Iq-ai Ltd Regulatory News (IQAI)

10 Mar 2006 07:01

Flying Brands Limited10 March 2006 Flying Brands Limited Preliminary Results for the 52 weeks ended 30 December 2005 10 March 2006, Jersey. Flying Brands Limited (LSE: FBDU), the home shoppingcompany, today announces preliminary results for the 52 weeks ended 30 December2005. A strong performance after a weak first quarter Highlights • Sales increased by 1% to £36.3m (2004: £35.8m) • Second half sales were up by 15% on 2004 and up 3.5% on a like-for-like basis • Internet sales increased by 21% • Profit before tax was £5.6m (including a one-off gain on a property sale) • Profit before tax and one-off gain was £5.3m (2004: £5.8m) • Second half profits before tax and property gain up 31% over 2004 • Profit after tax was level with 2004 at £4.4m • Cash of £4.2m after two acquisitions and share buyback • Net cash flow from operating activities were up 19% • Earnings per share 17.14p (2004: 17.21p) • Final dividend increased by 6% to 6.00p, full year dividend of 8.85p increased by 5% Commenting on today's announcement, Alan Fryer, Chairman, said: "The strong performance in the second half went some way towards offsetting theweak first quarter and the trading of our newly acquired businesses isdemonstrating the potential of one key aspect of our forward strategy. Ourcontinuing ability to generate substantial cash has enabled us to buy twobusinesses and buy back 4% of the company's issued share capital but has stillleft us with over £4m on the balance sheet at the end of the year. We are ingood financial health for the future." Mark Dugdale, Chief Executive, said: "Despite the trading difficulties encountered by Gardening Direct's Springcampaign, the year as a whole saw the business move forward substantially, notjust because we acquired two new businesses, but also because we made realprogress in developing our core brands. We can now claim to be a genuine dualchannel retailer, with our internet sales increasing to £3.5m, 11% of our totalcore business sales, and we see this channel becoming a key source of newcustomers going forward. We are a much more focused company today, with all ourbrands concentrated within the three divisions of Gifts, Garden andEntertainment. Our priorities are to extract increased value from our database of over threemillion customers, by adding new products, brands and services to providegreater and wider choice, as well as using our significant cash strength for thebenefit of all our shareholders." Outlook In 2005, the first quarter's trading was adversely impacted by both a poorGardening Direct Spring campaign and the early date of Mother's Day. Managementhas taken action to improve the first quarter 2006 performance, and whilst weare in the early stages of both the Gardening Direct Spring campaign andMother's Day sales, the Directors are encouraged by the current tradingperformance from all brands. Change of Chairman Having served for four years and now having reached his intended retirement age,Alan Fryer is stepping down today as Chairman. He has helped create a moredynamic business with a clear strategic direction and leaves the Group wellplaced for long term success. The Board has appointed Paul Fraser to succeedAlan Fryer as Chairman with Tim Trotter becoming Deputy Chairman. For further information, please contact: Flying Brands Limited 01376 575 010 / 07785 346 935Mark Dugdale, Chief ExecutiveGraham Norton, Finance Director Smithfield Consultants 020 7360 4900John KielyGeorge Hudson Notes to editors Jersey based Flying Brands Limited (LSE: FBDU) is a multi brand home shoppingspecialist. Founded in 1981, it was admitted to the Official List of the LondonStock Exchange in 1993. The Group operates the following divisions: • Gifts (Flying Flowers, the UK's largest flowers by post brand, despatching nearly one million bouquets a year) • Garden (Gardening Direct, one of the UK's largest mail order bedding plants and gardening products operations; Garden Bird Supplies, a leading provider of food and accessories for birds and other wildlife) • Entertainment (Listen2Books, the leading mail order audio books, DVD and video publisher and distributor; Benham, the first day cover stamps and coins collectables specialist; Silverminds Direct, the nostalgic music business) More information can be found at: www.flyingbrands.com Chairman's Report Overview and Financial Results The strong performance in the second half was particularly encouraging and wentsome way towards offsetting the weak first quarter. We saw the management teamexecute its first two acquisitions and the successful integration and subsequentperformance of these new businesses has demonstrated the potential of one keyaspect of our forward strategy. Equally important, we took several significantsteps towards turning our core brands into credible internet businesses, both interms of the products offered and the way they are promoted. In addition,management continued to reduce fixed overheads and improve overall efficiency inthe face of increasing costs, particularly postal rates from Jersey. As a result of weak spring trading from Gardening Direct, profit before tax andprofit on disposal of building fell to £5.3m from £5.8m in 2004. Profit beforetax, including contribution from the disposal of a property, was £5.6m. Thesecond half saw a much stronger performance, particularly from Gardening Direct,Flying Flowers at Christmas, and the newly acquired Garden Bird Supplies, withprofit before tax and profit on disposal of building up by 31% over the sameperiod in 2004. Earnings per share were 17.1p (2004: 17.2p). Sales were £36.3m, a 1% improvement over 2004. Excluding the two newacquisitions, sales were 4% down on 2004 figures. Again, the second half of theyear saw a much improved performance, with sales excluding the acquisitions upby 4% and, including them, an increase of 15% over 2004. Our continuing ability to generate substantial cash has enabled us to buy twobusinesses for a combined consideration of £5.3m, as well as buy back over amillion shares for cancellation at a cost of £1.9m, and purchase 0.28m sharesfor our ESOP scheme for £0.5m. This has still left us with £4.2m cash on thebalance sheet at the end of the year (2004: £6.0m). Both the acquired companiesare cash generating, reinforcing the underlying financial strength of ourbusiness. Dividend The Directors are recommending a final dividend increase of 6% to 6.00p pershare. Together with the interim dividend of 2.85p (2004: 2.75p), the totaldividend payment per share will be 8.85p (2004: 8.40p), a 5% increase for theyear. Dividend cover is 1.9 times. The final dividend will be paid on 21 April2006 to shareholders on the register as at 31 March 2006 with the shares goingex dividend on 29 March 2006. Outlook The company is successfully expanding its brands into wider market places andchannels, aided by its acquisition strategy and now has well defined divisionsin Gifts, Garden and Entertainment. We are successfully transforming Flying Flowers into a low cost, value giftprovider and have added music to our existing entertainment offering of audiobooks, DVD and video. Our challenge is to transform Gardening Direct into a morerounded direct retailer that offers the customer substantially more than justbedding plants: this process has started with the addition of Garden BirdSupplies and will continue through 2006. We plan to increase significantly our internet presence in 2006 and we will alsosee continuing product expansion, through organic development, marketingpartnerships and further possible acquisitions. This will ensure that ourexisting customers spend more with us and new customers see our brands asdestinations of choice. We expect to generate considerable free cash and theabsence of any unfunded pension liabilities puts us in a strong position to movethe Group forward. Employees We saw some important executive changes on the Board in 2005 and have used theopportunity to strengthen the management team. The work put in by all the staffis greatly appreciated and they have created a robust platform which will enablethe company to fulfil its considerable potential. After four years as Chairman, and having reached retirement age, I will bestepping down on 10 March 2006. I have immensely enjoyed helping to create amuch more dynamic business with a clear strategic direction. We are fortunate tonow have an outstanding management team that will drive the company forward as amajor force in the home shopping market. The Board have appointed Paul Fraser to succeed me as Chairman, with Tim Trotteras his Deputy, and I wish them and the company every success in the future. Alan FryerChairman10 March 2006 Chief Executive's Report Operating Results For The Period -------------------------------------------------------------------------------------------------- 2005 2004 Gifts Garden Entertainment Total Gifts Garden Entertainment Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000--------------------------------------------------------------------------------------------------Sales 12,822 15,324 8,112 36,258 12,858 15,274 7,636 35,768Contribution 3,574 4,664 2,163 10,401 4,061 5,299 1,727 11,087Operationaloverheads (1,403) (1,553) (1,642) (4,598) (1,597) (1,623) (1,595) (4,815)Corporateoverheads (283) (315) (95) (693) (281) (336) (78) (695)Profit ondisposal ofbuilding - - 282 282 - - - ---------------------------------------------------------------------------------------------------Profit beforeinterest andamortisation 1,888 2,796 708 5,392 2,183 3,340 54 5,577Interest 151 160 (46) 265 93 144 (28) 209Amortisationon acquisitionsintangibles - (52) (45) (97) - - - ---------------------------------------------------------------------------------------------------Profit beforetaxation 2,039 2,904 617 5,560 2,276 3,484 26 5,786-------------------------------------------------------------------------------------------------- Despite the disappointing Gardening Direct Spring campaign during the firstquarter of 2005, the year as a whole saw the business move forwardsubstantially. Not only did we acquire two new businesses, but we also made realprogress in developing our core brands, particularly Flying Flowers. Theacquisitions, bought out of free cash flow, have already contributed to growingour top line and were a significant factor in a successful second half'strading. We can now claim to be a genuine dual channel retailer, with internetsales in 2005 increasing over 2004 by 21% to £3.5m, representing 11% of totalsales (2004: 9%). This excludes Garden Bird Supplies, where the internetrepresents 21% of total sales. Strategic Focus and Opportunities Our strategy remains the same and remains remarkably clear: - Extract greater value from our existing business We aim to extract greater value from our database of more than 3 millioncustomers by persuading them to buy more from us more often, as well asencouraging new customers to buy from us for the first time and then convertingthem to subsequent purchases. This simple objective underpins most of ouractivities and translates into product diversification for our existing brands,making appropriate acquisitions and broadening the promotional remit. We arebuilding our presence on the internet to supply customers with greateropportunities for them to buy at times that are both relevant and convenient. - Acquisitions of complementary businesses We are committed to make appropriate acquisitions to drive top line and profitsgrowth as well as achieving economies of scale through our infrastructure. Wedeliberately set ourselves a series of strict criteria when assessing potentialnew businesses. As has been the case with both Garden Bird Supplies andSilverminds Direct, this approach ensures that the companies or brands that weacquire add real value to the Group as a whole, but for which we have paid afair price. Divisional Organisation Through the successful acquisitions of both Silverminds Direct (a nostalgicmusic business), and Garden Bird Supplies (a bird food and wildlife accessoriescompany), we have been able to rationalise our stable of brands into threedistinct, focused divisional units: •Gifts (Flying Flowers) •Garden (Gardening Direct, Garden Bird Supplies) •Entertainment (Listen2Books, Silverminds Direct, Benham) It is, therefore, now very clear what Flying Brands represents and we will bereporting on our business at this divisional level going forward. Behind thesedivisions lies the database, reflecting a similar profile of customers acrossall brands, demographically very much "middle Britain". These customersappreciate good service and excellent value, are loyal, as witnessed by our highretention rates and are becoming increasingly on line literate. This marketrepresents a significant opportunity for this business, not just because it isgrowing but also because it responds to the types of offers and products weprovide, and to the way in which we present them. We are confident that we canfind more brands and products that will appeal to this target market and whichwe can accommodate within our existing infrastructure. Business Challenges A short term challenge for our business is the decline of our traditional newcustomer recruitment channels. We have relied on advertising in national media(catalogue inserts or direct off-the-page offers in newspapers and magazines)for growing our customer databases cost effectively. The decline in circulationsof these media (without significant rate reductions) as well as increasingcompetition has meant that our cost per new customer is gradually increasing,making overall growth more challenging. We have responded by working harder toreactivate lapsed customers, by looking for more marketing partnerships withcomplementary businesses and by attracting new customers through drivingfootfall to our web sites. The latter is a significant opportunity as we willgain exposure to a more "retail" orientated customer rather than a traditionalmail order one. This is a much larger market and explains why we are veryfocused towards on line development. We are a Jersey company that employs Jersey people and pays Jersey taxes. Wealso benefit from the Low Value Consignment Relief ("LVCR") that means productsbelow £18 are shipped into the UK free of VAT. As a Jersey company, we are alsosupported by the States of Jersey and we make a significant contribution to theJersey economy. However, were changes to be made to LVCR, we have contingencyplans in place to offset the sales lost to VAT and we firmly believe that ourbusiness will not be impacted in the medium term. In addition, corporate incometax in Jersey is expected to taper down to zero between 2007 and 2009, whichwill obviously deliver a significant positive impact on our free cash as well ason our earnings per share. Gifts Division (Flying Flowers) Sales were flat on 2004 at £12.8m with a profit before interest and amortisationof £1.9m (2004: £2.2m). Internet sales increased by 28%, representing 17% oftotal sales and email addresses increased to above 100,000. Flying Flowers is beginning to transform itself from being a supplier of postalcarnations to becoming a low cost gift solution provider for all occasions. Thishas entailed diversifying the product range, initially into other flower typesoffering more varied bouquets, including a next day delivery courier range, toproviding gifts other than flowers as part of the mix. Successfully tested newproducts include personalised teddy bears, pot plants, chocolates, wine andthemed baskets of goods such as a Jersey hamper or a lavender collection. Thecatalogue is now promoted as "Gift Ideas from Flying Flowers" and we are alsoable to offer combinations of gifts such as flowers and chocolates in the samepackage. We also attempt to "upsell" customers by proposing that they buyadditional flower stems at low extra cost and adding a ribbon to their bouquetfor £1. This has driven up average order values significantly. After a successful Valentine's Day promotion, we anticipated that the early dateof Mother's Day in 2005 (it will be later in 2006) would put sales underpressure because of the much shorter trading window. We in part overcame this bycreating an additional promotion for Easter, which replaced lost Mother's Daysales, and it is clear that Easter could become as important for us asValentine's Day. This demonstrates the brand's commitment to find increasingreasons for customers to buy gifts from us. The Christmas campaign ran smoothly, with sales 3.5% ahead of 2004, and on linesales increased by 48%. Non flower gifts took an 8.5% share of total sales, andwe will see this increase through 2006. We are confident that Flying Flowers will continue to develop an increasinginternet presence and appeal to a wider market of potential customers. We willalso seek out suitable partners for joint marketing activities which profitablyincrease the scope and appeal of the brand. Garden Division (Gardening Direct; Garden Bird Supplies) Gardening Direct The brand experienced a mixed year - one of "two halves", with first half salesdown by 15% against 2004, and the second half showing sales 12% ahead of lastyear's numbers. Overall, total sales for the year, at £14.1m, were 7% below 2004(£15.3m), with profit before interest and amortisation at £2.6m, 21% below lastyear. All numbers were impacted by the disappointing Spring season, whichrepresents Flying Brands' biggest promotional campaign of the year. However,internet sales increased as a percentage of total sales from 6% to 7%, with morethan 50,000 email addresses. The Autumn season was highly successful and we were able to rebuild the customerdatabase to the same level before Spring as a result of an effective advertisingcampaign promoting a product called Pansy Can Can. New customers were recruitedat a profit - the first time this has been achieved for several years. The volatility of the bedding plant market is an issue that we have to address.It is clear that all of our competitors (across the entire retail spectrum -mail order, garden centres, multiple retail sheds) experienced disappointingbedding plant sales in the spring of 2005. Although the inconsistent weather wasa factor, it is clear that competition in the bedding plant arena isconsiderable, both from other distribution channels as well as from crediblealternatives such as instant and lower maintenance gardening, meaning thatflower beds are being replaced by decking, patios and larger plants. Our targetmarket, being older, is less susceptible to change but if we are to grow thisbrand by attracting new customers, we have to provide a wider choice indifferent areas of garden activity. We have, therefore, dropped Gardening Direct's "First Class Bedding Plants"strap line and have replaced it with "Transforming Your Garden". We will betrialling different garden product types through 2006 with a view to expandingthe franchise, attracting new customers whilst also minimising our reliance onbedding plant sales. This will be achieved through partnerships, organicdevelopment and possibly acquisition, with Gardening Direct becoming thecornerstone of our Garden Division. Garden Bird Supplies Garden Bird Supplies was acquired in September 2005 for a gross consideration of£4.6m. It is a leading purveyor of bird food, bird related hardware, othergeneral wildlife products and accessories for bird watching. Turnover for theyear to June 2005 was £3.8m (internet sales of 17%), with a profit before tax of£0.5m. The business was acquired with 47,000 active trading customers whoseprofile is similar to that of Gardening Direct's. This is a high margin, high customer retention business that avoids seasonal'peaks'. Garden Bird Supplies has considerable synergy with Flying Brands' otheractivities and fits perfectly into our "expanded gardening" concept for theGarden Division. The UK bird food business is estimated at £150m, so theopportunities for growth levering off Flying Brands' infrastructure, databasemanagement skills and other brands, is considerable. In the last quarter of 2005(post our acquisition), sales increased by 17% over the same period in 2004 to£1.2m. Garden Bird Supplies represents an exciting opportunity in itself, but, as partof a larger division with a much larger customer database, the prospects areconsiderable and will demonstrate how our acquisition strategy can drive valuevery quickly. Entertainment Division (Listen2Books, Silverminds Direct, Benham) Listen2Books Sales were level with last year at £3.6m, but improving customer retention andaverage spend meant that the profit before interest and amortisation moved to£0.2m from a loss of £0.1m in 2004. We increased the pagination of our catalogueto 64pp from 52pp, allowing us to expand our DVD and video product offering. The database of existing customers was encouraged to increase both theirfrequency of purchase and actual spend as a result of the introduction of newand exclusive products throughout the year. We have now moved firmly on frombeing mere distributors. The brand is seen as an important outlet for the majorpublishers. Besides DVD and video, we expanded the number of audio booksavailable on CD and introduced other home entertainment products such as jigsawsand embroidery as well. Recruiting new customers cost effectively proved difficult despite someinnovative initiatives, and we need to focus on this in 2006 to grow the brand:we will use the internet to promote products that will appeal to a youngeraudience and try to establish a significant presence in the large children'saudio market. We will also be introducing a download facility from the internetin the first half of 2006. Silverminds Direct The assets of Silverminds Direct were bought out of receivership in April 2005for a consideration of £0.7m, including an active customer database of about40,000. The intention was always to introduce music into Listen2Books andSilverminds has given us a fast track to achieve this. Silverminds' brand ofnostalgic music on CDs, featuring titles that are hard to find on the HighStreet, has appeal to the Listen2Books buyer and also to other segments of ourGroup customer database. The brand was fully integrated into Flying Brands' infrastructure and a new website developed within five weeks of the acquisition being completed, and thefirst catalogue was mailed in May. Cross selling to the Silverminds database hasbeen successful to date and we will bring this new acquisition closer toListen2Books. We have been pleased with progress to date with the branddelivering sales of £0.7m between May and December. The challenge for 2006 is to start growing the brand through external newcustomer recruitment, which will be achieved by developing products with wideappeal. Benham Benham delivered sales of £3.8m (2004: £4.1m) but improved its profit beforeinterest and amortisation by 49% to £0.2m, as a result of effective costcontrol, margin improvements through better use of the database and efficientstock management. We completed improvements to Benham's back office systems and relocatedadministration and despatch following the sale of Benham's freehold offices inFolkestone. The sale delivered a gain of £0.3m. Benham's management, marketingand product development functions have moved to leased premises in Folkestone,whilst the finance and call centre functions were absorbed within other Grouplocations. The ongoing annual savings from these moves is estimated at £0.1m. Benham creates products in response to several one off events such as the deathof the Pope, or the wedding of the Prince of Wales, or with fast selling firstday covers. Benham also produced several Trafalgar commemoratives, but 2005otherwise failed to produce winning products with wide appeal. Internet sales have started to increase and this remains a great opportunity.Benham now has improved systems enabling tighter control with procedures inplace allowing management to focus on developing products and promotions. Infrastructure and Operations Total operational overheads in 2005 were £4.6m, a reduction of 4% over previousyear despite inflationary pressures. We have clearly benefited from centralisingour call centre activity in one location at Kelvedon Park and we are committedto driving down unit costs through economies of scale. Polystyrene boxes, the old staple for Flying Flowers, have now been phased out,being replaced by cardboard boxes. Not only has this improved the overallbranding of the flower despatches, the cardboard boxes are also smaller andtherefore will attract lower despatch costs. Moreover, they are considerablymore environmentally friendly. Corporate overheads were flat on 2004 at £0.7m We welcomed Graham Norton and Jim McDowell to head up the finance and marketingdepartments respectively in 2005. These appointees bring fresh approaches totheir respective roles and both are making significant contributions. The Group is committed to drive down costs where it can, increase productivityand invest in its infrastructure effectively. Outlook Flying Brands is well positioned for the future. The Group has demonstrated thatits strategy for growth is successful and its expansion will continue. Cashgeneration remains excellent and this will continue to improve. The Group has great strengths: •Market leading, strong brands •Increasing internet presence •Highly cash generative •Benefits of Jersey corporate tax structure •Very profitable within its market sector •Progressive dividend policy •Strong balance sheet •Efficient operations with flexible infrastructure and growth capacity •Debt free and no pension liabilities •Significant freehold property portfolio •Motivated management team, with clear vision of strategy and direction We will continue to focus on maximising the potential of our existing businessand will look for the right acquisitions that complement our brands. If we areunable to identify suitable acquisitions or we believe it is in the bestinterests of shareholders and the business, then we will consider other uses forour cash such as share buy backs, as we demonstrated at the end of 2005. We could not implement our plans without the commitment and skills of our staffand I salute their efforts. Management also appreciates the continuing supportof our shareholders and we firmly believe that your trust in us will continue tobe rewarded. I would like to record my thanks and appreciation to our Chairman, Alan Fryer,who retires on 10 March 2006. His foresight and wisdom have defined thedirection of this business and I owe him much personal gratitude for hissupport, advice and patience. We are fortunate in being able to maintaincontinuity and commitment to our strategy with the appointments of Paul Fraseras Chairman and Tim Trotter as Deputy Chairman, and I look forward to workingwith both of them in driving our business forward. Mark DugdaleChief Executive10 March 2006 Financial Review Results The Group has produced a satisfactory result across all its brands except forthe Spring season of Gardening Direct. The profit after tax in 2005 is flat on2004 at £4.4m. Profit before tax was £5.6m down by £0.2m (4%). IFRS, as endorsedby the EU, has been implemented for the first time and these new standards haveresulted in £0.15m being charged against the profit that would not have beencharged under UK generally accepted accounting principles. This year a one offgain of £0.3m arose from the reorganisation of the Benham group and the disposalof their freehold property in Folkestone. The Group has continued to generate significant cash from trading operations,being £6.9m which is 19% higher than in 2004. Whilst the profit before tax for the first half was £1.1m down on the priorperiod, the second half profit before tax was £0.9m better. This improvement inthe second half came from better trading across all the brands, the positiveimpact of the two new acquisitions, delivery of cost improvements and thereorganisation of the entire Benham business. The Group's acquisition strategy has very quickly started to deliver goodresults with profits (before interest and amortisation) of £0.2m sinceacquisition. We have maintained the level of sales for the Gifts division, but we have seen a14% decline in profit before interest and amortisation as a result of highermarketing costs, a 10% increase in postage costs levied by the Jersey postalcompany and lower margins on new products added to the gift range. The firsthalf performance for Flying Flowers was negatively impacted by Mother's Daybeing earlier than in 2004 with higher marketing costs being incurred togenerate sales. Gardening Direct experienced a poor Spring season withcontribution down by £1.3m for the first six months, but offset by a strongperformance in the Autumn with contribution up by £0.4m on last year. GardenBird Supplies was acquired on 29 September 2005 and in the 3 months to 30December generated profit before interest and amortisation of £0.2m. TheEntertainment division saw a good growth in profit before interest andamortisation from the acquisition of Silverminds Direct and improvedprofitability in the Listen2Books and Benham with profit increasing from £0.1m,to £0.7m. The 2005 operational overheads, before the impact of the two acquisitions, were£4.5m, which represents a saving of £0.3m (6%) on the level in 2004, as a resultof several cost savings. Corporate overheads were £0.7m which comprise the cost of the Chief Executive,the Finance Director, the non executive Directors, cost of options and thelegal, professional and other fees connected with the running of a publiccompany. The Group received net interest income in the year of £0.3m, through proactivefinancial management of its cash and optimisation of the market interest rates. Cash flow The net cash flow from operating activities before interest and tax was £7.8mcompared with £6.8m in 2004. The improvement arose from more careful cashmanagement although operating profits before the profit on disposal of abuilding were down by £0.6m. The Group has been very focused in utilising the cash balances to maximise thevalue of the company for the shareholders. Two acquisitions were made during theyear for a cost of £4.8m and in only a few months have generated net cash of£0.3m. In addition, the Company has spent £1.9m repurchasing 4% of the company'sissued share capital and £0.5m on purchasing shares for the ESOP trust to coverthe exercise of some share options. Tax paid was £1.1m. The resultant net decrease in cash was £1.8m. Dividend per share The Group made dividend payments of £2.2m, and is proposing a final dividend of£1.5m to be payable in April 2006. The combined interim and final dividendresults in a full year dividend per share of 8.85p which is a 5% increase over2004. The dividend cover is 1.9 times which the Board believes is a sensible andsustainable level. Earnings per share The Group reported basic earnings per share of 17.1p in 2005 as compared with17.2p in 2004. The reduction arose from the lower profits achieved in 2005 as aresult of the poor Gardening Direct Spring season. The diluted EPS has increasedto 17.1p from 17.0p in 2004. Treasury policy There is little currency risk in the Group. There are minimal purchases madeoverseas, no hedging was done this year and no currency losses arose. The cash profile of the Group is very seasonal but no bank lending facilitieswere required. Cash is placed on deposits and the interest rates are maximisedbased on projected cash flows. 2001 2002 2003 2004* 2005* £'000 £'000 £'000 £'000 £'000Profit after taxation 3,452 3,527 4,405 4,440 4,413Dividends 1,930 1,964 2,010 2,067 2,195Net (debts)/funds (2,352) (98) 3,920 6,022 4,196* The results for 2004 and 2005 have been prepared under IFRS. Taxation The Group pays taxation in Jersey and the UK depending on the domicile of itsrespective subsidiaries. The taxation charge for 2005 is £1.1m which equates toan effective tax rate of 21% (compared with 23% in 2004) . The decrease in theeffective rate was as a result of lower profits being generated in the UKfollowing the poor spring for Gardening Direct and the one off on the propertydisposal being tax free. The States of Jersey has recently announced their intention that its corporateincome tax rates will reduce from the current rate of 20% to 0% by 2009. Thiseffectively means that Jersey trading profits in 2006 and 2007 will be taxed at10%, 2008 at 20% and in 2009 at 0%. The Jersey tax payable on 2005 profits isestimated at £0.9m. Graham NortonFinance Director10 March 2006 Consolidated income statementfor the 52 weeks ended 30 December 2005 -------------------------------------------------------------------------------- 2005 2004 notes £'000 £'000-------------------------------------------------------------------------------- From continuing operationsTurnover 1.13 36,258 35,768Cost of sales (25,396) (24,540)-------------------------------------------------------------------------------- Gross profit 10,862 11,228Operating expenses (5,849) (5,651)-------------------------------------------------------------------------------- Operating profit before disposal of building 5,013 5,577Profit on disposal of building 9 282 --------------------------------------------------------------------------------- Operating profit 5,295 5,577Interest receivable 265 209-------------------------------------------------------------------------------- Profit before tax 5,560 5,786Taxation 4 (1,147) (1,346)-------------------------------------------------------------------------------- Profit for the period 4,413 4,440-------------------------------------------------------------------------------- Earnings per Share expressed in pence per share 6Basic 17.14p 17.21pDiluted 17.05p 17.03p-------------------------------------------------------------------------------- Balance sheetsas at 30 December 2005 -------------------------------------------------------------------------------- Group Group Company Company 2005 2004 2005 2004 notes £'000 £'000 £'000 £'000-------------------------------------------------------------------------------- AssetsNon-current assetsGoodwill 7 3,866 - - -Intangibles 7 1,157 - - -Property, plant and equipment 11,419 13,081 - -Investments - - 21,369 21,369Deferred tax 27 - - --------------------------------------------------------------------------------- 16,469 13,081 21,369 21,369--------------------------------------------------------------------------------Current assetsInventories 3,154 2,674 - -Trade and other receivables 1,117 1,322 5,335 1,199Cash and cash equivalents 4,196 6,022 - --------------------------------------------------------------------------------- 8,467 10,018 5,335 1,199LiabilitiesCurrent liabilitiesCurrent income tax liabilities (1,171) (969) - -Trade and other payables (5,982) (4,736) (4,440) (1,216)--------------------------------------------------------------------------------Net current assets/(liabilities) 1,314 4,313 895 (17) Non-current liabilitiesIncome tax liabilities (949) (846) - -Deferred tax liabilities - (59) - --------------------------------------------------------------------------------- (949) (905) - ---------------------------------------------------------------------------------Net assets 16,834 16,489 22,264 21,352-------------------------------------------------------------------------------- Shareholders' equityOrdinary shares 255 265 254 264Share premium 16,021 15,936 16,021 15,936Revaluation reserve 450 457 - -Capital reserve (17) (17) 670 670Capital redemption reserve 20 10 20 10Share based payments 71 22 - -Treasury shares (940) (820) (940) (820)Retained earnings 974 636 6,239 5,292--------------------------------------------------------------------------------Total equity 16,834 16,489 22,264 21,352-------------------------------------------------------------------------------- Statements of changes in shareholders' equityfor the 52 weeks ended 30 December 2005 -----------------------------------------------------------------------------------------------------------------------The Group Capital Share Share Share Revaluation Capital redemption based Treasury Retained Total capital premium reserve reserve reserve payments shares earnings equity notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Balance at03 January2004 268 15,731 464 (17) 5 - (927) (744) 14,780Profit for theperiod - - - - - - - 4,440 4,440Employeeshareoption 1.12 - - - - - 22 - - 22schemeDividend 5 - - - - - - - (2,067) (2,067)paidSale of ownsharesin ESOP - - - - - - 107 - 107Transferbetweenreserves - - (7) - - - - 7 -Issue/cancellationof sharecapital (3) 205 - - 5 - - (1,000) (793)------------------------------------------------------------------------------------------------------------------------Balance at31 December2004 265 15,936 457 (17) 10 22 (820) 636 16,489------------------------------------------------------------------------------------------------------------------------Balance at01 January2005 265 15,936 457 (17) 10 22 (820) 636 16,489Profit for theperiod - - - - - - - 4,413 4,413Employeeshareoption 1.12 - - - - - 49 - - 49schemeDividend 5 - - - - - - - (2,195) (2,195)paidSale of ownsharesin ESOP - - - - - - 429 - 429Purchase ofownshares in ESOP - - - - - - (549) - (549)Transferbetweenreserves - - (7) - - - - 7 -Issue/cancellationof sharecapital (10) 85 - - 10 - - (1,887) (1,802)------------------------------------------------------------------------------------------------------------------------Balance at30 December2005 255 16,021 450 (17) 20 71 (940) 974 16,834------------------------------------------------------------------------------------------------------------------------ Statement of changes in shareholders' equityfor the 52 weeks ended 30 December 2005 ------------------------------------------------------------------------------------------------------------------------The Company Capital Share Share Share Revaluation Capital redemption based Treasury Retained Total capital premium reserve reserve reserve payments shares earnings equity notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at03 January2004 267 15,731 - 670 5 - (927) 8,199 23,945Loss for theperiod - - - - - - - (1) (1)Dividendreceived - - - - - - - 28 28Dividend paid - - - - - - - (1,934) (1,934)Sales of ownsharesin ESOP - - - - - - 107 - 107Issue/cancellationof sharecapital (3) 205 - - 5 - - (1,000) (793)------------------------------------------------------------------------------------------------------------------------Balance at31 December2004 264 15,936 - 670 10 - (820) 5,292 21,352------------------------------------------------------------------------------------------------------------------------Balance at01 January2005 264 15,936 - 670 10 - (820) 5,292 21,352Loss for theperiod - - - - - - - (71) (71)Dividendreceivable - - - - - - - 5,000 5,000Dividend - - - - - - - (2,095) (2,095)paidSale of ownsharesin ESOP - - - - - - 429 - 429Purchase ofownshares in ESOP - - - - - - (549) - (549)Issue/cancellationofown shares inESOP (10) 85 - - 10 - - (1,887) (1,802)------------------------------------------------------------------------------------------------------------------------Balance at30 December2005 254 16,021 - 670 20 - (940) 6,239 22,264------------------------------------------------------------------------------------------------------------------------ Cash flow statementsfor the 52 weeks ended 30 December 2005-------------------------------------------------------------------------------- Group Group Company Company 2005 2004 2005 2004 notes £'000 £'000 £'000 £'000-------------------------------------------------------------------------------- Cash flows from operatingactivitiesCash generated from operations 8 7,769 6,754 6 (1)Interest received/paid 265 209 2 29Tax paid (1,155) (1,186) - --------------------------------------------------------------------------------- Net cash from operating activities 6,879 5,777 8 28 Cash flows from investingactivitiesAcquisition of subsidiaries (netof (4,837) - - -cash acquired)Purchase of property, plant andequipment (382) (976) - -Proceeds from sale of property,plant 631 49 - -and equipmentLoan repayment from subsidiaryundertakings - - 90 1,332Dividend received from subsidiaryundertakings - - - 28-------------------------------------------------------------------------------- Net cash used in investing (4,588) (927) 90 1,360activities Cash flows from financingactivitiesNet proceeds from issue ofordinary 85 207 85 207share capitalPurchase of own shares for (1,887) (1,000) (1,499) (1,000)cancellationPurchase of treasury shares (549) - - -Sale of treasury shares 429 107 429 107Dividends paid to shareholders 5 (2,195) (2,062) (2,095) (1,921)-------------------------------------------------------------------------------- Net cash used in financing (4,117) (2,748) (3,080) (2,607)activities --------------------------------------------------------------------------------Net (decrease)/increase in cashand cash equivalents (1,826) 2,102 (2,982) (1,219) Cash and cash equivalents at 1January 2005/3 January 2004 6,022 3,920 (1,212) 7--------------------------------------------------------------------------------Cash and cash equivalents at30 December 2005/31 December 2004 4,196 6,022 (4,194) (1,212)-------------------------------------------------------------------------------- Notes to the financial statements 1 Summary of significant accounting policies IFRS1, First Time Adoption of International Financial Reporting Standards, hasbeen applied in preparing these financial statements. These consolidatedfinancial statements are the first Flying Brands financial statements to beprepared in accordance with IFRS. Consolidated financial statements of Flying Brands until 31 December 2004 hadbeen prepared in accordance with United Kingdom Generally Accepted AccountingPrinciples (UK GAAP). UK GAAP differs in certain respects from IFRS. Whenpreparing Flying Brands' 2005 consolidated financial statements, management hasamended certain accounting, valuation and consolidation methods applied in theUK GAAP financial statements to comply with IFRS. The comparative figures inrespect of 2004 were restated to reflect these amendments. Reconciliations and descriptions of the effect of the transition from UK GAAP toIFRS on the Groups' equity and its net income are given in note 2 (pages 22-24). The principal accounting policies adopted in the preparation of these financialstatements are set out below. These policies have been consistently applied toall financial periods presented, unless otherwise stated. 1.1 Basis of preparationThese financial statements have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS") and IFRIC interpretations, as endorsed bythe EU. The financial statements have been prepared under the historical costconvention as modified by the revaluation of land and buildings and certainfinancial assets and liabilities. A summary of the more important groupaccounting policies is set out below, together with an explanation of wherechanges have been made to previous policies on the adoption of new accountingstandards in the period. The Group has not elected to take any of the optionalexemptions in IFRS1 from retrospective application of IFRS. The preparation of financial statements in conformity with IFRS requires the useof estimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofsales and expenses during the reporting period. Although these estimates arebased on management's best knowledge of the amount, event or actions; actualresults ultimately may differ from those estimates. 1.2 Consolidation(a) SubsidiariesSubsidiaries are all entities over which the Group has the power to govern thefinancial and operating policies generally accompanying a shareholding of morethan one half of the voting rights. The purchase method of accounting is used to account for the acquisition ofsubsidiaries by the Group. The cost of an acquisition is measured as the fairvalue of the assets given, equity instruments issued and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to theacquisition. Identifiable assets acquired and liabilities and contingentliabilities assumed in a business combination are measured initially at theirfair value at the acquisition date, irrespective of the extent of any minorityinterest. The excess of the cost of acquisition over the fair value of theGroup's share of the identifiable net assets acquired is recorded as goodwill.The results of the subsidiary undertakings acquired or disposed of during theperiod are included in the consolidated income statement from the date of theacquisition or up to the date of disposal. Inter-company transactions, balances and unrealised gains on transactionsbetween group companies are eliminated. Accounting policies of subsidiaries havebeen changed where necessary to ensure consistency with the policies adopted bythe Group. 1.3 Segment reportingA business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged inproviding products or services within a particular economic environment that aresubject to risks and returns that are different from those of segments operatingin other economic environments. 1.4 Foreign currency translationForeign currency transactions are translated into the functional currency usingthe exchange rate prevailing at the date of the transaction. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at the period end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement. 1.5 Property, plant and equipmentAll property, plant and equipment (PPE) is shown at cost less subsequentdepreciation and impairment, except for land and buildings, which is shown atvaluation or cost less impairment. Cost includes expenditure that is directlyattributable to the acquisition of the items. Depreciation on assets iscalculated using a straight-line method to allocate the cost to each asset toits residual value over its estimated useful life, as follows: %Freehold land and buildings including glasshouses 0- 4Plant and equipment 10-20Computer hardware, included in plant and equipment 20 - 33.33Motor vehicles, including tractors 15-25 The assets' residual values and useful lives are reviewed and adjusted ifappropriate, at each balance sheet date. Gains and losses on disposals aredetermined by comparing proceeds with the carrying amount and are included inthe income statement. Subsequent costs are included in the asset's carrying amount or recognised as aseparate asset, as appropriate, only when it is probable that future economicbenefits associated with the item flow to the Group and the cost of the item canbe measured reliably. All other repairs and maintenance are charged to theincome statement during the financial period in which they are incurred. 1.6 Goodwill and intangible assets(a) GoodwillGoodwill represents the excess of the cost of an acquisition over the fair valueof the Group's share of the net identifiable assets of the acquired subsidiaryat the date of acquisition. Goodwill on acquisition of subsidiaries is includedin intangible assets. Goodwill is tested annually for impairment and carried atcost less accumulated impairment losses. Gains and losses on the disposal of anentity include the carrying amount of goodwill relating to the entity sold.Goodwill is allocated to cash generating units for the purposes of impairmenttesting. (b) Intangibles - TrademarksTrademarks obtained from acquired subsidiaries are shown at fair value. Theyhave a definite useful life and are carried at fair value at the date ofacquisition less accumulated amortisation. Amortisation is calculated using thestraight line method to allocate the cost of the trademarks over their estimateduseful lives: Garden Bird Supplies until May 2013 (c) Intangibles - Customer listsCustomer lists obtained from acquired subsidiaries are shown at fair value. Theyhave a definite useful life and are carried at fair value at the date ofacquisition less accumulated amortisation. Amortisation is calculated using thereducing balance method based on the estimated annual attrition rates. Silver Minds 48%Garden Bird Supplies 23% 1.7 Impairment of assetsAssets that have an indefinite useful life are not subject to amortisation andare tested annually for impairment. Assets that are subject to amortisation arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying value amount may not be recoverable. An impairment loss isrecognised for the amount by which the asset's carrying amount exceeds itsrecoverable amount. The recoverable amount is the higher of an asset's fairvalue less costs to sell and value in use. 1.8 InventoriesInventories are valued at the lower of cost and net realisable value. Ingeneral, cost is determined on a first in first out basis and includes transportand handling costs. Net realisable value is the price at which inventory can besold in the normal course of business after allowing for the costs ofrealisation. Provision is made where necessary for obsolete, slow moving ordefective inventories. Included within inventory are certain First Day Cover inventories. Theseinventories are valued as a proportion of the anticipated realisable value, as abest estimator of the lower of cost and net realisable value, based on expertopinion of the Group's philatelists. Provision is made for slow movinginventory. 1.9 Trade receivablesTrade receivables are recognised initially at cost, which is the fair value ofconsideration receivable and is adjusted for provision. A provision forimpairment of trade receivables is established when there is objective evidencethat the Group will not be able to collect all the monies due. The amount of theprovision is recognised in the income statement. 1.10 Cash and cash equivalentsCash and cash equivalents includes cash in hand, deposits held at call withbanks and other short-term highly liquid investments with maturities of threemonths or less. 1.11 Share capitalOrdinary shares are classified as equity. Where the company purchases its ownshares, the consideration paid including any directly attributable incrementalcosts, is deducted from the equity attributable to the Company's equity holdersuntil the shares are cancelled, reissued or disposed of. 1.12 Share based plansThe fair value of the employees services received in exchange for the grant ofshare options is recognised as an expense. The total amount to be expensedrateably over the vesting period is determined by reference to the fair value ofthe options determined at the grant date, excluding the impact of any vestingconditions. The vesting conditions are included in assumptions about the numberof options that are expected to become exercisable. The estimate is revised ateach balance sheet date and the difference is charged or credited to the incomestatement, with the corresponding adjustment to equity. The proceeds received onexercise of the options net of any directly attributable transaction cost arecredited to equity. 1.13 Revenue recognitionRevenue represents the invoiced value of goods supplied and is stated net ofVAT. Revenue is recognised at the date of despatch of goods to customers. Anyrefunds or replacements are recognised in the period in which the refund orreplacement is made. Credit card commission and the cost of overseas bouquetsare treated as cost of sales. Interest income is recognised on an accruals basedmethod. 1.14 Operating leasesLeases where the lessor retains substantially all the risks and rewards ofownership are classified as operating leases. Rentals payable under operatingleases are taken to the income statement on a straight line basis over the leaseterm. 1.15 Dividend distributionDividend distribution to the Company's shareholders is recognised as a liabilityin the Group's financial statements in the period in which the dividends areapproved by the Company's shareholders. 1.16 Deferred taxDeferred taxation is provided in full, using the liability method on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the consolidated financial statements. Deferred tax isdetermined using tax rates (and laws) that have been enacted or substantiallyenacted at the balance sheet date and are expected to apply when the relatedbalance sheet tax asset is realised or the deferred liability is settled.Deferred income tax assets are recognised to the extent that it is possible thatfuture taxable profit will be available against which temporary differences canbe utilised. 1.17 PensionsThe Group makes contributions to some employees' and Directors' personal definedcontribution schemes which are accounted on an accruals basis. 1.18 Marketing expenditureThe Group charges external campaign marketing expenditure to the incomestatement in the accounting period in which the related sales campaign takesplace. Any losses on recruitment sales are taken to the income statement asincurred. 1.19 TaxationTaxation is calculated at the estimated rate for the period together with themovement in the provision for deferred taxation. 1.20 Segmental reportingA business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged in providing products or services within aparticular economic environment that are subject to risks and returns that aredifferent from those components operating in other economic environments. 1.21 Fixed asset investmentsInvestments held as fixed assets are stated at cost less provision for anyimpairment. 2 Transition to IFRS Notes to the consolidated financial statements Flying Brands Limited reported under UK GAAP in its previously publishedfinancial statements for the period ended 31 December 2004. The analysis belowshows a reconciliation of net assets and profit as reported under UK GAAP as at31 December 2004 to the revised net assets and profit under IFRS as reported inthese financial statements. In addition, there is a reconciliation of net assetsunder UK GAAP to IFRS at the transition date for this company, being 3 January2004. 2.1 Reconciliation of equity at 3 January 2004-------------------------------------------------------------------------------- Effect of transition to UK GAAP IFRS IFRS notes £'000 £'000 £'000--------------------------------------------------------------------------------AssetsNon-current assetsIntangibles 7 - 7Property, plant and equipment 14,042 - 14,042Investments in group company a 927 (927) --------------------------------------------------------------------------------- 14,976 (927) 14,049Current assets 7,331 - 7,331--------------------------------------------------------------------------------Total assets 22,307 (927) 21,380--------------------------------------------------------------------------------LiabilitiesNon-current liabilitiesDeferred taxation 145 - 145Provisions 1,007 - 1,007-------------------------------------------------------------------------------- 1,152 - 1,152Current liabilities b 6,804 (1,356) 5,448--------------------------------------------------------------------------------Total liabilities 7,956 (1,356) 6,600--------------------------------------------------------------------------------Net assets 14,351 429 14,780--------------------------------------------------------------------------------EquityCapital and reserves attributable toequity holdersShare capital 268 - 268Retained earnings b (2,100) 1,356 (744)Share premium, revaluation and capital 16,183 - 16,183reservesTreasury shares a - (927) (927)--------------------------------------------------------------------------------Total equity 14,351 429 14,780-------------------------------------------------------------------------------- The following explains the material adjustments to the balance sheet:a) Shares in own Company that are held in an ESOP trust are no longer treated asan investment but are netted off against equityb) Dividends are only accounted for on an approved basis, rather than under UKGAAP on a declared basis 2.2 Reconciliation of equity at 31 December 2004-------------------------------------------------------------------------------- Effect of transition to UK GAAP IFRS IFRS notes £'000 £'000 £'000-------------------------------------------------------------------------------- AssetsNon-current assetsProperty, plant and equipment 13,081 - 13,081Investments in group company a 820 (820) --------------------------------------------------------------------------------- 13,901 (820) 13,081Current assets 10,018 - 10,018--------------------------------------------------------------------------------Total assets 23,919 (820) 23,099--------------------------------------------------------------------------------LiabilitiesNon-current liabilitiesDeferred taxation 59 - 59Provisions 846 - 846-------------------------------------------------------------------------------- 905 - 905Current liabilities b 7,158 (1,453) 5,705--------------------------------------------------------------------------------Total liabilities 8,063 (1,453) 6,610--------------------------------------------------------------------------------Net assets 15,856 633 16,489--------------------------------------------------------------------------------EquityCapital and reserves attributable toequity holdersShare capital 265 - 265Retained earnings b, c (795) 1,431 636Share premium, revaluation and capital 16,386 - 16,386reservesTreasury shares a - (820) (820)Share based payments c - 22 22--------------------------------------------------------------------------------Total equity 15,856 633 16,489-------------------------------------------------------------------------------- The following explains the material adjustments to the balance sheet:a) Shares in own Company that are held in an ESOP trust are no longer treated asan investment but are netted off against equityb) Dividends are only accounted for on an approved basis, rather than under UKGAAP on a declared basisc) Fair value of share options awarded - £22,000 2.3 Reconciliation of net income for 52 weeks ended 31 December 2004 -------------------------------------------------------------------------------- Effect of transition to UK GAAP IFRS IFRS notes £'000 £'000 £'000-------------------------------------------------------------------------------- Gross profit 11,228 - 11,228Operating expenses a (5,629) (22) (5,651)--------------------------------------------------------------------------------Operating profit 5,599 (22) 5,577Interest 209 - 209--------------------------------------------------------------------------------Profit before taxation 5,808 (22) 5,786Taxation (1,346) - (1,346)--------------------------------------------------------------------------------Profit for the period 4,462 (22) 4,440-------------------------------------------------------------------------------- a) Fair value of share options awarded - £22,000 2.4 Reconciliation of net income for 52 weeks ended 30 December 2005 -------------------------------------------------------------------------------- Effect of transition to UK GAAP IFRS IFRS notes £'000 £'000 £'000-------------------------------------------------------------------------------- Gross profit 10,862 - 10,862Operating expenses a,b (5,703) (146) (5,849)--------------------------------------------------------------------------------Operating profit before profit ondisposal 5,159 (146) 5,013of buildingProfit on disposal of building 282 - 282--------------------------------------------------------------------------------Operating profit 5,441 (146) 5,295Interest 265 - 265--------------------------------------------------------------------------------Profit before tax 5,706 (146) 5,560Taxation (1,147) - (1,147)--------------------------------------------------------------------------------Profit for the period 4,559 (146) 4,413-------------------------------------------------------------------------------- a) Fair value of share options awarded - £49,000b) Amortisation under IFRS 6 - £97,000 3 Segmental analysis The Directors of Flying Brands Limited are of the opinion that, whilst the Groupmarkets a number of different brands, all the business of the Group is operatedwithin the mail order retail segment. Due to the different risks and rewards available on different lines of business,independent of territory operations, Flying Brands primary reporting segment isby business. The secondary reporting format comprises the geographical segment. Certain overhead costs, assets and liabilities are shared between segments.These costs, assets and liabilities have been apportioned based on the usage ofthese services and assets by the appropriate segment. 3.1 Segmentation by primary divisions --------------------------------------------------------------------------------Period ended 30 December 2005 Gifts Garden Entertainment Total £'000 £'000 £'000 £'000-------------------------------------------------------------------------------- Turnover 12,822 15,324 8,112 36,258Operating profit before profit ondisposal of building 1,888 2,744 381 5,013Profit on disposal of building - - 282 282--------------------------------------------------------------------------------Segment result 1,888 2,744 663 5,295Interest receivable / (payable) 151 160 (46) 265--------------------------------------------------------------------------------Profit before tax 2,039 2,904 617 5,560--------------------------------------------------------------------------------Segment assets (including goodwill) 10,599 10,487 3,850 24,936Segment assets (excluding goodwill) 10,599 7,121 3,350 21,070--------------------------------------------------------------------------------Segment liabilities (4,018) (2,522) (1,562) (8,102)--------------------------------------------------------------------------------Depreciation 624 895 196 1,715Amortisation on intangible assets - 52 45 97Capital expenditure on property,plant and equipment 94 123 165 382-------------------------------------------------------------------------------- --------------------------------------------------------------------------------Period ended 30 December 2004 Gifts Garden Entertainment Total £'000 £'000 £'000 £'000-------------------------------------------------------------------------------- Turnover 12,858 15,274 7,636 35,768Segment result 2,183 3,340 54 5,577--------------------------------------------------------------------------------Interest receivable/(payable) 93 144 (28) 209--------------------------------------------------------------------------------Profit before tax 2,276 3,484 26 5,786--------------------------------------------------------------------------------Segment assets 9,652 9,882 3,565 23,099--------------------------------------------------------------------------------Segment liabilities (3,794) (1,424) (1,392) (6,610)--------------------------------------------------------------------------------Depreciation 715 939 206 1,860Amortisation on intangible asset - 7 - 7Capital expenditure on property,plant and equipment 331 366 279 976-------------------------------------------------------------------------------- No goodwill was carried in the balance sheet at 31 December 2004. 3.2 Segmentation by geographical area--------------------------------------------------------------------------------Turnover andprofit bygeographicalarea 2005 2004 Turnover by Turnover by customer Profit customer Profit location before location before taxation taxation £'000 £'000 £'000 £'000-------------------------------------------------------------------------------- Jersey, Channel Islands 71 4,350 75 4,195United Kingdom 35,321 1,210 34,741 1,591Europe 315 - 367 -Outside Europe 551 - 585 --------------------------------------------------------------------------------- 36,258 5,560 35,768 5,786--------------------------------------------------------------------------------Capitalexpenditureand assets bygeographicalarea 2005 2004 Capital Net Capital Net expenditure assets expenditure assets £'000 £'000 £'000 £'000-------------------------------------------------------------------------------- Jersey,ChannelIslands 166 22,744 478 23,855United Kingdom 216 (5,910) 498 (7,366)Europe - - - -Outside Europe - - - --------------------------------------------------------------------------------- 382 16,834 976 16,489-------------------------------------------------------------------------------- 4 Tax on profit on ordinary activities-------------------------------------------------------------------------------- 2005 2004 £'000 £'000 Current tax--------------------------------------------------------------------------------Jersey income tax at 20% 907 849UK corporation tax at 22% to 30% 338 549(Under)/over provision in previous periods (12) 34--------------------------------------------------------------------------------Total current tax 1,233 1,432-------------------------------------------------------------------------------- Deferred taxDecrease in provision for the period (86) (86)--------------------------------------------------------------------------------Total tax on profit on ordinary activities 1,147 1,346-------------------------------------------------------------------------------- The tax assessed for the period is different from the standard rate of incometax, as explained below:-------------------------------------------------------------------------------- 2005 2004 £'000 £'000-------------------------------------------------------------------------------- Profit on ordinary activities before tax 5,560 5,786--------------------------------------------------------------------------------Profit on ordinary activities multiplied by the standard rateof Jersey income tax of 20% 1,112 1,157Adjustments to tax in respect of prior periods (12) 34Adjustments in respect of foreign tax rates (principally UK) 107 113Expenses not deductible for taxation purposes 14 8Other (2) 34Amortisation on intangibles not allowable 54 -Disposal of building: capital gains not subject to taxation (126) ---------------------------------------------------------------------------------Current tax charge for period 1,147 1,346-------------------------------------------------------------------------------- 5 Dividends-------------------------------------------------------------------------------- 2005 2004 £'000 £'000-------------------------------------------------------------------------------- Dividends on equity sharesFinal dividend proposed in March 2005, agreed at annualgeneral meeting in April at 5.65p 1,453 1,356Interim dividend proposed at 2.85p per ordinary share in July2005 and paid in September 2005 742 706Under/(over) provision in prior period - 5-------------------------------------------------------------------------------- 2,195 2,067-------------------------------------------------------------------------------- In addition the directors are proposing a final dividend in respect of thefinancial period ended 30 December 2005 of 6.00p per share which will absorb anestimated £1.5m of shareholders funds. It will be paid on 21 April 2006 toshareholders who are on the register of members on 31 March 2006. 6 Earnings per ordinary share Basic Basic earnings per share is calculated by dividing the profit attributable tothe equity holders of the Company by the weighted average number of ordinaryshares in issue during the period, excluding ordinary shares purchased by theCompany and held as treasury shares. Adjusted earnings per share is calculatedby dividing the profit excluding the profit on disposal of building by theweighted average number of Ordinary Shares in issue during the period, asadjusted for treasury shares. -------------------------------------------------------------------------------- 30 31 December December 2005 2004-------------------------------------------------------------------------------- Profit attributable to equity holders of theCompany (£'000) 4,413 4,440--------------------------------------------------------------------------------Weighted average number of ordinary shares in issue,less weightedaverage number of treasury shares (thousands) 25,752 25,795--------------------------------------------------------------------------------Basic earnings per share (pence per share) 17.14 17.21--------------------------------------------------------------------------------Adjusted earnings per share (pence per share) 16.04 17.21-------------------------------------------------------------------------------- Diluted Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares outstanding to assume conversion of all dilutivepotential ordinary shares. The Company has one category of dilutive potentialordinary shares: share options. The calculation is performed for the share options to determine the number ofordinary shares that could have been acquired at fair value (determined as theaverage market share price of the Company's shares) based on the monetary valueof the subscription rights attached to outstanding share options. The number ofshares calculated as above is compared with the number of shares that would havebeen issued assuming the exercise of the share options. -------------------------------------------------------------------------------- 30 December 31 December 2005 2004-------------------------------------------------------------------------------- Profit attributable to equity holders of theCompany (£'000) 4,413 4,440--------------------------------------------------------------------------------Weighted average number of ordinary shares inissue (thousands) 25,752 25,795Adjustment for share options (thousands) 135 281--------------------------------------------------------------------------------Weighted average number of ordinary shares fordiluted earnings per share (thousands) 25,887 26,076--------------------------------------------------------------------------------Diluted earnings per share (pence per share) 17.05 17.03-------------------------------------------------------------------------------- 7 Goodwill and intangible fixed assets--------------------------------------------------------------------------------The Group Intellectual Property Trade Customer Goodwill Total marks lists £'000 £'000 £'000 £'000 £'000-------------------------------------------------------------------------------- CostAt 1 January 2005 398 - - - 398Additions(acquisition ofsubsidiaries) - 431 823 3,866 5,120--------------------------------------------------------------------------------At 30 December2005 398 431 823 3,866 5,518--------------------------------------------------------------------------------AmortisationAt 1 January 2005 398 - - - 398Charge for theperiod - 14 83 - 97--------------------------------------------------------------------------------At 30 December2005 398 14 83 - 495--------------------------------------------------------------------------------Net book value at30 December 2005 - 417 740 3,866 5,023--------------------------------------------------------------------------------Net book value at 1 - - - - -January 2005 -------------------------------------------------------------------------------- The intangible assets at 31 December 2004 related to intellectual property.Amortisation of £7,000 was charged in the period ending 31 December 2004. Thenet book value at 31 December 2004 was nil. On 18 April 2005 the Group acquired the assets of Silverminds Direct, a musicCD, video and DVD home shopping retailer. The assets that have been acquired area database of 350,000 names and addresses (including 140,000 customers who havepurchased at least one product in the last 24 months), the internet domainnames, and the rights to the images and intellectual property of all formerpromotional campaigns of the business. The carrying value of intangibles istested annually for impairment. No impairment charge was considered necessary.The total cost of the acquisition was £662,000, being cash paid to the receiverfor the purchase of £551,000 and legal and professional fees related to theacquisition of £111,000. The Goodwill acquired was £500,000, which isattributable to the profitability of the business and the significant synergiesexpected to arise after the Groups acquisition. The acquired businesscontributed revenues of £749,000 and a net profit before amortisation andinterest of £20,000 to the Group for the period 18 April 2005 to 30 December2005. Prior to acquisition the company was in receivership and accordingly norelevant revenue and profit figures exist for the period from 01 January 2005 tothe date of acquisition. On 29 September 2005 the Group acquired 100% of the share capital of Garden BirdSupplies Limited, a home shopping retailer of garden bird food and accessories.The Company has a database of 486,000 customers of which approximately 48,000have purchased at least one product in the last 12 months. In addition toacquiring a customer list and the Ultiva Trademark, Flying Brands also acquiredother net assets with a fair value of £171,000. The Goodwill acquired was£3,366,000, which is attributable to the high profitability of the acquiredbusiness and the significant synergies expected to arise after the Group'sacquisition. The carrying value of intangibles is tested annually forimpairment. No impairment charge was considered necessary. The total cost of theacquisitions was £4,629,000, being cash paid to the shareholders of £4,290,000and direct costs attributable to the acquisition of £339,000. £429,000 of theconsideration is held in an Escrow account until 29 March 2006 to cover for anyclaims that could be made under the purchase agreement dated 29 September 2005.As at 28 February 2006, no material claims have been identified. The acquiredbusiness contributed revenues of £1,151,000 and a net profit before amortisationand interest to the group of £151,000 in the three months to 30 December 2005.In the twelve months to 30 June 2005, the company generated revenue of£3,761,000 and net profits before tax of £479,000. If the two acquisitions had occurred on 1 January 2005, the group's revenuewould have been £39.3m, and profit would have been £6.0m. 8 Reconciliation of operating profit to net cash inflow from operatingactivities-------------------------------------------------------------------------------- Group Group Company Company 2005 2004 2005 2004 £'000 £'000 £'000 £'000-------------------------------------------------------------------------------- Operating profit/(loss) 5,295 5,577 (6) (1)Depreciation 1,715 1,860 - -Loss on sale of property, plant andequipment 6 28 - -(Profit) on disposal of building (282) - - -Decrease/(increase) in stocks (252) (280) - -Decrease/(increase) in debtors 221 (326) - -(Decrease)/increase in creditors 920 (134) 12 -Share based payments 49 22 - -Amortisation of intangible assets 97 7 - ---------------------------------------------------------------------------------Net cash inflow from operating activities 7,769 6,754 6 (1)-------------------------------------------------------------------------------- 9 Disposal of building On 30 September 2005, the Group sold Benham House for £660,000. This transactioncompleted the reorganisation of the Benham business. The resultant one off gainwas £282,000. This information is provided by RNS The company news service from the London Stock Exchange