Iq-ai Ltd Regulatory News (IQAI)

16 Mar 2007 07:01

Flying Brands Limited16 March 2007 Flying Brands Limited Preliminary Results for the 52 weeks ended 29 December 2006 16 March 2007, Jersey. Flying Brands Limited (LSE: FBDU), the home shoppingcompany, today announces preliminary results for the 52 weeks ended 29 December2006. Acquisitions deliver strong performance Highlights • Sales increased by 17% to £42.4m (2005: £36.3m) (-3% excluding the effect of acquisitions) • Internet sales increased by 31% to £5.0m (2005: £3.8m) • Profit before tax was £5.3m (2005: £5.3m) • Earnings before interest, tax, amortisation and a one-off property gain increased by 17% to £5.6m (2005: £4.8m) • Earnings per share was 16.2p (2005: 16.4p) • Final dividend per share increased by 5% to 6.30p, full year dividend of 9.30p increased by 0.45p • Greetings Direct acquisition immediately earnings enhancing Commenting on today's announcement, Paul Fraser, Chairman, said: "The strong performance from our two most recent acquisitions was veryencouraging and helped offset the weak trading in the autumn from GardeningDirect, as highlighted in November 2006. The sales and EBITA improvementsclearly show the underlying strength of our trading results and provide theplatform for growth in 2007. We continue to generate substantial cash and, withthe assistance of new debt, this has enabled us to make the value creatingacquisitions. We are in good financial health for the future. The business moved forward substantially in 2006, with the earnings enhancingacquisition of Greetings Direct and real progress in developing our core brands.Flying Brands is now a genuine dual channel retailer, with internet salesincreasing by 31% to £5.0m. We are a focused company, with all our brandsconcentrated on the Gifts, Garden and Entertainment arenas. Our priorities are to extract increased value from our database of over fivemillion households, 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 The difficulties experienced during the autumn of 2006 in the trading of theGarden division are being smoothed out by widening our product offers, and theGroup enters 2007 in a strong position with an expanding portfolio ofcomplementary brands that will ensure that it is well placed for future growth.We anticipate strong performances from our recent acquisitions as we continue tointegrate them cost effectively into our infrastructure. However, the currentyear will also see a significant increase in our distribution costs, principallyfrom Jersey Post, which will have an adverse impact on Group earnings. The Grouphas made a satisfactory start to the current financial year. Change of Chairman Following the announcement on 29 November 2006, Paul Fraser has now confirmedthat he will be stepping down as Chairman and Non Executive Director at theAnnual General Meeting on 17th April 2007. The Board has appointed Tim Trotter,currently independent deputy chairman, to succeed Paul Fraser as chairman afterthe Annual General Meeting. 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; Greetings Direct, the UK's only continuity greeting cards business) • 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; Sarah Raven's Kitchen & Garden, high quality plants that are hard to find elsewhere) • Entertainment (Listen2, the leading mail order audio books, nostalgic music, DVD and video publisher and distributor; Benham, the first day cover stamps and coins collectables specialist) More information can be found at: www.flyingbrands.com CHAIRMAN'S STATEMENT Overview and Financial Results The strong performance from our two most recent acquisitions was veryencouraging and helped offset the weak trading in the autumn from GardeningDirect, as highlighted in November 2006. The sales and earnings before interest,tax and amortisation (EBITA) improvements clearly show the underlying strengthof our trading results and provide the platform for growth in 2007. We continueto generate substantial cash, and with the assistance of new debt, this hasenabled us to make the value creating acquisitions. We are in good financialhealth for the future. The business moved forward substantially in 2006, with the earnings enhancingacquisition of Greetings Direct and real progress in developing our core brands.Flying Brands is now a genuine dual channel retailer, with internet salesincreasing by 31% to £5.0m. We are a focused company, with all our brandsconcentrated on the Gifts, Garden and Entertainment arenas. Our priorities are to extract increased value from our database of over fivemillion households, 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. Sales were £42.4m, a 17% improvement over 2005 (£36.3m), helped by theperformance of our recent acquisitions. On a like for like basis, excluding newacquisitions, sales were 3% down on 2005 figures. Profit before tax at £5.3m remained at the same level as in 2005 predominantlyas a result of weak autumn trading in our Garden division, together with thehigher amortisation charge relating to acquisitions and lower interest receipts. Earnings before interest, tax, amortisation and gain on disposal of a buildinggrew by 17% to £5.6m (2005: £4.8m). There were two one-off, non recurring costs in 2006 relating to the restructureof the board and the integration of Garden Bird Supplies which together accountfor £0.2m of pre tax profit. Unadjusted earnings per share were 16.2p comparedto 16.4p in 2005; adjusted earnings per share (excluding the building disposaland restructuring costs) were 16.6p, compared with 15.3p in 2005, an improvementof 9%. We continue to generate substantial cash and we ended the year with a cashbalance of £2.0m. Greetings Direct was acquired by means of cash and a loanfacility of £9.5m for a total consideration of £12.9m. Dividend The Directors are recommending a final dividend increase of 5% to 6.3p per share(2005: 6.00p). Together with the interim dividend of 3.00p (2005: 2.85p), thetotal dividend payment per share will be 9.3p (2005: 8.85p), a 5% increase forthe year. Dividend cover is 1.7 times. The final dividend will be paid on 25April 2007 to shareholders who are on the register as at 30 March 2007, with theshares going ex dividend on 28 March 2007. Outlook The difficulties experienced during the autumn of 2006 in the trading of theGarden division are being smoothed out by widening our product offers, and theGroup enters 2007 in a strong position with an expanding portfolio ofcomplementary brands that will ensure that it is well placed for future growth.We anticipate strong performances from our recent acquisitions as we continue tointegrate them cost effectively into our infrastructure. However, the currentyear will also see a significant increase in our distribution costs, principallyfrom Jersey Post, which will have an adverse impact on Group earnings. The Grouphas made a satisfactory start to the current financial year. Flying Brands' proven strategy of maximising value from its strong cashgeneration will continue through 2007, with increased investment in onlinedevelopment and further brand diversification both to increase spend from thecurrent database and to attract a younger customer without alienating our core.We are accelerating the transformation of Gardening Direct into becoming a"direct garden centre" so that our reliance on the sales of bedding plants isreduced. We will continue to make appropriate acquisitions when the right opportunitiesarise, with a focus on earnings enhancement. The Board feels, therefore, that weare in a strong position to further strengthen the Group's brands, widen thefranchise through online development and drive growth and profits in 2007 andbeyond. Board and Employees There have been many positive improvements to the business during 2006, and itis a tribute to the management and staff that these have been implemented costeffectively and without business interruption. We thank them and wish them everysuccess in meeting the company's objectives for 2007 and beyond. In a year of some change, we welcomed to the Board Jim McMahon and Paul Davidsonfollowing West Coast Capital's investment in our business. I will be steppingdown from the Board and as Chairman at the annual general meeting on 17 April2007, and the Board has appointed Tim Trotter, currently independent deputychairman, to succeed me after the annual general meeting. I wish the newChairman and my Board colleagues every success: this is a great business withsound fundamentals and strong potential to expand beyond its current marketplace. Paul FraserChairman16 March 2007 CHIEF EXECUTIVE'S REPORT 2006 2005 Restated Gifts Garden Entertainment Total Gifts Garden Entertainment Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Revenue 16,395 17,913 8,060 42,368 12,822 15,324 8,112 36,258Contribution 4,760 4,667 2,179 11,606 3,574 4,378 2,163 10,115OperationalOverheads (1,621) (1,673) (1,763) (5,057) (1,403) (1,553) (1,642) (4,598)CorporateOverheads (265) (318) (120) (703) (283) (315) (95) (693)RestructuringCosts (32) (111) (15) (158) - - - -Loss onassociates (68) - - (68) - - - -Earningsbeforeinterest,amortisationand disposalof building 2,774 2,565 281 5,620 1,888 2,510 426 4,824Profit ondisposal ofbuilding - - - - - - 282 282Profit beforeinterest andamortisation 2,774 2,565 281 5,620 1,888 2,510 708 5,106Amortisationon acquisitionintangibles (134) (199) (58) (391) - (52) (45) (97)Interest 90 52 (102) 40 151 160 (46) 265Profit beforetaxation 2,730 2,418 121 5,269 2,039 2,618 617 5,274 Overview We made a very exciting acquisition in Greetings Direct, which is not onlyinstantly earnings enhancing, but also promises considerable growthopportunities both in the UK and in international markets. Our second halfresults were impacted by Gardening Direct's weak trading performance in theautumn, set against very strong comparatives in 2005 which had seen its bestever autumn season. Flying Flowers had a good year and it is very encouraging to see our strategy ofgradually expanding the brand to become a more rounded gift solution providerworking well. Flying Flowers is becoming a successful internet business and isappealing to a wider base of potential new customers. Across the Group we aregrowing our internet sales rapidly and an increasingly high percentage of newcustomers are coming from the web, in comparison to our traditional printedmedia recruitment methods. In addition, internet orders are processed at asubstantially lower cost as they feed directly into our fulfilmentinfrastructure. Strategic Focus and Opportunities Whilst the strategy that underpins our profitability and drives our growthremains increasing the overall value from our database of 5 million households,we appreciate that we also have to find wider markets and must attract youngercustomers. This is why brand and product diversification and finding appropriatenew businesses are so important to us, and we are delighted to have been able tolicense Sarah Raven's Kitchen & Garden, which allows us immediate access to ayounger, higher spending customer within our Garden division. Sarah Raven is awell known presenter of the BBC's Gardeners' World and a successful author oncooking and gardening subjects. The internet is increasingly important, as it exposes our brands to differentdemographic sectors and is becoming a major source of new customer recruitment.This is key as we are finding recruitment from traditional press advertisingincreasingly difficult as circulations decline and the potential buying universematures. Acquisitions of Complementary Businesses Our strategy of acquiring complementary businesses that are instantly earningsenhancing and cash generative is working well. We acquired three businessesduring 2005 and 2006, two of which (Garden Bird Supplies and Silverminds Direct)have now been fully integrated into our infrastructure with substantial costsavings being generated. The third, Greetings Direct, was acquired in September2006, and we will look to assimilate this business, where appropriate, through2007. The database of 825,000 Greetings Direct customers, being predominantlyfemale, complements that of Flying Flowers (and therefore sits very comfortablywithin our Gifts division). The database is also younger in profile to our usualdemographic, which is completely in line with our strategy of exposing ourbrands to younger markets. We will continue to make appropriate earningsenhancing acquisitions, where the price is fair and where the incoming databaseof customers enables us to drive our overall strategy forward. Business Challenges As has been mentioned, our database of customers, particularly that of GardeningDirect, is an ageing one and we are finding growing the number of active buyerswithin the database increasingly difficult through our traditional pressadvertising methods. Declining media circulations and a maturing market placehave combined to make cost effective new customer recruitment increasinglychallenging, and this explains in part why the recent performance of GardeningDirect has been volatile. We are accelerating new customers recruitment from theinternet with substantial additional investment planned for developing theonline channel in 2007. This will involve adopting best practice in terms ofwebsite technology, search engine optimisation and an intelligent approach toe-commerce, and also ensuring that the products we offer through our brandsappeal to a web literate generation at price points that will convert browsersto buyers. As a Jersey company that has a local work force and pays Jersey taxes, webenefit from Low Value Consignment Relief ("LVCR"), an EU Directive which meansthat we can ship products priced at £18 or less from Jersey into the UK free ofVAT. Whilst has been some debate and speculation about the future of LVCR, theUK Treasury has stated that no changes currently are being considered. Wecontinue to monitor the situation but remain confident that, even were there tobe changes to LVCR, we have contingencies that would ensure a minimal impact onour business. Furthermore, corporate income tax will taper down from the currentlevel of 20% to zero in 2009, which should mean an increasingly positive impactto both our free cash as well as earnings per share from 2007 onwards. The cost of shipping products from Jersey into the UK has been escalating overthe last five years, substantially ahead of inflation, and a new contract signedbetween Jersey Post and Royal Mail towards the end of 2006 has precipitatedhigher price increases for 2007. We are contesting these increases vigorouslythrough the Jersey Post regulator and the Jersey government, but we have had toincrease prices on some of our products to offset these increases, although wecontinue to offer excellent value for money, particularly when compared to ourcompetitors. GIFTS Sales increased by 28% to £16.4m in 2006 compared to £12.8m in 2005, with profitbefore interest and amortisation of £2.8m (2005: £1.9m). Excluding theacquisition of Greetings Direct, sales were 1% ahead of last year. Flying Flowers The brand has had a very good year, consolidating its position as a popular lowcost gift solution provider. A principal reason for its success has been theprogress made on the internet, where sales improved by 15% over 2005 totalling19% of revenue; new customers recruited from the web during the year improved to30% of the total new names to the brand in the year, with e-mail addresses onthe database advancing by 29% to 143,000. The introduction of a new web platformin the second half of 2007 will further drive this exciting progress. Product diversification is another reason for Flying Flowers' continued success,and sales of non postal bouquets (our original core business) have increased to20% of the total. We successfully added some new flower bouquets in 2006 as wellas baby gifts and personalised chocolates, which, combined with greaterflexibility in terms of what customers can add on to their gifts, has resultedin an increase in both frequency of purchase and average order values. We willbe adding more new products in 2007. All of the three major "peaks" of Valentine's Day, Mother's Day and Christmasperformed to plan despite heavy advertising campaigns from High Street retailcompetitors at Valentine's and Mother's Day. We truly believe that ourValentine's rose offers provide customers with quality products at exceptionalvalue for money. We also confirmed what we had learned in 2005, that Easter hasbecome a fourth 'peak' for us, with the potential, given our database profile,to become at least as important as Valentine's Day, and we will exploit this in2007. Flying Flowers will continue to grow its online presence and attract a widerprofile of new prospects whilst providing an outstanding level of service to itsloyal existing customers. Greetings Direct Greetings Direct has a different business model to our other stable of brands inthat it operates on approval through continuity marketing compared to the "cashup front" offers of our other businesses. It attracts new customers through ahighly incentivised initial offering and then ships a pack of assorted greetingcards asking the customer to pay on receipt; a payment then triggers anothershipment with an invoice and so on. Many of the best known direct publisherssuch as Reader's Digest, Time Life and the Consumers Association use, verysuccessfully, the same marketing techniques. Although payment performance andretention rates are key metrics in measuring success, these elements areremarkably consistent and predictable, and as a result the profit stream andcash flow generated is considerable. In many ways Greetings Direct is morepredictable that our other brands which rely on response rates to differentcatalogue offers. Greetings Direct was set up in 2003 and has moved to an annual turnover of£11.7m with earnings before interest and taxation of £1.8m. With the successfulestablishment of the business in the UK and now the Republic of Ireland, thebrand shows that it has potential for international expansion as well as thepossibility of launching new continuity products in addition to just greetingcards. The database of customers is similar to that of Flying Flowers' but with ayounger profile and we have already successfully started cross promoting fromone brand to the other. Greetings Direct, which had no internet presence at all,is being featured on the Flying Flowers' web site and this opportunity will beaggressively exploited in 2007, as will its potential in further internationalmarkets. GARDEN Sales in the Garden Division were £17.9m, a 17% improvement over the £15.3mdelivered in 2005. However, excluding Garden Bird Supplies, which was acquiredin September 2005, sales were 2% below the 2005 level. Profit before interestand amortisation was £2.6m, 2% above the £2.5m achieved in 2005. Gardening Direct This is the largest and most profitable brand within our portfolio, but it hasexperienced considerable volatility over the last two years. On the one hand,the selling of its core product offer - seedling bedding plants (known as "plugplants"), grown ourselves in Jersey which therefore accounts for a substantialpart of both our infrastructure and costs - is dependent to an extent onconsistent weather patterns, but also is not as popular as it used to be withthe rise in demand for "instant gardening". On the other hand, seedling beddingplants tend to be popular with an older customer demographic who may not beparticularly interested in other forms of gardening offers or propositions. Although we continue to generate excellent levels of repeat purchasing from ourloyal core of existing customers, we are finding attracting new customers whothen become regular purchasers increasingly challenging. We recognise that weneed to speed up the transformation of Gardening Direct into a much widerranging garden centre type brand that will appeal to a broader and youngermarket, whilst at the same time paying attention to the core bedding plantcustomers who generate the majority of the current profits of the business. This transforming process started in 2006, with encouraging results from testinglarger plants, climbing flowers, hedging and small trees as well as somegardening hardware, ornaments, bird food and giftware. We also made progress onthe internet, with overall sales improving by 19% over 2005, with web sales nowup to 9% of the brand's total, with e-mail addresses up by 47% to 75,000. Howquickly we can build on this will determine the speed at which this brand willbe turned around and transformed, but we have many initiatives in 2007 that giveus considerable confidence that we can deliver our strategy successfully. Sarah Raven's Kitchen & Garden We licensed the above brand from Sarah Raven, the BBC Gardeners' Worldpersonality and well known gardening and cooking authority, early in 2007, andhave just commenced our marketing activity. The licence is initially for threeyears and Sarah Raven will work with us in a consultancy capacity, advising onproducts and positioning of the brand. The licence comes with a strong existingdatabase of active trading customers and will enable us to access a younger,higher spending market profile than we are currently achieving with GardeningDirect. This represents a very exciting opportunity for us. Garden Bird Supplies Garden Bird Supplies, a leading supplier of bird food, bird related hardware,other general wildlife products and accessories for the bird watcher, completedits first full year under Flying Brands' management in 2006. In addition tothis, Garden Bird Supplies was fully integrated into our infrastructure from themiddle of the year, with all marketing brought within the divisional brandteams, the call centre transferred to Kelvedon Park and some lighter productsbeing moved to Jersey for despatch. These changes were successfully implementedand have already delivered efficiencies and cost savings. After a strong first half, the brand suffered, along with the rest of the birdfood industry, a hot summer followed by a warm autumn and winter, meaning thatthere was an over-abundance of natural food for wild birds that was not killedoff by late year frosts, usually the trigger for an upsurge in sales (as we hadwitnessed in 2005). Nevertheless, such is the underlying strength of thisbusiness that it still delivered significant profits. It clearly also has thepotential to grow its online sales, these now comprising 19% of the total, andwith an email address list of 27,000. We remain confident that we will grow thisbusiness substantially. ENTERTAINMENT Overall sales for the division in 2006 were £8.1m, in line with 2005 (£8.1m),with profit before interest and amortisation £0.3m, compared to £0.4m (beforethe profit on the sale of a building) in 2005. Listen2Books and Silverminds Direct Both brands found cost effective customer recruitment difficult in 2006,reflecting a depressed yet highly competitive market for entertainment productsgenerally. Listen2Books' customers also revealed a reluctance to switch awayfrom the cassette format to CDs, which has impacted sales as the cassette isgradually being phased out by publishers. We are pricing CDs more competitivelywhich should rectify this. Some progress was made online where the combined sales of both brands increasedby 9% over 2005, with the internet now contributing 9% of the total revenues ofthe two businesses. Listen2Books deliberately repositioned its web offeringtowards a younger market with more contemporary titles, as well as providing adownload facility through a partnership with audible.co.uk; this has helpeddrive traffic and improve online sales. We have been sufficiently encouraged at the rate at which customers have boughtboth audio and music products that we have amalgamated the two brands into asingle, classic entertainment offer with effect from February 2007 under thetitle "Listen2". Not only does this provide a more rounded proposition that willhave a much wider appeal in attracting new customers, it also saves asubstantial amount in promotion costs, with only one catalogue and website tocreate, rather than the two. We firmly believe that this will become a muchstronger concept with opportunities to diversify further and thus should becomea platform for profitable growth. Benham It was pleasing to see Benham deliver good results in 2006 despite not producingany real outstanding product winners, which illustrates how better controlledand managed the business has become after two years of considerable change.Indeed, with most Benham operations now becoming automated and more of theproduction function migrating to Jersey, it has allowed management to focus moreon product development, finding new channels and markets for sales, andimproving both margins and stock control. This has paid off, with successful trade sales, as well as the internet startingto play a more important part (with sales also being generated from e-Bay) andthe need for stock provisioning being substantially reduced over prior years.Several outbound telemarketing tests were also conducted as was the promotion ofrare stamps and autographs: both these activities will feature in 2007. Other Activities We have taken, for a consideration of £0.2m in October 2006, a 40% stake in aJersey start up business called Mail Direct Limited, which is a pure internetplayer in low value products shipped from Jersey. Infrastructure and Operations Total operational overheads in 2006 were £5.1m, an increase of 10% over theprevious year. Several factors contributed to this - the overhead costs of twonew acquisitions (Garden Bird Supplies and Greetings Direct); the introductionof a minimum wage and new working practices in Jersey, and a general increase infuel costs required to heat the nurseries where we grow the plants. We continue to drive down costs and improve efficiencies wherever we can. Ongoing Strengths Despite facing some challenges within our Garden division, the Group hasdemonstrated the effectiveness of its strategy and its ability to implement thisstrategy effectively. The cash generation of our business remains outstandingand we have used the cash to maximise returns. We have demonstrated that we canexploit opportunities such as the internet and the amalgamation of theEntertainment brands, providing that we are convinced that these changes willincrease shareholder value. The Group has many strengths: • A stable of complementary businesses • An increasing online presence • A database of 5 million households and 0.3 million email addresses • A willingness to maximise returns from its assets • Jersey tax benefits • Highly cash generative and very profitable within its market sector • An effective use of its cash • Progressive dividend policy • A clear strategy that is being successfully implemented We are in a very strong position to exploit these strengths: we will continue tofind the right acquisitions to drive up value (as we recently demonstrated withGreetings Direct) whilst an expanding internet presence will ensure the growthof our existing brands. When one adds to this both the additional cash and theenhancement in earnings per share generated by the tapering down of the rate ofcorporation tax in Jersey from 20% now to zero in 2009, we can see that FlyingBrands has a bright future. We have the right strategy in place and we have theteam to implement it. I would like to thank Paul Fraser, our outgoing Chairman, for his support of ourbusiness since he first joined the Board in 1998, and I very much look forwardto working with Tim Trotter together with the rest of the Board in driving ourcompany forward successfully. Mark DugdaleChief Executive16 March 2007 Financial Review Results The Group has seen its recent acquisitions deliver very good results but thesehave been offset by difficult trading through the autumn for Gardening Directand for two brands within our Entertainment division. Excluding the one-off gainon disposal of a building in 2005 of £0.3m, profit before tax was £5.3m, £0.3mup on the performance in 2005. The profit after tax in 2006 is £0.2m down on2005 at £4.0m. The Directors believe that EBITA (Earnings Before Interest, Tax andAmortisation) is a truer reflection of the underlying trading performance of thebusiness and in 2006 the Group delivered an EBITA of £5.6m, a 17% improvement onthe 2005 performance (£4.8m), excluding the one-off profit on disposal of abuilding. The Group generated £4.6m of cash from trading operations after investing postacquisition £1.8m in the working capital of Greetings Direct. On a like for likebasis, net cash from operations has declined by £1.4m on 2005. This year we have, for the first time, benefited from a full year impact of theacquisition of Garden Bird Supplies which has produced profits before tax,amortisation and interest of £0.8m on sales of £4.1m (2005: profit £0.2m onsales of £1.2m). On 15 September 2006 we acquired the Greetings Direct Groupwhich has delivered profits before tax, amortisation and interest of £0.8m onsales of £3.5m to 29 December 2006. As a result of the acquisitions our amortisation charge on acquired intangibleshas increased by £0.3m and our interest position has deteriorated over that in2005 by £0.2m, due to loans taken out to fund partially the acquisition. During the year, the non executive membership of the Board has changed, and thisresulted in some one-off severance payments of £0.1m. In addition, as a resultof integrating Garden Bird Supplies into the Group's existing business model, weincurred one-off re-organisation costs of £0.1m. The Gifts division has benefited from the acquisition of the Greetings DirectGroup which has accounted for £0.5m of the £0.7m growth in pre tax profits.Excluding Greetings Direct, the Gifts division has traded marginally up both interms of sales and profits on those in 2005. We have reduced our marketing costsby £0.1m, but these savings have been absorbed by higher costs of doing businessin Jersey, driven by large postal charge increases and salary inflation. The Garden division has benefited from the full year impact of Garden BirdSupplies but has experienced a disappointing autumn campaign when compared withthe record performance in autumn 2005. The impact of the poorer autumn in 2006has generated £0.9m of lower profits in 2006 than in 2005. In total, the Gardendivision produced a profit before tax, interest and amortisation of £2.6m, up£0.1m on 2005. The Entertainment division generated a profit before tax, interest andamortisation of £0.3m, being £0.4m down on the 2005 level. £0.3m of this adverserelates to a one off gain in 2005 on the sale of a property. The deteriorationin performance has been mostly in the Listen2books brand where we have found itdifficult to replenish our active database cost effectively. The 2006 operational overheads were £5.1m, which has grown by 10% over 2005,mostly as a result of the acquisitions of Garden Bird Supplies and GreetingsDirect. Corporate overheads were £0.7m (2005: £0.7m) which comprise the cost of theChief Executive, the Finance Director, the non executive Directors, cost ofoptions and the legal, professional and other fees connected with the running ofa public company. The Group received net interest income in the year of £0.04m, as a result ofinvesting surplus cash on acquisitions and taking out a £9.5m loan to financethe acquisition of the Greetings Direct Group. Cash flow The net cash flow from operating activities was £3.1m compared with £6.9m in2005. The reduction arose primarily from the investment in Greetings Directwhich had significant creditors at the date of acquisition as a result of itsautumn mailing campaign. The Group has been very focused in utilising the cash balances to maximise thevalue of the company for the shareholders. The acquisition of Greetings Directcost £12.9m and the investment in 40% of an internet start up company calledMail Direct cost £0.2m. The acquisition of Greetings Direct was financed throughbank loans of £9.5m, cash of £2.9m and outstanding accruals at 29 December 2006of £0.5m. In addition, the Company has spent £0.4m repurchasing 150,000 shares. Financial summary 2002 2003 2004* 2005* 2006* £'000 £'000 £'000 £'000 £'000Profit after taxation 3,527 4,405 4,440 4,213 4,013Dividends 1,964 2,010 2,067 2,195 2,239Net (debts)/funds (98) 3,920 6,022 4,196 (7,041) * The results for 2004, 2005 and 2006 have been prepared under IFRS. Dividend per share The Group made dividend payments of £2.2m in 2006, and is proposing a finaldividend of £1.6m to be payable in April 2007. The combined interim and finaldividend results in a full year dividend per share of 9.3p which is a 5%increase over 2005. The dividend cover is 1.7 times which the Board believes isa sensible level bearing in mind the expected higher earnings in 2007. Earnings per share The Group reported basic earnings per share of 16.2p in 2006 as compared with16.4p in 2005. The reduction arose from the one off disposal of a building in2005 free of tax. The diluted EPS has also reduced to 15.9p from 16.3p in 2005.The adjusted EPS has increased by 9 % to 16.6p. Treasury policy There is little currency risk in the Group. There are minimal purchases madeoverseas, no currency hedging was done this year and no currency losses arose. The cash profile of the Group is very seasonal. In September the Group took outtwo bank loans totalling £9.5m to help partially finance the acquisition of theGreetings Direct Group. Prior to the acquisition, surplus cash was placed ondeposit. As a result of the loans the net cash indebtedness was £7.0m (2005:surplus of £4.2m). The Board has reduced the Group's risk to interest rate risesand accordingly has put £5m of the loan on a fixed rate of 5.27% for 5 years.The loans are secured on the freehold properties. In addition the Group has a£0.5m overdraft facility which has not been used. Taxation The Group pays taxation in Jersey and the UK depending on the domicile of itsrespective subsidiaries. The taxation charge for 2006 is £1.3m which equates toan effective tax rate of 24% (compared with 20% in 2005). The increase in theeffective rate was as a result of the UK acquisitions generating profits taxedin the UK and a one off gain not being taxable in 2005. The States of Jersey has recently announced that its corporate income tax rateswill reduce from the current rate of 20% to 0% by 2009 and accordingly Jerseytrading profits in 2007 and 2008 will be taxed at 10%. The Jersey tax payable on2006 profits is £1.0m. Graham NortonFinance Director16 March 2007 group income statement for the 52 weeks ended 29 December 2006 52 weeks ended 30 December 2006 2005 Restated notes £'000 £'000 Revenue 1.15 42,368 36,258Cost of sales (30,466) (25,682)Gross profit 11,902 10,576Operating expenses (6,605) (5,849)Loss from associates (68) -Operating profit before disposal of building 5,229 4,727Profit on disposal of building - 282Operating profit 5,229 5,009Finance expense (135) -Finance income 175 265Profit before tax 5,269 5,274Taxation 6 (1,256) (1,061)Profit for the period attributable to equityholders 4,013 4,213of the parentEarnings per Share expressed in pence per share 8Basic 16.16p 16.36pDiluted 15.88p 16.27p Footnotes:i) The income statement relates to continuing operationsii) The 2005 figures have been restated (see note 11) balance sheets as at 29 December 2006 Restated Group Company Group 30 December Company 30 December 2006 2005 2006 2005 notes £'000 £'000 £'000 £'000AssetsNon-current assetsGoodwill 9 15,968 3,866 - -Intangible assets 9 1,017 1,157 - -Property, plant andequipment 10,347 11,419 - -Interests in associates 132 - - -Loans to associates 33 - - -Investments - - 21,363 21,369Deferred tax 137 113 - - 27,634 16,555 21,363 21,369Current assetsInventories 3,703 3,154 - -Loans to associates 67 - - -Trade and otherreceivables 2,593 831 245 5,335Cash and cashequivalents 1,984 4,196 - - 8,347 8,181 245 5,335LiabilitiesCurrent liabilitiesCurrent income taxliabilities (854) (1,171) - -Bank loans andoverdraft 10 (1,900) - (1,511) (4,194)Trade and otherpayables (6,727) (5,982) (55) (246) (9,481) (7,153) (1,566) (4,440)Net current(liabilities)/assets (1,134) 1,028 (1,321) 895Non-current liabilitiesBank Loans 10 (7,125) - - -Income tax liabilities (1,018) (949) - - (8,143) (949) - -Net assets 18,357 16,634 20,042 22,264Shareholders' equityOrdinary shares 254 255 253 254Share premium 16,138 16,021 16,138 16,021Capital reserve (17) (17) 670 670Capital redemptionreserve 22 20 22 20Retained earnings 1,960 355 2,959 5,299Total equity attributable toequity holdersof the parent 18,357 16,634 20,042 22,264 statements of changes in shareholders' equity for the 52 weeks ended 29 December 2006 The Group Total Capital attributable Share Share Revaluation Capital redemption Retained to equity capital premium reserve reserve reserve earnings holders note £'000 £'000 £'000 £'000 £'000 £'000 £'000Balance at 1January 2005aspreviouslystated 265 15,936 457 (17) 10 (162) 16,489Restatementofrevaluation reserve 11 - - (457) - - 457 -Profit fortheperiod restated - - - - - 4,213 4,213Employeeshare option scheme - - - - - 49 49Dividend paid - - - - - (2,195) (2,195)Sale of ownshares in ESOP - - - - - 429 429Purchase ofown sharesin ESOP - - - - - (549) (549)Issue ofshares - 85 - - - - 85Cancellationof shares (10) - - - 10 (1,887) (1,887)Balance at30 December 2005 255 16,021 - (17) 20 355 16,634Balance at30 December 2005 255 16,021 - (17) 20 355 16,634Profit forthe period - - - - - 4,013 4,013Employeeshare option scheme - - - - - 78 78Dividend paid - - - - - (2,239) (2,239)Sale of ownshares in ESOP - - - - - 100 100Issue ofshares 1 117 - - - - 118Cancellationof shares (2) - - - 2 (347) (347)Balance at29 December 2006 254 16,138 - (17) 22 1,960 18,357 The Company Total Capital attributable Share Share Revaluation Capital redemption Retained to equity capital premium reserve reserve reserve earnings holders £'000 £'000 £'000 £'000 £'000 £'000 £'000Balance at 1January 2005 264 15,936 - 670 10 4,472 21,352Profit forthe period - - - - - 4,929 4,929Dividend paid - - - - - (2,095) (2,095)Sale of ownshares in ESOP - - - - - 429 429Purchase ofown sharesin ESOP - - - - - (549) (549)Issue ofshares - 85 - - - - 85Cancellationof shares (10) - - - 10 (1,887) (1,887)Balance at30 December 2005 254 16,021 - 670 20 5,299 22,264Balance at30 December 2005 254 16,021 - 670 20 5,299 22,264Profit forthe period - - - - - 49 49Dividend paid - - - - - (2,142) (2,142)Sale of ownshares in ESOP - - - - - 100 100Issue ofshares 1 117 - - - - 118Cancellationof shares (2) - - - 2 (347) (347)Balance at29 December 2006 253 16,138 - 670 22 2,959 20,042 cash flow statements for the 52 weeks ended 29 December 2006 Group Group Company Company Restated 2006 2005 2006 2005 £'000 £'000 £'000 £'000Cash flows from operatingactivitiesProfit before taxation 5,269 5,274 49 4,923Add back non-operating itemsProfit less losses on sale ofproperty, plant and equipment (1) (276) - -Adjustment forDepreciation 1,400 1,715 - -Amortisation 391 97 - -Decrease/(increase) in inventories (412) (252) - -(Increase)/decrease in receivables 319 507 5,000 (5,000)(Decrease)/increase in payables (2,499) 920 (12) 12Net finance income (40) (265) 41 71Share based payments 78 49 - -Loss for associates 68 - - -Cash generated from operations 4,573 7,769 5,078 6Interest received 175 265 18 33Interest paid (135) - (98) (31)Tax paid (1,531) (1,155) - -Net cash from operating activities 3,082 6,879 4,998 8Cash flows from investing activitiesAcquisition of subsidiaries (net ofcash acquired) (11,303) (4,837) - -Acquisition of investment in anassociate (200) - - -Purchase of customer list (10) - - -Purchase of property, plant andequipment (378) (382) - -Proceeds from sale of property,plant and equipment 40 631 - -Repayment of loan to subsidiary - - (140) -Repayment of loan from subsidiary - - 96 90Loan to associates (100) - - -Net cash used in investing activities (11,951) (4,588) (44) 90Cash flows from financing activitiesNet proceeds from issue of ordinaryshare capital 118 85 118 85New loans raised 9,500 - - -Repayment of borrowings (475) - - -Purchase of own shares forcancellation (347) (1,887) (347) (1,499)Purchase of treasury shares - (549) - -Sale of treasury shares 100 429 100 429Dividends paid to shareholders (2,239) (2,195) (2,142) (2,095)Net cash used in financingactivities 6,657 (4,117) (2,271) (3,080)Net (decrease)/increase in cash andcash equivalents (2,212) (1,826) 2,683 (2,982)Cash and cash equivalents at31 December 2005 / 1 January 2005 4,196 6,022 (4,194) (1,212)Cash and cash equivalents at29 December 2006/30 December 2005 1,984 4,196 (1,511) (4,194) notes to the financial statements 1 summary of significant accounting policies 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 preparation Flying Brands Limited (the "Company") is a limited liability companyincorporated and domiciled in Jersey. The consolidated financial statements ofthe Company comprise the Company and its subsidiaries (together referred to asthe "Group") and equity accounts for the Group's interests in associates.Separate financial statements of the Company are also presented. The accountingpolicies of the Company are the same as for the Group except where separatelydisclosed. These consolidated and separate Company financial statements have been preparedand approved by the Directors in accordance with International FinancialReporting Standards as adopted by the European Union ("adopted IFRS"). The financial statements have been prepared under the historical cost conventionas modified by the revaluation of certain financial assets and liabilities. Asummary of the more important Group accounting policies is set out below,together with an explanation of where changes have been made to previous policies on the adoption of new accounting standards in the period. The preparation of financial statements in conformity with adopted IFRSsrequires the use of estimates and assumptions that affect the reported amountsof assets and liabilities at the date of the financial statements and thereported amounts of sales and expenses during the reporting period. Althoughthese estimates are based on management's best knowledge of the amount, event oractions; actual results ultimately may differ from those estimates. 1.2 Consolidation (a) Subsidiaries Subsidiaries are all entities over which the Group has the power to govern thefinancial and operating policies so as to obtain benefits from its activitiespolicies generally accompanying a shareholding of more than one half of thevoting rights. The purchase method of accounting is used to account for the acquisition ofsubsidiaries by the Group. The cost of an acquisition ismeasured as the fair value of the assets given, equity instruments issued andliabilities incurred or assumed at the date of exchange, plus costs directlyattributable to the acquisition. Identifiable assets acquired and liabilitiesand contingent liabilities assumed in a business combination are measuredinitially at their fair value at the acquisition date, irrespective of theextent of any minority interest. The excess of the cost of acquisition over thefair value of the Group's share of the identifiable assets, liabilities andcontingent liabilities acquired is recorded as goodwill. The results of thesubsidiary undertakings acquired or disposed of during the period are includedin the consolidated income statement from the date of control commences until the date control ceases. 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. (b) Investments in associates An associate is an entity over which the Group is in a position to exercisesignificant influence, but not control or joint control, throughparticipation in the financial and operating policy decisions of the investee.Significant influence is the power to participate in the financial and operatingpolicy decisions of the investee but is not control or joint control over thosepolicies. The results and assets and liabilities of associates are incorporated in thesefinancial statements using the equity method of accounting except whenclassified as held for sale. Investments in associates are carried in thebalance sheet at cost, less any impairment in value of the individualinvestments. Losses of the associates in excess of the Group's interest in thoseassociates are not recognised. Any excess of the cost of acquisition over the Group's share of the fair valuesof the identifiable net assets at the date of acquisition is recognised as goodwill. Any deficiency of the cost of acquisition below the Group's share of the fair values of the identifiable net assets of the associate at the time of acquisition (i.e. discount on acquisition) is credited in the Consolidated Income Statement for the period of acquisition. Where a group company transacts with an associate of the Group, profits andlosses are eliminated to the extent of the Group's interest in the relevantassociate. 1.3 Segment reporting A 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 translation Foreign 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 equipment All property, plant and equipment (PPE) is shown at cost less subsequentdepreciation and 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: %Buildings including glasshouses 0-4Plant and equipment 10-20Computer hardware, included in plant and equipment 20-33.33Motor vehicles, including tractors 15-25 Freehold land is not depreciated. 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) Goodwill Goodwill 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 subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units for the purposes of impairment testing. The Group had no goodwill on transition to IFRS. (b) Intangibles - Trademarks Trademarks obtained on the acquisition of subsidiaries are shown at fair value.They have 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 Lists Customer lists obtained on the acquisition of subsidiaries are shown at fairvalue. They have a definite useful life and are carried at fair value at thedate of acquisition less accumulated amortisation. Amortisation is calculatedusing the reducing balance method based on the estimated annual attrition rates. Silverminds 48%Garden Bird Supplies 23%Greetings Direct 87% 1.7 Impairment of assets Assets 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 Inventories Inventories are valued at the lower of cost and net realisable value. Cost isdetermined on a first in first out basis and includes transport and handlingcosts. Net realisable value is the price at which inventory can be sold in thenormal course of business after allowing for the costs of realisation. Provisionis made where necessary for obsolete, slow moving or defective 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 receivables Trade receivables are recognised initially at amortised cost, which is the fairvalue of consideration receivable and is adjusted for provision for impairment.A provision for impairment of trade receivables is established when there isobjective evidence that the Group will not be able to collect all the moniesdue. The amount of the provision is recognised in the income statement. 1.10 Cash and cash equivalents Cash 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. Bank overdrafts that are repayable on demand and form anintegral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. 1.11 Bank Borrowings Interest-bearing loans and overdrafts are recorded at the proceeds received, netof direct issue costs. Finance charges, including premiums payable on settlementor redemption and direct issue costs, are accounted for on an accruals basis inprofit or loss using the effective interest rate method and are added to thecarrying amount of the instrument to the extent that they are not settled in theperiod in which they arise. 1.12 Loan notes receivables The loan note is receivable from an associate and is initially recognised atfair value. The financial asset is accounted for as a loan and receivable underIAS 39. 1.13 Share capital Ordinary shares are classified as equity. Where the Company purchases its own shares, the consideration paid including any directly attributable incremental costs, is deducted from the equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of. 1.14 Share based payments The fair value of the employees services received in exchange for the grant ofshare options is recognised as an expense. The total amount to be expensed rateably over the vesting period is determined by reference to the fair value of the options determined at the grant date, excluding the impact of any vesting conditions except for market conditions. The non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. The estimate is revised at each balance sheet date and the difference is charged or credited to the income statement, with the corresponding adjustment to equity. The proceeds received on exercise of the options net of any directly attributable transaction cost are credited to equity. 1.15 Revenue recognition Revenue represents the invoiced value of goods supplied and is stated net of VATand any trade discounts. Revenue is recognised at the date of despatch of goodsto customers. Any refunds or replacements are recognised in the period in whichthe refund or replacement is made. Provision is made for expected returns ofcontinuity products. Credit card commission and the cost of overseas bouquetsare treated as cost of sales. Interest income is recognised on an accruals basedmethod. 1.16 Operating leases Leases 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. 1.17 Dividend distribution Dividend distribution to the Company's shareholders is recognised as a liabilityin the Group's financial statements in the period in which the dividends aredeclared. 1.18 Taxation Corporation tax payable is provided on taxable profits using tax rates enactedor substantively enacted at the balance sheet date. Deferred taxation is provided in full, using the liability method on temporarydifferences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the related balance sheet tax asset is realised or the deferred liability is settled. Deferred income tax assets are recognised to the extent that it is possible that future taxable profit will be available against which temporary differences can be utilised. Income tax is recognised in the income statement except to the extent that itrelates to items recognised directly in equity, in which case it is recognisedin equity. 1.19 Pensions The Group makes contributions to some employees' and Directors' personal pensiondefined contribution schemes which are accounted for on an accruals basis. 1.20 Marketing expenditure The Group charges external campaign marketing expenditure to the incomestatement in the accounting period in which the marketing materials aredistributed. 1.21 Fixed asset investments - Company Investments held as fixed assets are stated at cost less provision for anyimpairment. 1.22 Financial guarantee contracts Where Group companies enter into financial guarantee contracts to guarantee theindebtedness of other companies within its Group, the Group considers these to be insurance arrangements, and accounts for them as such. In this respect, the Group treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment underthe guarantee. 1.23 Accounting standards issued but not adopted A number of new standards, amendments to standards and interpretations are notyet effective for the year ended 29 December 2006, and have not been applied inpreparing these consolidated financial statements: IFRS 7 Financial Instruments - Disclosures and the Amendment to IAS 1 Presentation of Financial Statements: Capital Disclosures require extensivedisclosures about the significance of financial instruments for an entity'sfinancial position and performance, and qualitative and quantitive disclosureson the nature and extent of risks. IFRS 7 and amended IAS 1, which becomemandatory for the Group's 2007 financial statements, will require additionaldisclosures with respect to the Group's financial instruments and share capital. IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies addresses the application of IAS 29 when an economyfirst becomes hyperinflationary and in particular the accounting for deferredtax. IFRIC 7, which becomes mandatory for the Group's 2007 financial statements,is not expected to have any impact on the consolidated financial statements. IFRIC 8 Scope of IFRS 2 Share-based Payment addresses the accounting forshare-based payment transactions in which some or all of goods or services received cannot be specifically identified. IFRIC 8 will become mandatory for the Group's 2007 financial statements, with retrospective application required. The Group has not yet determined the potential effect of the interpretation. IFRIC 9 Reassessment of Embedded Derivatives requires that a reassessment ofwhether embedded derivative should be separated from the underlying hostcontract should be made only when there are changes to the contract. IFRIC 9,which becomes mandatory for the Group's 2007 financial statements, is notexpected to have any impact on the consolidated financial statements. 2 financial risk and credit risk management The Group has minimal exposure to foreign currency fluctuation as the majorityof revenue and costs are transacted in Sterling. The Group has one loan of £4.75m on a fixed interest rate and thus exposing the Group to a fair value interest rate risk. In addition it has another loan of £4.28m on a variable interest rate and thus exposing the Group to a cash flow interest rate risk. The Group has the flexibility of repaying the loan early without financial penalty. For nearly all sales in 2006, the customer paid before delivery of the goods thus the Group is exposed to minimal credit risk. As a result of the acquisition of Greetings Direct, the Group will in future be exposed to a higher level of credit risk and foreign currency risk. Management will monitor this regularly to ensure that the Group's risk is minimised. 3 critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. 3.1 Critical accounting estimates and judgements The Group makes estimates and assumptions concerning the future. The resultingaccounting estimates will, by definition, seldom equal the related actualresults. The estimates and assumptions that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial period are discussed below. (a) Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, inaccordance with the accounting policy stated in Note 1.7. The recoverableamounts of cash generating units have been based on value-in-use calculations.These calculations require the use of estimates. 4 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 in three primary divisions. 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. 4.1 Segmentation by primary divisions Period ended 29 December 2006 Gifts Garden Entertainment Total £'000 £'000 £'000 £'000Revenue 16,395 17,913 8,060 42,368Segment result 2,708 2,366 223 5,297Loss from associates (68)Interest payable (135)Interest receivable 175Profit before tax 5,269Taxation (1,256)Profit after tax 4,013Segment assets (includinggoodwill) 21,500 10,956 3,525 35,981Segment assets (excludinggoodwill) 9,414 7,574 3,025 20,013Segment liabilities (14,419) (1,745) (1,460) (17,624)Depreciation 446 790 164 1,400Amortisation of intangible assets 134 199 58 391Capital expenditure on property,plant and equipment 109 201 68 378 Period ended 30 December 2005 Gifts Garden Entertainment Total Restated £'000 £'000 £'000 £'000Revenue 12,822 15,324 8,112 36,258Operating profit before profit ondisposal of building 1,888 2,458 381 4,727Profit on disposal of building - - 282 282Segment result 1,888 2,458 663 5,009Interest receivable 265Profit before tax 5,274Taxation (1,061)Profit after tax 4,213Segment assets (including goodwill) 10,599 10,287 3,850 24,736Segment assets (excluding goodwill) 10,599 6,921 3,350 20,870Segment liabilities (4,018) (2,522) (1,562) (8,102)Depreciation 624 895 196 1,715Amortisation of intangible assets - 52 45 97Capital expenditure on property,plant 94 123 165 382and equipment 4.2 Segmentation by geographical area Revenue by geographical area 2006 2005 Revenue by Revenue by customer customer location location £'000 £'000Jersey, Channel Islands 74 71United Kingdom 40,911 35,321Europe 821 315Outside Europe 562 551 42,368 36,258 Capital expenditure and assetsby geographical area 2006 2005 Capital Total Capital Total expenditure assets expenditure assets Restated £'000 £'000 £'000 £'000Jersey, Channel Islands 240 32,587 166 21,891United Kingdom 138 3,394 216 2,845Europe - - - -Outside Europe - - - - 378 35,981 382 24,736 5 restructuring costs During 2006 the Group fully integrated the acquired activities of Garden BirdSupplies into the Group and accordingly incurred some non-recurring exceptional costs of £73,000. In addition during the year the Remuneration Committee agreed to make severance payments to two non executive directors who left during the period, the total related cost of these non-recurring charges was £85,000. These are items which in management's judgement need to be disclosed by virtueof their size or incidence in order to obtain a proper understanding of thefinancial statements. These items are included in administrative expenses. 6 taxation 2006 2005 Restated £'000 £'000Current taxJersey income tax at 20% 1,015 907UK corporation tax at 22% to 30% 310 338(Under)/over provision in previous periods (45) (12)Total current tax 1,280 1,233Deferred taxDecrease in provision for the period (24) (172)Total tax on profit 1,256 1,061 The tax assessed for the period is different from thestandard rate of income tax, as explained below: 2006 2005 Restated £'000 £'000Profit before tax 5,269 5,274Profit before tax multiplied by the standard rate of Jerseyincome tax of 20% 1,054 1,055Adjustments to tax in respect of prior periods (45) (12)Adjustments in respect of foreign tax rates (principally UK) 139 78Expenses not deductible for taxation purposes (1) 14Other - (2)Unutilised losses 87 -Amortisation on intangibles not allowable 22 54Disposal of building: capital gains not subject to taxation - (126)Tax charge for period 1,256 1,061 7 dividends 2006 2005 £'000 £'000Dividends on equity sharesFinal dividend proposed in March 2006, agreed at annualgeneral meeting in April 2006 at 6.00p (2005: 5.65p) 1,490 1,453Interim dividend proposed at 3.00p (2005: 2.85p) perordinary share in July 2006 and paid in September 2006 749 742 2,239 2,195 In addition the Directors are proposing a final dividend in respect of thefinancial period ended 29 December 2006 of 6.30p per share which will absorb anestimated £1.6m of shareholders funds. It will be paid on 25 April 2007 toshareholders who are on the register of members on 30 March 2007. 8 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 restructuring costs and the profit on disposalof building by the weighted average number of Ordinary Shares in issue duringthe period, as adjusted for treasury shares. 29 30 December December Restated 2006 2005Profit attributable to equity holders of theCompany (£'000) 4,013 4,213Weighted average number of ordinary shares in issue, lessweightedaverage number of treasury shares (thousands) 24,836 25,752Basic earnings per share (pence per share) 16.16 16.36 Adjusted basic earnings per share applies to earningsexcluding exceptional items since the Directors considerthat this gives additional information as to theunderlying performance of the Group. 29 30 December December 2006 2005 Restated £'000 £'000Earnings used to calculate basic and diluted EPS 4,013 4,213Restructuring costs (after tax) 111 -Profit on disposal of a building - (282)Earnings before exceptional items 4,124 3,931Basic earnings per share before exceptional items(pence) 16.61 15.26 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. 29 December 30 December Restated 2006 2005Profit attributable to equity holders of theCompany (£'000) 4,013 4,213Weighted average number of ordinary shares inissue (thousands) 24,836 25,752Adjustment for share options (thousands) 431 135Weighted average number of ordinary shares fordiluted earnings per share (thousands) 25,267 25,887Diluted earnings per share (pence per share) 15.88 16.27 9 goodwill and intangible assets The Group Trade Customer Total marks lists intangibles Goodwill Total £'000 £'000 £'000 £'000 £'000CostAt 30 December 2005 aspreviously stated 431 1,221 1,652 3,866 5,518Fair value adjustment - - - 16 16At 30 December 2005 asrestated 431 1,221 1,652 3,882 5,534Additions - 10 10 - 10Acquisition of subsidiaries - 241 241 12,086 12,327At 29 December 2006 431 1,472 1,903 15,968 17,871AmortisationAt 30 December 2005 14 481 495 - 495Charges for the period 56 335 391 - 391At 29 December 2006 70 816 886 - 886Net book value 29 December2006 361 656 1,017 15,968 16,985 The Group Trade Customer Total marks lists intangibles Goodwill Total £'000 £'000 £'000 £'000 £'000CostAt 31 December 2004 - 398 398 - 398Acquisition of subsidiaries 431 823 1,254 3,866 5,120At 30 December 2005 431 1,221 1,652 3,866 5,518AmortisationAt 31 December 2004 - 398 398 - 398Charges for the period 14 83 97 - 97At 30 December 2005 14 481 495 - 495Net book value 30 December2005 417 740 1,157 3,866 5,023 Included in customer lists is the cost (£398,000; net book value £nil) ofintangible assets previously disclosed as intellectual property, relating to theacquisition of customer names of Direct Garden Supplies Limited in 1999.On 15 September 2006 the Group acquired 100% of the share capital of directgreeting card businesses: Greetings Direct Limited, Greetings DirectInternational Limited and Greetings Direct Trading Limited (together "GreetingsDirect") for cash. The Company has a database of 700,000 customers of whichapproximately 52,000 were active customers at the date of acquisition. TheGoodwill acquired was £12,086,000, which is attributable to the highprofitability of the acquired business and the uniqueness of its continuityselling business model. The carrying value of intangibles is tested annually forimpairment. No impairment charge was considered necessary. The total cost of theacquisitions was £12,885,000, being cash paid to the shareholders of £12,160,000and direct costs attributable to the acquisition of £725,000. £1,700,000 of theconsideration was held in an Escrow account at 29 December 2006 and was releasedto the shareholders on 11 January 2007 after certain conditions had been met.The acquired business contributed revenues of £3,486,000 and a net profit beforeamortisation and interest to the Group of £819,000 in the three and a halfmonths to 29 December 2006. In the twelve months to 31 August 2006, the threecompanies generated revenue of £11,661,000 and net profits before tax of£1,836,000 (under UK GAAP). 10 bank loans and overdraft Group Company Group Company 2006 2006 2005 2005 £'000 £'000 £'000 £'000Bank overdraft - 1,511 - 4,194Bank loans 9,025 - - - 9,025 1,511 - 4,194The borrowings are repayable as follows:On demand or within one year 1,900 1,511 - 4,194In the second year 1,900 - - -In third to fifth years inclusive 5,225 - - -Less: Amount due for settlement within 12months(shown under current liabilities) (1,900) (1,511) - (4,194)Amount due for settlement after 12 months 7,125 - - - All loans and overdrafts are sterling denominated. The weighted average interest rates paid were as follows: 2006 2005Bank Overdrafts 4.75% 0.04Bank Loans 5.68% - Two bank loans totalling £9,500,000 ( 2005: Nil) were arranged, one at fixedinterest rates and thus exposing the Group to fair value interest rate risk. Theother borrowing was arranged at floating rates, thus exposing the group to cashflow interest rate risk. The other principal features of the Group's loans are as follows: (a) a loan of £4,500,000 (2005: Nil). The loan was taken out on 15 September 2006. Quarterly repayments commenced on 15 December 2006 and will continue until 15 June 2011. The loan is secured by a charge over certain of the Group's properties dated 15 September 2006. The loan carries interest rate at 0.6% above LIBOR.(b) a loan of £5,000,000 (2005: Nil). The loan was taken out on 15 September 2006. Quarterly repayments commenced on 15 December 2006 and will continue until 15 June 2011. The loan is secured by a charge over certain of the Group's properties dated 15 September 2006. The loan carries a fixed interest rate of 5.27% plus a 0.6% margin. At 29 December 2006 the Group had available £0.5m (2005: Nil) of an overdraftfacility. 11 prior year adjustment During the current period the directors have reconsidered the accounting policyapplied in respect of expenditure on catalogues, brochures and campaign material. The Group despatches its campaign marketing material for its products throughout the year and distributes its products after the receipt of an order. Under the policy applied in previous statements, the cost of producing thebrochures was included as a prepayment and recognised in the income statement tomatch the distribution of the products. The directors have concluded that this policy does not properly reflect the advertising nature of the expense and also does not reflect that once the material has been distributed to potential customers that the Group no longer controls these assets. Under the new policy(Note 1.20), printed material, such as brochures, catalogues and campaignmailings held by the Group are treated as a prepayment and an expense is recognised in the income statement when the materials are distributed. The effect of the revision to this policy is to reduce the prior year reserves by £286,000. The taxation impact of the prior year is to reduce the deferred taxation charge by £86,000. Overall this reduced net assets by £200,000. Under UK GAAP the Group valued freehold property at valuation. On transition toIFRS this valuation is deemed cost and consequently the revaluation reserveunder UK GAAP should have been reclassified to retained earnings. The effect ofthis correction of an error is £nil to reserves. The Directors believe the above changes more accurately reflect the requirementsof IFRS and have consequently amended their accounting policies. Under IFRSthese revisions are required to be a correction of a prior period error, inaccordance with IAS 8.41. This information is provided by RNS The company news service from the London Stock Exchange