belgium and Luxembourg from the head franchisee. The cost ofthis acquisition is €2.35 million (£1.6 million) and includes 24 company-ownedstores, with a further 32 stores operated by franchisees. The Body Shop has beenestablished in the Benelux region for the past 24 years and we look forward tobuilding on this success with further growth and development of the brand. We expect to gain benefits from these acquisitions in the current year andbeyond as we achieve the synergies to be realised with the existing regionalstructure and further develop the strong brand recognition that our franchiseeshave generally fostered. Our Values - Making a Difference The Group donated £1.3 million to charitable organisations last year, of which£0.7 million was donated to The Body Shop Foundation and the remaining £0.6million to other organisations. This includes a donation of £100,000 to theDisaster Emergency Committee in response to the horror of the Asian Tsunami.Recently, we have pledged an additional £100,000 to Children on the Edge to helprebuild the lives of children in Aceh, the Indonesian province worst hit by theTsunami. A further £200,000 has been raised for the Asian Tsunami through thegenerous contributions of customers in our markets around the world. Our customers also helped us to raise over £500,000 through our global 'StopViolence in the Home' campaign last year, of which approximately one third wasraised through company-owned stores. In the Americas, where the campaign first started, the US programme was extendedthrough partnerships with the National Coalition Against Domestic Violence,Lifetime TV, the Wireless Foundation and Amnesty International. In Canada,in-store activities raised funds for local Stop Violence Against Women (SVAW)partners and the Canadian Women's Foundation. The Asia Pacific region supportedcampaign groups in securing improvements in legal rights and protection forwomen in countries such as Indonesia. Across Europe and the Middle East, storesrecycled mobile phones (to help those in need call for assistance) and soldcampaign key rings. In the UK, the campaign funded a pilot programme to providevulnerable women with reconfigured mobile phones as emergency alarms. The Americas region also supported vital work in HIV/AIDS carried out by 'UntilThere's A Cure', with stores in the USA and Canada raising US $300,000 inpartnership with our customers through the sale of bracelets. Current Trading and Outlook In the first eight weeks of the current year, sales trends have continued toimprove with total retail sales up 8% and comparable store sales up 6%. UKcomparable store sales are showing a particularly strong performance at +9%. Retailers around the world are facing a more challenging trading environment asconsumer spending patterns soften, energy prices rise and store occupancy costscome under increasing pressure in certain markets. Additionally, there are twosignificant factors impacting our profitability: our continuing exposure tomovements in the US dollar exchange rate; and a higher effective taxation ratewhich will rise towards normal UK corporate tax rates as the benefits frombrought forward operating losses in the US business are fully utilised. Against this background, we are planning for a 15-20% growth in operating profitin the current financial year, with a somewhat slower growth in earnings due toan increase in the effective tax rate. As the proportion of company-owned markets and stores has grown over recentyears, our business has gained an increased seasonal bias towards the secondhalf of the year. The acquisitions of Canada, Hong Kong, individual stores inthe UK and now Benelux have further increased this bias, with profit previouslyachieved through wholesale sales in the first six months moving to retail salesin the second six months of the year. This increased seasonality is likely toproduce a reduction of around 25% in underlying operating profit for the firstsix months of the current year which will be recovered in the second half. Our principal objective is to serve our customers with passion and commitment,thereby growing comparable store sales across the global store portfolio. Inparallel, we are now implementing an aggressive investment programme in newstores, The Body Shop At Home, e-commerce and new markets. We continue to becommitted to delivering value to all of our stakeholders and would like to thankall of our employees, our business partners and our Board of Directors for theircontribution and commitment to the successful development of The Body Shop. Adrian Bellamy Peter Saunders Executive Chairman Chief Executive Officer 28 April 2005 Performance Review In this review, all comparisons between the 2005 and 2004 financial years relateto the 52 week period to 26 February 2005 and the 52 week period to 28 February2004. Retail Sales In the 52 weeks ended 26 February 2005, total retail sales across all channelsincreased by 5% to £708.7 million (2004: £672.5 million), with comparable storesales up by 2%. Retail sales through The Body Shop At Home increased by 31% to£46.9 million. Sales performance by region is shown below: Sales Performance Store Sales The Body Shop At Home Total Retail Comparable Store Sales Sales H2* Full Year_________________________________________________________________________________________________________Americas +2% +57% +7% 0% 0%Asia Pacific +11% +28% +12% +7% +5%Europe, Middle East & Africa +4% - +4% +4% +2%UK & Republic of Ireland -1% +8% 0% +4% 0%_________________________________________________________________________________________________________Total +4% +31% +5% +4% +2%_________________________________________________________________________________________________________ *H2 refers to the second six months of the 2005 financial year After 38 net store openings during the year, the number of stores worldwidetotalled 2,045 at the year end, of which 733 were company-owned (2004: 596) andthe remainder franchised. Approximately 120 net store openings are anticipatedin the current year. Operating Performance Group turnover increased by 10% to £419.0 million, with 69% representing retailsales through company-owned stores, The Body Shop At Home, mail order and theinternet (2004: 64%). The balance of group turnover principally representswholesale sales to franchisees. Gross profit increased by 13% to £272.7 million (2004: £240.4 million), withgross margins increasing to 65.1% (2004: 63.1%). After deducting the direct costs associated with operating company-owned stores, The Body Shop At Home, mail order and sales via the internet, the profitcontribution rose 10% to £139.7 million (2004: £127.0 million). Other operating expenses were £103.5 million (2004: £96.7 million) afterrecognising £3.8 million in goodwill amortisation (2004: £3.1 million).Operating margins were 8.6% compared with 8.0% in the previous year, withoperating profit increasing by 19% to £36.2 million. Profit before tax increased by 21% to £34.5 million (2004: £28.5 million). Geographical Analysis Americas 2005 2004Stores at year end 429 416Store openings (net) 13 -10Company-owned stores 351 291 £m £m ChangeStore sales 140.5 138.2 +2%The Body Shop At Home 22.1 14.1 +57% ______ ______Total retail sales 162.6 152.3 +7% Turnover 142.3 125.8 +13%Operating profit 20.9 19.3 +8% The increase in store numbers in the region reflects 14 net openings in the USAand one closure in Canada. The higher number of company-owned stores is largelydue to the acquisition of the Canadian head franchise business, which included42 stores operated by the head franchisee. Comparable store sales were flat year on year, reflecting growth of 1% in theUSA offset by a negative trend of -3% in Canada. The trend in Canada hasimproved since the acquisition of the head franchise business last July asproduct, marketing and operational changes begin to take effect. The Love Your Body loyalty card showed positive growth in the USA, with thebenefits of the scheme expected to be enhanced by the installation of a new POSsystem during the current year. The Love Your Body loyalty card was alsolaunched in Canada during the autumn. Total retail sales growth of 7% was primarily driven by The Body Shop At Homewhich continued to perform well, increasing sales from £14.1 million to £22.1million. The US business successfully launched its third sales channel duringthe year, with a new e-commerce site (www.thebodyshop.com) that has performedwell ahead of expectations since its launch last September. Asia Pacific 2005 2004Stores at year end 554 524Store openings (net) 30 36Company-owned stores 60 33 £m £m ChangeStore sales 175.4 158.2 +11%The Body Shop At Home 7.8 6.1 +28% _____ _____Total retail sales 183.2 164.3 +12% Turnover 64.4 52.8 +22%Operating profit 19.7 18.5 +6% The 30 store openings in Asia Pacific were well spread across the region,including eight in the Philippines, five in Malaysia, and four each in Korea,Taiwan and Japan. The increase in the number of company-owned stores reflectsthe 28 stores acquired in Hong Kong and Macau. Total retail sales growth of 12% was underpinned by the new store openings,together with comparable store sales growth of 5%. Comparable store salescontinued to benefit from a particularly strong performance in South East Asia(+14%), Hong Kong (+12%), Taiwan (+11%) and Australia (+4%). Japan achieved animproved performance (+2%), although Korea continued to show a negative trend(-8%). The strong growth in comparable store sales was achieved as a result of strongbrand positioning, enhanced by improved focus on execution, customer service andmarketing events. The Love Your Body loyalty card was launched in Singaporeduring the year. The Body Shop At Home, operated by the head franchisees in Australia and NewZealand, continued to perform well with sales growth of 28%. The Hong Kong head franchise business, acquired in June 2004, has performedahead of expectations in its first year of company ownership. Europe, Middle East & Africa 2005 2004Stores at year end 758 754Store openings (net) 4 12Company-owned stores 94 78 £m £m ChangeTotal retail sales 201.7 194.6 +4% Turnover 74.4 72.5 +3%Operating profit 15.3 14.2 +8% The change in store numbers reflects openings in a number of countries includingSaudi Arabia (8), France (7), South Africa (6) and the first openings in Latvia(4) and Lithuania (1). Some markets with challenging trading environments sawstore closures, including eleven in Italy, seven in Germany and six in Spain. Retail sales in the region were up 4%, with comparable store sales improving to+2% from -3% in the previous year. Overall sales trends have benefited fromstrong product launches and improved retail execution. Comparable store sales growth was strong in the Middle East (+12%), France (+7%)and the Nordic countries (+5%). Germany showed significant improvement at -1%,despite the overall retail environment, with positive growth being achievedtowards the end of the financial year. In Southern Europe, sales improved inSpain in the second half to produce +1% for the year, but Italy continued toprove a difficult market (-8%). Marketing initiatives included the launch of the Love Your Body loyalty card inour four company-owned markets during the year. The success of the scheme inthese markets will be followed by a roll-out into 12 additional Europeancountries during the current year. The movement in operating profit reflects the improved comparable store salestrend in the region. UK & Republic of Ireland 2005 2004Stores at year end* 304 313Store openings (net) -9 1Company-owned stores 228 194 £m £m ChangeStore sales 144.2 145.6 -1%The Body Shop At Home 17.0 15.7 +8% _____ _____Total retail sales 161.2 161.3 0% Turnover 137.9 130.0 +6%Operating profit 11.7 10.0 +17% * These numbers exclude 101 (2004: 101) concessions in pharmacies. Retail sales in the region were flat, reflecting growth of 8% in The Body ShopAt Home offset by nine store closures in the UK. Comparable store sales have shown a significant improvement in trend, movingfrom -13% to a flat position year on year. This improvement has been achievedas a result of successful new product launches, a strong Christmas gift range,improved customer service and a higher level of in-store marketing events thatare successfully reaching new customers. Benefits in sales and in-stockavailability were also gained during the important Christmas trading period fromthe new automatic inventory replenishment system in UK company stores. The Love Your Body loyalty card is performing well and is beginning to providegood opportunities for cross channel marketing events between the stores and The Body Shop At Home. This synergistic marketing activity will increase in thecurrent year. The larger number of company-owned stores represents stores bought back fromfranchisees during the year. The 17% increase in regional operating profit was underpinned by the improvedcomparable store sales trend. Earnings and Dividends The profit attributable to shareholders amounted to £27.0 million, compared with£21.7 million in the previous year. Earnings per share were 13.1 pence on aweighted average number of shares of 206.6 million (which excludes the sharesheld by The Body Shop International Employee Share Trust), compared with 10.7pence in 2004. The Directors are proposing a dividend of 3.8 pence per share which will be paidon 1 July 2005 to shareholders on the register at 10 June 2005. Together withthe interim dividend of 1.9 pence, this makes a total for the year of 5.7 penceper share, in line with the previous year. Balance Sheet and Capital Structure Shareholders' funds totalled £151.9 million at the year end (2004: £129.3million), with £15.1 million of retained profit having been transferred toreserves after payment of dividends. In accordance with FRS 10 "Goodwill and Intangible Assets", goodwill isamortised over its useful economic life (not exceeding 15 years). Goodwillamortised in the year amounted to £3.8 million (2004: £3.1 million). Cash Flow and Investment The Group generated net cash inflow from operating activities of £66.7 millionduring the year (2004: £41.4 million), which was utilised as follows: 2005 2004 £m £mOpening debt (9.4) (22.2)Operating cash flow 66.7 41.4Capital expenditure (25.5) (12.4)Acquisitions (19.3) (1.0)Dividends (11.7) (11.6)Taxation (6.5) (7.3)Net interest (1.7) (1.8)Other 2.7 5.5 4.7 12.8 _________ _________Closing net debt (4.7) (9.4) Year end inventory increased from £52.4 million to £62.1 million, with theincrease largely due to the Hong Kong and Canadian head franchise acquisitionstogether with the impact of multi-channel growth in the USA. The averageinventory level during the year increased to £65.5 million (2004: £53.3million). Reductions in average inventory holdings will be targeted throughinvestment in supply chain management systems in the current year and beyond. Capital expenditure (excluding acquisitions) amounted to £25.5 million (2004:£12.4 million), invested in broadly equal proportions in stores and informationsystems. In line with the £100 million capital expenditure programme that began lastyear, capital expenditure will increase significantly in the current year toaround £44 million. Approximately two thirds will be invested in new stores andstore refurbishments, with the majority of the balance in information systems(including SAP). Acquisition expenditure amounting to £27.0 million related primarily to the HongKong and Canadian head franchise businesses. Of the total, net cash outflow inrespect of acquisitions was £19.3 million. Other movements of £2.7 million include £0.3 million of translation differences. Taxation The tax charge for the year is £7.2 million, giving an effective rate of 20.9%(2004: 23.9%). The effective rate reflects benefits from the continuing utilisation of broughtforward operating losses in the US business, the majority of which have now beenfully realised. In line with FRS 19, these losses are recognised as a deferred tax asset in theperiod under review, which has the effect of reducing the effective tax rate.The effective tax rate for the current year is expected to rise to around 26%,with a further increase likely to occur in the subsequent year when the ratewill move towards more normal effective rates of corporation tax in the UK andUSA. Treasury Policies and Controls The Board approves treasury policies, with members of the senior management teamdirectly controlling day-to-day operations. The Group uses derivatives only tomanage its foreign currency risks arising from underlying business activities.No transactions of a speculative nature are undertaken. Liquidity Risk The Group's objective is to maintain a balance between continuity of fundingthrough medium term facilities and flexibility through short-term localoverdrafts. The main facility is a £130.0 million multi-currency revolvingcredit agreement that runs until December 2009. In addition, there are a number of smaller short-term facilities to supportlocal requirements, including overdraft facilities in the UK and elsewhere. At 26 February 2005, the available facilities totalled £134.9 million, of which£45.3 million was drawn down. Foreign Currency Risk The currencies to which the Group is principally exposed are the US dollar andthe Euro. In addition there is exposure to the Singapore, Hong Kong andCanadian currencies. The exposure arises from export sales from the UK and retail royalties payableto the UK, as well as from purchases and interest payments. The Group's policyis to hedge this transaction exposure through forward foreign exchange contractscovering, on average, nine months. Currency exposure also arises from the translation of the trading results andnet assets of overseas subsidiaries. The Group's policy is to limit the exposureto fluctuations in the value of net assets by borrowing in those currencies inwhich it has significant non-sterling assets. At the year end, the Group helddebt in the following currencies: US$35.0 million, €12.0 million, Singapore$32.0 million and Hong Kong $125.0 million. The results of overseas subsidiaries have been translated at an average sterling/dollar rate of $1.84 and an average sterling/euro rate of €1.47. The movementin the exchange rates year on year, notably the 10% movement in the US dollar,is the principal contributor to the currency impact of £3.1 million. Average 200 Average 2004 Year end 2005 Year end 2004US$ 1.84 1.67 1.91 1.86Euro 1.47 1.44 1.45 1.49 Interest Rate Risk The Group's objective is to minimise the cost of borrowing by matching thematurity dates of loans to the seasonal requirements of the business. Interestpayable on borrowings is fixed for periods of up to six months. The net interest charge of £1.7 million relates to average net debt of £27.4million over the year (2004: £24.4 million). Seasonal borrowing requirementspeaked in October 2004 when net debt stood at £55.3 million (2004: £40.3 millionin September 2003). The balance sheet showed net debt of £4.7 million at theperiod end, compared with £9.4 million at the end of the previous year. The £4.7million reduction in net debt reflects cash flows of £4.4 million andtranslation differences of £0.3 million. Transition to International Financial Reporting Standards The Body Shop International PLC will publish its first consolidated financialstatements prepared in accordance with International Financial ReportingStandards ("IFRS") for the half year to 27 August 2005 and for the full yearending 25 February 2006. The implications of the transition to IFRS for the Group have been identifiedand the work required to restate historical results is nearing completion. Themain impacts are expected to arise from the changes in accounting forintangibles, specifically goodwill, property, share based payments and deferredtax. We intend to communicate the full implications of the transition to IFRS inadvance of the publication of our 2005 Interim Results, including a restatementof the results and financial position for the half year to August 2004 and forthe full year to February 2005. For the avoidance of doubt, references in these financial statements are to UKGAAP. Accounting Developments The Group implemented the requirements of UITF 38 "Accounting for ESOP Trusts"in the year under review. This UITF requires all companies with ESOP trusts topresent the shares held in the trust as a deduction in arriving at shareholders'funds, rather than as assets. The balance sheet as at 28 February 2004 has beenrestated accordingly. There have been no other accounting developments during the year. Share Price and Market Capitalisation During the 2005 financial year, the share price ranged between a high of 201pence and a low of 131 pence. The share price at the year end was 199 pence(2004: 131.5 pence), capitalising the Group at approximately £425.3 million. Definitions: Total retail sales - Sales to consumers through all stores, The Body Shop AtHome, mail order and the internet. Retail sales figures are stated at comparableexchange rates, with prior year figures being restated where appropriate. Comparable store sales - Sales by all stores which have been trading for morethan one year, excluding sales through pharmacy concessions. Turnover - Group revenue derived from a combination of retail sales (excludingsales taxes) through company-owned stores, The Body Shop At Home, mail order andthe internet, together with wholesale revenue and royalties from franchisees. The Body Shop International PLCConsolidated Profit and Loss AccountFor the 52 weeks ended 26 February 2005 Total Total 2005 2004 £m £m Turnover 419.0 381.1 __________________________Cost of sales (146.3) (140.7) __________________________ Gross profit 272.7 240.4Operating expenses (236.5) (210.1) __________________________ Operating profit 36.2 30.3Net interest (1.7) (1.8) __________________________Profit on ordinary activities before taxation 34.5 28.5Taxation on profit on ordinary activities (7.2) (6.8) __________________________ Profit on ordinary activities after taxation 27.3 21.7Equity minority interests (0.3) - __________________________Profit for the financial year 27.0 21.7Dividends paid and proposed (11.9) (11.6) __________________________Retained profit 15.1 10.1 __________________________Earnings per share (Note 1)- Basic earnings per ordinary share 13.1p 10.7p- Diluted earnings per ordinary share 12.6p 10.6p___________________________________________________________________________________________________Profit on ordinary activities before taxation 38.3 31.6and goodwill amortisation___________________________________________________________________________________________________ All amounts in the current year relate to continuing activities. The Body Shop International PLCBalance SheetAt 26 February 2005 Group As restated 26 February 2005 28 February 2004 £m £mFixed assetsIntangible assets 44.0 31.7Tangible assets 73.5 61.9 ____________________________ 117.5 93.6 ____________________________Current assetsStocks 62.1 52.4 ____________________________Debtors: receivable within one year 34.9 36.2Debtors: receivable after more than one year 5.4 5.9 ____________________________ 40.3 42.1Cash at bank and in hand 41.6 17.6 ____________________________ 144.0 112.1 ____________________________ Creditors: amounts falling due within one year (105.6) (73.0) ____________________________Net current assets 38.4 39.1 ____________________________Total assets less current liabilities 155.9 132.7 Creditors: amounts falling due after more than oneyear (0.5) (0.9) Provisions for liabilities and charges (2.4) (2.5) ____________________________ 153.0 129.3 ____________________________Capital and reservesCalled up share capital 10.7 10.4Share premium account 62.3 54.7Reserve for own shares (6.1) (6.1)Profit and loss account 85.0 70.3 ____________________________ Shareholders' funds: equity 151.9 129.3 Equity minority interests 1.1 - ____________________________ 153.0 129.3 ____________________________ These financial statements were approved by the Board on 28 April 2005 The Body Shop International PLCConsolidated Cash Flow StatementFor the 52 weeks ended 26 February 2005 2005 2004 £m £m £m £mNet cash inflow from operating activities 66.7 41.4_________________________________________________________________________________________________Returns on investments and servicing offinanceInterest received 1.1 0.5Interest paid (2.8) (1.7) (2.3) (1.8)_________________________________________________________________________________________________ Taxation (6.5) (7.3)_________________________________________________________________________________________________Capital expenditure and financialinvestmentPurchase of tangible fixed assets (25.5) (12.4)Receipts from sale of investments - 0.4Purchase of other investments - (25.5) (1.8) (13.8)_________________________________________________________________________________________________Acquisitions and disposalsCash consideration (20.8) (1.0)Net cash acquired with subsidiaries 1.5 (19.3) - (1.0)_________________________________________________________________________________________________Equity dividends paid (11.7) (11.6)_________________________________________________________________________________________________Cash inflow before use of liquid 2.0 5.9resources and financing_________________________________________________________________________________________________ Management of liquid resourcesShort term financing (16.0) 12.6 FinancingIssue of ordinary share capital net of 2.4 2.4issue costsAdvance of syndicated loans 20.1 7.4Loan repayments (0.2) (22.2)Capital element of finance lease rental (0.2) 22.1 (0.2) (12.6)payments_________________________________________________________________________________________________Increase in cash 8.1 5.9_________________________________________________________________________________________________ The Body Shop International PLCReconciliation of Net Cash Flow to Movement in Net DebtFor the 52 weeks ended 26 February 2005 2005 2004 £m £mIncrease in cash in the year 8.1 5.9Cash (inflow)/outflow from decrease/(increase) in debt and lease financing (19.7) 15.0Cash inflow/(outflow) from increase/(decrease) in liquid resources 16.0 (12.6) ___________________________Decrease in net debt resulting from cash flows 4.4 8.3Translation differences 0.3 4.5 ___________________________Decrease in net debt in the year 4.7 12.8Opening net debt (9.4) (22.2) ___________________________Closing net debt (4.7) (9.4) ___________________________ Consolidated Statement of Total Recognised Gains and LossesFor the 52 weeks ended 26 February 2005 2005 2004 £m £mProfit for the financial year 27.3 21.7Currency translation differences on foreign currency net investments (0.4) (3.1) ___________________________Total recognised gains and losses for the year 26.9 18.6 ___________________________ The Body Shop International PLCSegmental Analysis 2005 2004Shop NumbersAmericas 429 416Asia Pacific 554 524Europe, Middle East & Africa 758 754UK & Republic of Ireland* 304 313 ___________________________ 2,045 2,007 ___________________________* These numbers exclude 101 (2004: 101) concessions in pharmacies. Comparable Store SalesAmericas 0% -1%Asia Pacific +5% +2%Europe, Middle East & Africa +2% -3%UK & Republic of Ireland 0% -13% ___________________________ +2% -4% ___________________________ £m £mRetail salesAmericas 162.6 152.3Asia Pacific 183.2 164.3Europe, Middle East & Africa 201.7 194.6UK & Republic of Ireland 161.2 161.3 ___________________________ 708.7 672.5 ___________________________TurnoverAmericas 142.3 125.8Asia Pacific 64.4 52.8Europe, Middle East & Africa 74.4 72.5UK & Republic of Ireland 137.9 130.0 ___________________________ 419.0 381.1 ___________________________Operating profit