IQ-AI Regulatory News (IQAI)

13 Mar 2009 07:00



FLYING BRANDS LIMITED

Announcement of Results for the 53 weeks to 2 January 2009

13 March 2009, Jersey. Flying Brands Limited (LSE: FBDU), the multi channel retailer, today announces its results for the 53 weeks ended 2 January 2009.

Summary

Revenue decreased by 8% to £42.5m (2007: £46.3m) 

Revenue from the ongoing business decreased by 7% to £33.6m (2007: £36.1m)

Like for like revenue for the ongoing business stabilised in Q4 2008, level with Q4 2007 

Internet revenue from the Garden Division and Flying Flowers increased by 18% to £6.5m - representing 24% of total revenue (2007: 19%)

Profit before tax for the ongoing business decreased by 53% to £1.5m (2007: £3.2m)

Impairment for Greetings Direct, which is being closed, of £11.6m resulting in a loss before tax of £11.7m (2007: £3.6m profit)

Loss per share was 48.4p (2007: Earnings per share 13.2p)

No final dividend is being proposed

Commenting on today's announcement, Tim Trotter, Chairman, said:

"2008 has been a very difficult year for the Group. The current economic crisis will have an impact on the Group, its customers and suppliers, but it is too early to be precise about the scale and duration of these effects. The Board fully recognises the unprecedented nature of the challenges that lie ahead, and is taking action to reduce its cost base and being smarter with its marketing spend without jeopardising its opportunity of generating profitable revenue. The Group is well placed to respond effectively to the current economic climate."

Outlook

Group trading for the year to date is consistent with last year and in line with our expectations. 

For further information, please contact:

Flying Brands Limited 01245 228 300

Stephen Cook, Chief Executive

Graham Norton, Finance Director

Smithfield Consultants 020 7360 4900John Kiely

Notes to editors

Jersey based Flying Brands Limited (LSE: FBDU) is a multi brand and multi channel home shopping specialist. Founded in 1981, it was admitted to the Official List of the London Stock Exchange in 1993. The Group operates the following divisions: 

More information can be found at: www.flyingbrands.com

Cautionary statement 

This report contains forward- looking statements. These have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report. The Directors can give no assurance that these expectations will prove to have been correct. Due to inherent uncertainties, including both economic and business risk factors underlying such forward looking information, actual results may differ materially from those expressed or implied by these forward looking statements. The Directors undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

 

CHAIRMAN'S STATEMENT

Business Summary

2008 has been a very difficult trading period for the Group in comparison with the prior year period. Flying Brands delivered a profit before tax from the ongoing business of £1.5m, compared with £3.2m in 2007. Revenue from the ongoing business was £33.6m, 7% down on 2007. The decline in the Group profit came mostly in the first half of the year due to a drop in profit of £1.0m from Gardening Direct due to a reduction in our active customer database, higher postage costs in Jersey, £0.6m from the impact of lower revenue of flowers at Mother's Day and higher operating costs. In the second half of the year we started to experience the impact of the poor economic climate where we saw our gross margins come under pressure.

In July 2008 we announced the decision to close the Greetings Direct business. The trading performance of Greetings Direct in both the UK and Australia had been extremely disappointing, as had the results of the introductory test mailing in the United States carried out in June. After a detailed review of this business we decided to implement a managed close down of our UK and Australia operations and we also decided not to roll out the business in the United States.  Accordingly we have impaired the goodwill value of Greetings Direct by £11.6m. The loss before taxation for Greetings Direct before the impairment charge is £1.6m (2007: profit £0.4m). The Group's loss before tax after these write-offs related to Greetings Direct is £11.7m (2007: profit £3.6m).

The basic loss per share which includes the losses from Greetings Direct and the impairment was (48.4p) compared with an earnings per share of 13.2p in 2007. Cash generated from trading operations was £1.2m against £5.9m in 2007. We invested £1.1m of cash in the USA trial of Greetings Direct, £0.7m on abortive acquisition costs accrued in 2007 and the remainder is the impact of the year on year movement related to trading.

We continued to find the recruitment of new customers challenging.  Although we had success in the period from reactivating many dormant customers, our active customer database declined by 5% in the year (2007: decline 19%).

Despite the poorer than expected trading, progress has been made in transforming our business away from being a pure-play catalogue business to a multi-channel retailer with our internet revenue now delivering 20% of revenue from our ongoing business compared with 16% in 2007.

Outlook and Strategy

The current economic crisis will have an impact on the Group, its customers and suppliers, but it is too early to be precise about the scale and duration of these effects. The Board fully recognises the unprecedented nature of the challenges that lie ahead, and is taking action to reduce its cost base and being smarter with its marketing spend without jeopardising its opportunity of generating profitable revenue. The Group is well placed to respond effectively to the current economic climate for a number of reasons.

Its main divisions - gardening and flowers - operate in markets that are generally perceived to perform relatively well in times of economic stringency. Interest in gardening should grow as people cut back on entertainment and leisure expenditure and spend more time at home. Similarly when people are not able to move house they traditionally spend more time in making their existing home and garden more attractive. In both cases Gardening Direct provides the ideal product.

Research has also shown that people are reluctant to cut out gift giving completely even in times of economic hardship and Flying Flowers as the provider of value gifts should benefit from this. Although it would be foolish to be complacent about the threat to sales posed by the macro-economic climate we were encouraged by the resilience shown in Flying Flowers' sales in the last quarter of 2008. 

The Group did make some progress in cutting its costs in 2008 but the overall cost base has not declined in proportion with the reduction in activity in the Group over the years. In addition we have started to focus much more on cost control and operational efficiency and we are confident that there are further significant opportunities to reduce costs within the Group.

We are also continuing with the various cross-brand marketing initiatives within the Group together with a number of improved direct marketing techniques such as an order acknowledgement programme. Although we do not expect these to have a significant impact on sales or contribution during 2009 they should help overall to increase our marketing efficiency.

We have been encouraged by the response to our renewed recruitment activities so far this year and we will continue with these. This should have a positive effect on sales during the year and although the effect on contribution may not be so significant, due to the marketing and promotional costs all of which are in effect netted off against the first orders, we should see the benefit of these efforts in future years.

For all these reasons, we believe that Flying Brands is well placed to ride out the recessionary storms and to take advantage of any improvement in the UK economy as it unfolds.

Dividend

As a result of the low level of profits, the current UK economic climate and our decision to manage a close down of Greetings Direct we will not be proposing a dividend.

Financing

In the current challenging economic environment we are encouraged that our bank in March 2009 agreed to reinstate our overdraft facility of £0.5m and agreed to relax our loan facility covenant requirements. We believe that this provides the Group with the ability to be able to meet its day-to-day working capital requirements for the foreseeable future.

Board and Staff

Our staff worked hard throughout the year and the Board would like to thank them for their continued loyalty and resilience.

It has been unfortunate that we have had three Chief Executives in the space of 12 months and the Board is pleased to report that Stephen Cook, previously a Non-Executive Director, was appointed Group Chief Executive on 18 February 2009. Stephen was formerly Group Strategy Director and General Counsel at Telewest Communications and has more recently been advising on multi-channel retailing strategy.

We thank our previous two chief executives Mark Dugdale and Tricia Killen for their contribution.

Tim Trotter 

Chairman

13 March 2009

 

 BUSINESS REVIEW

OPERATING RESULTS FOR THE PERIOD

Overview

The tough trading conditions that we reported in our interim report continued in the second half of the year with the ongoing business ending the year down 7% in revenue and down 24% in contribution versus 2007.

The business was impacted by a number of factors in the third quarter. These included poor weather in August which hit the customer response to Gardening Direct's autumn marketing campaign and cost increases which impacted margin in our Garden Bird Supplies and Flying Flowers businesses.

Revenues and contribution for the ongoing business were therefore significantly down on the previous year for the same period and we announced a number of actions we were taking to mitigate this shortfall in performance for the full year.

We introduced selective price increases in Garden Birds Supplies and Flying Flowers to compensate for rising costs. Our prices remain competitive versus those of others in the marketplace and these increases helped to arrest the decline in like-for-like sales in the last quarter of 2008.

We also announced that we had developed new Christmas catalogue campaigns for non Flying Flowers customers who would not normally receive Christmas offers from Flying Brands. This was in line with our new strategy of optimising our under-utilised database. We tested this concept in October and the results were disappointing. We therefore did not proceed with the planned full roll out of the Christmas catalogue campaign across the Flying Brands customer database.

The then Chief Executive also conducted a thorough review of all marketing activities and implemented a number of changes with a view to enhancing future business results. Although these changes have undoubtedly improved our marketing techniques their implementation did not have a significant effect on overall sales and contribution in the final quarter.

Like-for-like sales for the last quarter of 2008, excluding those attributable to Greetings Direct, were flat compared with those for the last quarter of 2007. Flying Flowers sales were 0.6% up against the comparable period and revenues at the Company's other brands were collectively 1.2% down.

So, although like-for-like sales in the last quarter were an improvement over the rest of the year's performance, this relative improvement was not enough to reverse the decline in revenues seen in the first 9 months of the year.

In addition the Flying Flowers margin for the last quarter was lower than anticipated. This was mainly due to Flying Flowers customers switching to products with a lower gross profit margin, together with higher than expected product and despatch costs.

The result was that revenues for the ongoing business declined from £36.1m in 2007 to £33.6m in 2008 and profit before tax from ongoing business was £1.5m for 2008 versus £3.2m for 2007. This performance was obviously very disappointing and was mainly the result of year-on-year declines in our two largest brands, Flying Flowers and Gardening Direct.

	53 weeks ending 2 January 2009						52 weeks ending 28 December 2007
	Gifts Flowers	Garden	Entertai-nment	Ongoing Business	Gifts Greetings Direct	Total	Gifts Flowers	Garden	Entertai-inment	Ongoing business	Gifts Greetings Direct	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	11,634	15,905	6,069	33,608	8,939	42,547	12,288	17,092	6,760	36,140	10,126	46,266
Contribution *	1,528	3,858	2,156	7,542	400	7,942	2,950	4,573	2,378	9.901	1,527	11,428
Overheads	(1,259)	(1,777)	(1,440)	(4,476)	(2,025)	(6,501)	(1,415)	(1,754)	(1,696)	(4,865)	(865)	(5,730)
Corporate costs	(417)	(488)	(23)	(928)	-	(928)	(386)	(440)	(85)	(911)	-	(911)
Amortisation of intangibles	-	(143)	(31)	(174)	-	(174)	-	(154)	(31)	(185)	(107)	(292)
VAT reclaim	-	-	-	-	-	-	-	588	-	588	-	588
Restructuring costs †	(70)	(91)	(13)	(174)	-	(174)	(119)	(95)	(22)	(236)	(135)	(371)
Profit on disposal of building	-	-	-	-	-	-	173	138	32	343	-	343
Profit before interest, taxation, associates and impairment	(218)	1,359	649	1,790	(1,625)	165	1,203	2,856	576	4,635	420	5,055
Impairment of goodwill				-	(11,581)	(11,581)				-	-	-
Loss on associates				-	-	-				(42)	-	(42)
Write-off of associate investment				-	-	-				(243)	-	(243)
Abortive acquisition costs				-	-	-				(749)	-	(749)
(Loss/profit before taxation				1,790	(13,206)	(11,416)				3,601	420	4,021
				(284)	-	(284)				(405)	-	(405)
(Loss)/profit before taxation				1,506	(13,206)	(11,700)				3,196	420	3,616

* The directors manage each division at a contribution level and believe this is a more meaningful measurement than gross profit.

† In 2007 restructuring costs are the £256,000 (note 8) and the £115,000 loss on sale of assets due to the sale of building (note 8).

Gifts - Flying Flowers

Revenue for the year was £11.6m compared with £12.3m in 2007. Nearly all this decline occurred in the Mother's Day trading period and was in large part due to the fact that Mother's day in 2008 fell very soon after Valentine's Day and therefore two of the brand's three main trading periods were effectively condensed into one.

In the second half of the year, we undertook a re-branding exercise for Flying Flowers to make it more appealing to existing customers and to broaden our customer base. This led to a much more diverse and attractive product range, a complete redesign of the catalogue and imagery, a new logo, more stylish packaging and an enhanced website. These actions, together with the introduction of more sophisticated direct marketing techniques, improved customer response rates and sales in the second half of the year. In fact like for like sales over the key Christmas trading period were 0.6% up against the comparable period in 2007.

Flying Flowers' contribution declined from £3.0m in 2007 to £1.5m in 2008 and its contribution margin declined from 24% to 13% mainly as a result of higher product and distribution costs and higher marketing costs. Some of our newly introduced direct marketing techniques also resulted in higher promotional costs and in customers choosing lower margin products and we are currently reviewing and refining our marketing activities to ensure that we do not chase increased sales at the expense of prudent contribution margins.

The active customer base (ACB) declined by 3% over the course of 2008 and while this was a very significant improvement over the rate of decline over the course of 2007 we are aiming for further improvement.

Flying Flowers now has a product range and a catalogue designed to appeal to a much broader range of customers than its traditional base. In recent years Flying Flowers has reduced considerably its recruitment activity and we are now aiming to increase our marketing activity to attract a more diverse range of customers. This will consist mainly of off-the-page advertising and reader offers and will be closely monitored to ensure that it does not adversely affect overall contribution margins.

The Internet will be key to Flying Flowers' recruitment and sales efforts going forward. Internet sales as a percentage of overall sales increased from 24% to 26% and the number of email addresses on file increased by 21%. Email is proving a flexible and attractive way of reaching our customers outside the normal catalogue cycle. We have revamped our pay per click and affiliates campaigns and the improvements we are making to our website are resulting in a substantial improvement in our site's hits rankings.

Garden

Sales in the Garden division were £15.9m, down from £17.1m in 2007, although 2007 did include a one-off VAT rebate of £0.6m. Profit before interest, tax, associates and impairment was £1.5m lower than 2007 at £1.4m, although the £0.6m VAT rebate was included in the 2007 results.

We reached an agreement with Sarah Raven to terminate the licensing agreement for Sarah Raven's Kitchen and Garden at the end of October 2008 because we could not derive enough value out of the partnership.

 

Gardening Direct

Gardening Direct Revenue for the year was £10.8m compared to £11.7m in 2007. This decline was mainly a result of our entering the year with 25% less active customers than we had in entering 2007. However, we partially offset this by increasing our revenue per active customer significantly in 2008.

Contribution for this brand declined from £3.5m in 2007 to £2.6m in 2008 and its contribution margin declined from 30% to 24%. This decline in margins was partly due to higher growing and product costs and higher distribution costs but we also reduced our prices in the key Spring selling season to meet increased competition in the market.

Our Spring 2008 recruitment campaign was very successful and by the end of 2008 our ACB decline was down to 3%. However, this rate of decline is still unacceptable and we are taking steps to broaden the appeal of the brand and its customer base. Gardening is one of the most popular hobbies in the UK and we are improving our product offering to take advantage of changing market trends. We have expanded our fruit and vegetable ranges to take advantage in the increasing interest in "grow your own". We have improved our catalogues and are introducing a number of new-to-market plants. We have also placed more emphasis on offering larger plant sizes to appeal to younger gardeners who do not have the time or the interest to grow from our traditional plug plants.

We are also increasing our recruitment efforts and have found that our improved offering means that we can advertise more successfully in the mainstream mass-market newspapers as opposed to confining our efforts largely to the specialist publications. As with Flying Flowers these marketing campaigns will be closely monitored to ensure that they do not adversely affect overall contribution margins.

We have also been encouraged by the improvement in our performance in Internet sales. Internet sales as a percentage of overall sales increased from 11% to 17% and we are continually striving to improve the editorial content on our website to improve its ranking in the search engines and to attract hobby gardeners as a destination website in its own right. We increased the number of email addresses on file by 21% and the speed and flexibility of email is invaluable when dealing with seasonal live products. It gives us the ability to tailor our offers to the ever-changing availability of plants and to respond quickly to situations where we have overgrown particular plant varieties. This in turn will enable us to manage more efficiently our plant wastage in the Garden division.

Garden Bird Supplies

Garden Bird Supplies had a good year in 2008. Revenues increased by 9% from £3.9m in 2007 (after adjusting for a one-off VAT rebate) to £4.2m and contribution increased by 21% from £1.0m to £1.2m. Although product and distribution costs increased significantly in 2008 we managed to increase our contribution margin from 25% to 28%.

This brand has a very loyal customer base who are knowledgeable about birds and who are prepared to pay for a quality premium product. Although the ACB declined by 13% in 2008 this was almost wholly attributable to the dropping out of a significant number of customers who had been recruited in a one-off campaign in November 2007. Because of the repeat nature of bird food purchases, the number of active multi-buyers is a more significant performance metric for this brand and these increased by 5% in 2008.

The Internet is a very important sales channel for Garden Bird Supplies and we are continually improving our website to make it more attractive to the growing number of people who enjoy watching the birds in their garden by providing handy identification guides and lots of other interesting information about the birds that you can attract to your garden by using the right bird food. During the year we announced a partnership with the BBC's Chris Packham to make this brand even more attractive to enthusiastic bird watchers. All these efforts resulted in overall Internet sales growing from 23% of overall sales to 27% of overall sales.

Entertainment

The Entertainment division's revenue was £6.1m in 2008 compared with £6.8m in 2007. Contribution was £2.2m compared to £2.4m in 2007 due to a reduced contribution from Benham.

Listen2

Revenues declined from £3.0m in 2007 to £2.6m but this was as result of a deliberate policy of cutting back on unprofitable external recruitment. Contribution increased by 5% to £0.6m and the contribution margin increased from 20% to 24%. We also made progress in clearing old stock. However, the ACB did decline over the period by 22% and we are reviewing ways of slowing down this rate of decline.

Benham

Benham revenues declined from £3.8m in 2007 to £3.5m in 2008 partly from having less club members and partly from lower trade sales. As there is a general decline in interest in Benham's traditional product of first day covers Benham has diversified into rare stamps and autographs. Partly as result of this and partly as a result of lower revenues Benham saw its contribution fall from £1.8m in 2007 to £1.5m in 2008. The contribution margin also fell from 47% to 44%.

Greetings Direct

As previously reported, Greetings Direct suffered from significant returns and bad debts in both the UK and Australia during the period. In addition, a poor introductory test mailing result in the USA meant that the economies of scale expected to be achieved in the UK and Australia from the addition of a US roll-out were not deliverable. As a result, the Board decided to implement a managed shut down of the operation and impair the entire goodwill of the business by £11.6m.

In the USA, where we were only at test stage, it was immediately shut down in July. In the UK and Australia, we did no further recruitment mailings after July 2008 but as we have a significant number of active customers in both of these markets, we will manage the winding down of operations until June 2009 as we are running them to optimise contribution and cash with a minimum of dedicated resources and investment. The loss for the period before the impairment of £11.6m was £1.6m (2007: profit £0.4m) of which £1.1m related to the USA test.

Loss before tax for the Group after this impairment of goodwill and the trading losses in Greetings Direct was £11.7m compared with a profit of £3.6m in 2007.

Outlook

The current economic crisis is widely expected to be unprecedented in recent times in terms of both its severity and its duration. It is inevitable that all companies will be affected to varying degrees regardless of the business strategies they pursue or the markets they serve.

Flying Brands will not be immune from the deterioration in the UK economy but the Board believes that the Group will be resilient in these challenging conditions. Its main divisions - gardening and flowers - operate in markets that are generally perceived to do relatively well in times of economic stringency. Interest in gardening should grow as people cut back on entertainment and leisure expenditure and spend more time at home. Similarly when people are not able to move house they traditionally spend more time in making their existing home and garden more attractive. In both cases Gardening Direct provides the ideal product.

Research has also shown that people are reluctant to cut out gift giving completely even in times of economic hardship and Flying Flowers as the provider of value gifts should benefit from this.

Although it would be foolish to be complacent about the threat to sales posed by the macro-economic climate we were encouraged by the resilience shown in Flying Flowers' sales in the last quarter of 2008. 

Our forecasts demonstrate that we will meet our loan covenants and should not need an overdraft facility. However, we have considered it prudent to negotiate an overdraft facility of £0.5m with our principal bankers. This should provide us with additional cash headroom.

The Group did make some progress in cutting its costs in 2008 but the overall cost base has not declined in proportion with the reduction in activity in the group over the years. In addition we have started to focus much more on cost control and operational efficiency and we are confident that there are further significant opportunities to reduce costs within the Group. This should enable us to operate within our agreed overdraft facility even if the revenues of the business do not perform substantially in line with our expectations.

 

We are also continuing with the various cross-brand marketing initiatives within the group together with a number of improved direct marketing techniques such as an order acknowledgement programme. Although we do not expect these to have a significant impact on sales or contribution during 2009 they should help overall to increase our marketing efficiency.

As mentioned above we have been encouraged by the response to our renewed recruitment activities so far this year and we will continue with these. This should have a positive effect on sales during the year and although the effect on contribution may not be so significant, due to the marketing and promotional costs all of which are in effect netted off against the first orders, we should see the benefit of these efforts in future years.

For all these reasons, we believe that Flying Brands is well placed to ride out the recessionary storms and to take advantage of any improvement in the UK economy as it unfolds.

Stephen Cook

Chief Executive

13 March 2009

  Financial Review

Results

The Group's loss after tax for 2008 is £12.0m compared with a profit of £3.3m in 2007. This result reflects both the £11.6m impairment of goodwill of the Greetings Direct business and a £1.6m operating loss from that business as a result of the poor performance of existing geographies and the failure of our introductory test mailing in the United States.

At the period ended 28 December 2007, Greetings Direct had successfully launched in Australia and although the UK business was in decline, it was believed that this decline could be managed while new geographies emerged and grew. The first of these was a test launch of the business in the USA in 2008. The introductory test mailing was completed in June 2008 and the number of customers who subscribed to the product was much lower than predicted. This meant the economies of scale expected to be achieved, which would help the performance in both the UK and Australia, would not be forthcoming. This combined with the continuing deterioration in the bad debts and returns from customers in the UK and Australia and the lower number of customers retained, resulted in losses for these geographies. Therefore, the loss before interest, tax, associates and impairment in 2008 of the Greetings Direct business was £1.6m, comprising losses of £1.1m in USA, £0.3m in the UK and £0.2m in Australia.

As a result of the disappointing USA test and the worse than anticipated performance in the UK and Australia the Group announced on 3 July 2008 its intention to close down immediately the USA division of Greetings Direct and a managed close down of the UK and Australian operations. It is anticipated that these two operations will continue until June 2009. Due to this decision the Directors consider that the intangible goodwill asset carried on the Group's balance sheet has negligible value and therefore, an £11.6m charge has been provided in the Group Income Statement as a result of the impairment of the goodwill.

Profit before interest, tax, associates and impairment for the ongoing business in 2008 was £1.8m compared with £4.6m in 2007. However the result in 2007 did include £0.9m of one-off credits (£0.6m Garden Bird Supplies VAT reclaim and £0.3m from the sale of a building).

The Gifts division (flowers only) saw its profit before tax, interest, associates and impairment reduce from £1.2m in 2007 to a loss of £0.2m in 2008. This business saw its profit margins eroded throughout the year with the cost of flower stems increasing as a result of both demand and supply side pressures. The margin was also adversely affected by rising raw material costs in the first half of the year, higher prices as a result of the fall in sterling's exchange rate and customers choosing lower margin products in the second half. This coupled with the increased distribution costs resulted in margins being 11% lower. This business also faced increased external competition.

 

The Garden division profit before tax, interest, associates and impairment reduced to £1.4m from £2.9m in 2007. Last year included £0.6m of one-off credits relating to a Garden Bird Supplies VAT reclaim. Gardening Direct has seen an increased level of competition in the past few years which has reduced the number of active customers and the number of new customers recruited. This increased competition has also resulted in pressure on margins and this along with higher distribution costs from Jersey has resulted in margins declining by 6%.

The Entertainment division profit before interest, tax, associates and impairment was flat compared with 2007 at £0.6m. This was on lower sales of £6.1m compared with £6.8m as both Listen2 and Benham's effort were concentrated on maximising profit from existing customers and reducing stock levels.

The 2008 Group operational overheads from the ongoing business were £4.5m, £0.4m lower than 2007. The cost of both our Jersey and UK operations has fallen as a result of the infrastructure changes made in 2007. We will continue to review our overhead costs in the future.

Corporate overheads were £0.9m, level with those in 2007. These costs comprise the cost of the Chief Executive, the Finance Director, the Non-Executive Directors and the legal, professional and other fees connected with the running of a public company.

The Group paid net interest in the year of £0.3m, compared with £0.4m in 2007, as a result of lower loan finance balances.

Cash Flow

Cash generated from trading operations at £1.2m was £4.6m less than in 2007. Of this shortfall, £1.1m was a result of the investment in the overseas trading activities of Greetings Direct, £0.7m was a result of the payment of the fees associated with the abortive acquisition and the remainder arose from our trading performance. In 2008 the Group saw a cash outflow of £2.7m (2007: £2.9m cash generated). The Group finished the year with £2.2m of cash balances and utilised its overdraft facility in the last quarter of the year although this was minimised by careful management of working capital.

Dividend per share

The Group made dividend payments in 2008 of £0.7m. No interim dividend payment was made for 2008 and no final dividend is proposed for 2008.

Earnings per share

The Group reported a basic loss per share of 48.4p in 2008 as compared with an earnings per share of 13.2p in 2007. The diluted loss per share is 48.4p compared to a diluted earnings per share of 13.1p.

 

Treasury

 

The Group has had little exposure to currency risk despite the expansion overseas. The operation in the United States was for a short period in the middle of 2008 when currency markets were benign so exposed the Group to little exchange risk. The exchange risk in Australia is mitigated by the fact that local purchases are covered by local currency sales.

The cash profile of the Group remains very seasonal with large cash surpluses in the first six months of the year, when surplus cash is placed on deposit with investment grade banks, and minimal excess balances in September and October. The Group took out two bank loans in 2006 repayable over 5 years, totalling £9.5m, to help partially finance the acquisition of the Greetings Direct business. The closing net cash indebtedness was £3.0m (2007: £2.3m). 

The impairment of the Greetings Direct business along with the disappointing performance of the ongoing business required the Group to approach its principal bankers to renegotiate the debt and interest service covenants over the outstanding bank debt. Revised covenants were agreed with the bank both in 2008 and 2009. The Group's forecast for 2009 suggests that these revised covenants will be met. As a result of the renegotiation in March 2009 the margin charged by the bank on the loans was increased to 2.0% above LIBOR from 1.0%. The Board has reduced the Group's risk to interest rate fluctuations by having £5m of the initial loan on a fixed rate for 5 years. The loans are secured on the remaining freehold properties.

During 2008, the Group had an overdraft facility of £0.5m, which was used during the second half of the year to manage the seasonality of our working capital requirements. In December 2008 this facility was withdrawn by our principal bankers as we were not forecast to require that facility at the end of the year.

Our cash projections show that we should not require this facility in 2009.  However the Board decided that it would be prudent in the current economic conditions to have some more headroom to enable us to meet our day-to-day working capital requirements for the foreseeable future. In March 2009 we agreed with our principal bankers to reinstate a £0.5m overdraft facility.

The basis of preparation of the financial statement is set out in note 1 to the accounts and further explains our consideration of the preparation of financial statements on a going concern basis.

In October the bank registered with the Royal Court of Jersey previously unregistered promissory notes on our freehold property in Jersey as security for the a outstanding loans with the bank.

Taxation

The Group pays taxation in both Jersey and the UK depending on the domicile of its respective subsidiaries. The taxation charge for 2008 is £0.3m which equates to an effective tax rate of -3% (2007: 9%). The rate was affected by our inability to utilise losses in Australia and the USA and also a result of £143k charge for deferred tax again as a result of unutilised losses in Australia.

The UK tax rate declined to 28% from 30% with effect from 1 April 2008. Taxable profits earned in Jersey in 2009 will be taxed at a nil rate.

Financial Summary

	2003*	2004	2005	2006	2007	2008
	£'000	£'000	£'000	£'000	£'000	£'000
(Loss)/profit after taxation	4,405	4,440	4,213	4,013	3,282	(12,042)
Dividends	2,010	2,067	2,195	2,239	2,388	747
Net (debts)/funds	3,920	6,022	4,196	(7,041)	(2,253)	(3,041)

* The results for 2003 were prepared under UK GAAP.

Graham Norton

Finance Director

13 March 2009

   Group Income Statement 

53 weeks ending 2 January 2009

		Ongoing business 53 weeks ending 2. 1.09	Greetings Direct 53 weeks ending 2. 1.09	Total Group  53 weeks ending 2. 01.09	Ongoing business 52 weeks ending  28. 12. 07	Greetings Direct  52 weeks ending  28. 12.07	Total Group  52 weeks ending 28.12.07
		£'000	£'000	£'000	£'000	£'000	£'000
	Notes
Revenue	1.15	33,608	8,939	42,547	36,140	10,126	46,266
Cost of Sales		(25,334)	(8,539)	(33,873)	(25,035)	(8,599)	(33,634)
Gross profit		8,274	400	8,674	11,105	1,527	12,632
Operating expenses
- other operating expenses		(6,484)	(2,025)	(8,509)	(6,470)	(1,107)	(7,577)
- abortive acquisition costs		-	-	-	(749)	-	(749)
		(6,484)	(2,025)	(8,059)	(7,219)	(1,107)	(8,326)
Impa
Impairment of goodwill	8	-	(11,581)	(11,581)	-	-	-
Loss from associates		-	-	-	(42)	-	(42)
Write-off of associate investment		-	-	-	(243)	-	(243)
Operating (loss)/profit		1,790	(13,206)	(11,416)	3,601	420	4,021
Finance expense		(411)	-	(411)	(539)	-	(539)
Finance income		127	-	127	134	-	134
(Loss)/profit before tax		1,506	(13,206)	(11,700)	3,196	420	3,616
Taxation	5	(242)	(100)	(342)	(387)	53	(334)
(Loss)/profit for the period attributable to equity holders of the parent		1,264	(13,306)	(12,042)	2,809	473	3,282
(Loss)/earnings per share expressed in pence per share	7
Basic				(48.42)p			13.20p
Diluted				(48.42)p			13.14p

Footnote:

i) The income statement relates to continuing operations. Ongoing business is all primary segments except for Greetings Direct.

Balance Sheet as at 2 January 2009

		Group	Group	Company	Company
		2.1.09	28.12.07	2.1.09	28.12.07
	notes	£'000	£'000	£'000	£'000
Assets
Non-current assets
Goodwill	8	3,882	15,463	-	-
Intangible assets	8	551	725	-	-
Property, plant and equipment		5,623	6,382	-	-
Investments		-	-	21,363	21,363
Deferred tax		123	283		-
		10,179	22,853	21,363	21,363
Current assets
Inventories		3,619	4,091	-	-
Trade and other receivables, net of impairment		1,245	1,858	135	220
Prepayments		521	1,808	-	-
Cash and cash equivalents		2,219	4,872	1,255	1,489
		7,604	12,629	1,390	1,709
Liabilities
Current Liabilities
Current income tax liabilities		(372)	(596)	(15)	-
Bank loans and overdrafts	9	(1,900)	(1,900)	-	-
Finance Lease liabilities		(5)	-	-
Trade payables		(3,228)	(6,781)	-	-
Accruals and other payables		(2,637)	(1,329)	(62)	(15)
		(8,142)	(10,606)	(77)	(15)
Net current (liabilities)/assets		(538)	2,023	1,313	1,694
Non-current liabilities
Bank loans	9	(3,331)	(5,225)	-	-
Finance lease liabilities		(24)	-	-	-
Income tax liabilities		-	(346)	-	-
		(3,355)	(5,571)	-	-
Net assets		6,286	19,305	22,676	23,057
Shareholders' equity
Ordinary shares		254	254	253	253
Share premium		16,178	16,178	16,178	16,178
Capital reserve		(17)	(17)	670	670
Capital redemption reserve		22	22	22	22
Foreign exchange reserve		(66)	(24)	-	-
Retained earnings		(10,085)	2,892	5,553	5,934
Total equity attributable to equity holders of the parent		6,286	19,305	22,676	23,057

 

Statements of Changes in Shareholders' Equity for the 53 weeks ended 2 January 2009 

The Group								Total
					Capital	Foreign		attributable
		Share	Share	Capital	Redemption	Exchange	Retained	to equity
		Capital	Premium	Reserve	Reserve	Reserve	Earnings	holders
	notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 29 December 2006		254	16,138	(17)	22	-	1,960	18,357
Profit for the period		-	-	-	-	-	3,282	3,282
Employee share option scheme	1.14	-	-	-	-	-	38	38
Dividend paid	6	-	-	-	-	-	(2,388)	(2,388)
Issue of shares		-	40	-	-			40
Exchange loss						(24)	-	(24)
Balance at 28 December 2007		254	16,178	(17)	22	(24)	2,892	19,305
Balance at 28 December 2007		254	16,178	(17)	22	(24)	2,892	19,305
Loss for the period		-	-	-	-	-	(12,042)	(12,042)
Employee share option scheme	1.14	-	-	-	-	-	(188)	(188)
Dividend paid	6	-	-	-	-	-	(747)	(747)
Exchange loss						(42)	-	(42)
Balance at 2 January 2009		254	16,178	(17)	22	(66)	(10,085)	6,286

  

The Company								Total
					Capital	Foreign		attributable
		Share	Share	Capital	Redemption	Exchange	Retained	to equity
		Capital	Premium	Reserve	Reserve	Reserve	Earnings	holders
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 29 December 2006		253	16,138	670	22	-	2,959	20,042
Profit for the period		-	-	-	-	-	5,274	5,274
Dividend paid		-	-	-	-	-	(2,299)	(2,299)
Issue of shares		-	40	-	-	-	-	40
Balance at 28 December 2007		253	16,178	670	22	-	5,934	23,057
Balance at 28 December 2007		253	16,178	670	22	-	5,934	23,057
Profit for the period		-	-	-	-	-	340	340
Dividend paid		-	-	-	-	-	(721)	(721)
Balance at 2 January 2009		253	16,178	670	22	-	5,553	22,676

Cash flow statements For the 53 weeks ended 2 January 2009

 

	notes	Group 53 weeks ending 2.1.09 £'000	Group 52 weeks ending 28.12.07 £'000	Company 53 weeks ending 2.1.09 £'000	Company 52 weeks ending28.12.07 £'000
(Loss)/profit for the period		(12,042)	3,282	340	5,274
Adjustment for
Profit less losses on sale of property, plant and equipment		4	(226)	-	-
Impairment of goodwill	8	11,581	-	-
Taxation	5	342	334	36	-
Depreciation		1,007	1,059	-	-
Amortisation		174	292	-	-
Unrealised exchange gains		(42)	(24)	-	-
Decrease/(increase) in inventories		472	(388)	-	-
Decrease/(increase) in receivables		1,900	(1,049)	47	(65)
Decrease/(increase) in payables		(2,248)	1,872	(81)	(40)
Net finance expenditure/(income)		284	405	-	-
Share based payments		(188)	38	-	-
Write-off of associate investment		-	243	-	-
Loss for associate		-	42	-	-
Cash generated from operations		1,244	5,880	342	5,169
Interest received		129	110	70	-
Interest paid		(412)	(523)	-	-
Tax paid		(750)	(1,410)	(15)	-
Net cash from operating activities		211	4,057	397	5,169
Cash flows from investing activities
Purchase of property, plant and equipment		(270)	(1,306)	-	-
Proceeds from sale of property, plant and equipment		18	4,438	-	-
Repayment of loan from subsidiary		-	-	90	90
Loan to associates		-	(53)	-	-
Net cash from/(used) in investing activities		(252)	3,079	90	90
Cash flow from financing activities
Net proceeds from issue of ordinary share capital		-	40	-	40
New loans raised		35	-	-	-
Repayment of borrowings		(1,900)	(1,900)	-	-
Dividends paid to shareholders	6	(747)	(2,388)	(721)	(2,299)
Net cash used in financing activities		(2,612)	(4,248)	(721)	(2,259)
Net increase/(decrease) in cash and cash equivalents		(2,653)	2,888	(234)	3,000
Cash and cash equivalents at
29 December 2007/30 December 2006		4,872	1,984	1,489	(1,511)
Cash and cash equivalents at
2 January 2009/28 December 2007		2,219	4,872	1,255	1,489

  Notes to the financial statements 

1 Summary of significant accounting policies 

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all financial periods presented, unless otherwise stated. 

General Information

Flying Brands Limited (the Company) is a limited liability company incorporated and domiciled in Jersey. The consolidated financial statements of the Company comprise the Company and its subsidiaries (together referred to as the Group) and equity accounts for the Group's interests in associates. Separate financial statements of the Company are also presented. The accounting policies of the Company are the same as for the Group except where separately disclosed.

The audited consolidated and separate company financial statements of Flying Brands Limited (the Company) in respect of the period ended 2 January 2009 have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the European Union (adopted IFRS).

The financial statements were authorised for issue by the Board of Directors on 13 March 2009.

The financial information set out in this annual results announcement does not constitute the Company's statutory accounts for the period ended 2 January 2009 and 28 December 2007 but is derived from them. The 2007 financial statements have been filed with the Registrar of Companies in Jersey whereas those for 2009 will be delivered following the Company's Annual General Meeting. The auditors' opinions on these financial statements were unqualified and did not include a statement under Companies (Jersey) Law 1991.

1.1 Basis of preparation of financial statements on a going concern basis

The Group's business activities, together with factors likely to affect its future development, performance and position are discussed in the Business Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described further in the Financial Review. In addition notes 2 and 11 to the financial statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives and its exposure to credit and liquidity risks. 

The Group and the parent Company financial statements are prepared on a going concern basis which the Directors believe to be appropriate for the reasons set out below: 

The Group meets its short term seasonal working capital requirements through an overdraft facility of £0.5 million and also has two long term treasury loan facilities which have covenants attached them (see note 10 for more details). The short term overdraft facility is due for renewal in March 2010 

The Directors have prepared trading and cash flow forecasts for a period of one year from the date of approval of these financial statements which project that the available facilities are sufficient and that covenants will not be breached over the duration of the forecasts. The forecasts prepared make assumptions in respect of future trading conditions, and in particular the trend revenue and gross margins being consistent with those achieved in the first 9 weeks of the current financial year. On the basis of these cash flow forecasts the company has adequate facilities and will remain within its covenants. 

However, the current economic conditions create some uncertainty in the foreseeable future, particularly over the level of demand for the Group's products and the gross margins achievable and in consequence the level of bank facilities needed and continued compliance with related covenants. 

 

1 Summary of significant accounting policies continued 

In light of these economic conditions the Directors have prepared downside projections which assume that revenues and gross margins for the rest of the year are below those achieved in the first 9 weeks of 2009. The Directors have also considered what mitigating actions they could reasonably undertake were the Group not able to achieve its base forecasts. Such actions include those that are within their control such as managing the cost base through reducing discretionary cash expenditure, for example on marketing and capital expenditure and those that are dependent on agreement with third parties such as the agreement of an increased overdraft facility or relaxation of financial covenants attached to the treasury loan facilities. On the basis of the sensitised forecasts and mitigating actions that the Directors believe are within their control, the forecasts show that the Group should be able to operate within its current overdraft facility and meet the covenant requirements of its treasury loan facilities. 

After reviewing the forecasts and making appropriate enquires the Directors have a reasonable expectation that the parent Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

 

The financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial assets and liabilities. A summary of the more important Group accounting policies follow, 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 IFRSs requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

1.2 Basis of consolidation 

(a) Subsidiaries 

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities generally accompanying a shareholding of more than one half of the voting rights. 

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is recorded as goodwill. The results of the subsidiary undertakings acquired or disposed of during the period are included in the Consolidated Income Statement from the date of control commences until the date control ceases. 

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 

(b) Investments in associates 

An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. 

1 Summary of significant accounting policies continued 

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting except when classified as held for sale. Investments in associates are carried in the Balance Sheet at cost, less any impairment in value of the individual investments. Losses of the associates in excess of the Group's interest in those associates are not recognised. 

Any excess of the cost of acquisition over the Group's share of the fair values of 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 (ie 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 and losses are eliminated to the extent of the Group's interest in the relevant associate. 

1.3 Segment reporting 

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. The Group's primary format for segment reporting is based on business segments. The business segments are determined based on the Group's management and internal reporting structure. 

1.4 Foreign currency 

(a) Foreign currency transactions 

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. 

(b) Foreign operations 

The assets and liabilities of foreign operations are translated to sterling at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Sterling at the average rate for the reporting period. 

Foreign currency differences are recognised directly in equity.

1.5 Property, plant and equipment 

All property, plant and equipment (PPE) is shown at cost less subsequent depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation on assets is calculated using a straight-line method to allocate the cost to each asset to its residual value over its estimated useful life, as follows: 

	%
Buildings including glasshouse	0-4
Plant and equipment	10-20
Computer hardware, included in plant and equipment	20-33.33
Motor vehicles, including tractors	15-25

 

 

1 Summary of significant accounting policies continued 

Freehold land is not depreciated. 

The assets' residual values and useful lives are reviewed and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the Income Statement. 

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item flow to the Group and the cost of the item can 

be measured reliably. All other repairs and maintenance are charged to the Income 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 value of 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 of acquisition less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of the trademarks over their estimated useful lives: 

Garden Bird Supplies until May 2013 

(c) Intangibles - Customer lists 

Customer lists 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 of acquisition less accumulated amortisation. Amortisation is calculated using the reducing balance method based on the estimated annual attrition rates. 

	%
Silverminds	48
Garden Bird Supplies	23
Greetings Direct	87

 

1.7 Impairment 

(a) Financial assets 

A financial asset is assessed at each reporting date to determine whether there is any evidence that it is impaired. A financial asset is considered impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. 

1 Summary of significant accounting policies continued 

Individual significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risks characteristics. All impairment losses are recognised in the Income Statement. 

(b) Non-financial assets 

The carrying amounts of the Group's non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date. 

The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination. 

An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in profit or loss. 

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognised. 

1.8 Inventories 

Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first in first out basis and includes transport and handling costs. Net realisable value is the price at which inventory can be sold in the normal course of business after allowing for the costs of realisation. Provision is made where necessary for obsolete, slow moving or defective inventories. 

Included within inventory are certain First Day Cover inventories. These inventories are valued as a proportion of the anticipated realisable value, as a best estimator of the lower of cost and net realisable value, based on expert opinion of the Group's philatelists. Provision is made for slow moving inventory. 

1.9 Trade receivables 

Trade receivables are recognised initially at amortised cost, which is the fair value of consideration receivable and is adjusted for provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all the monies due. 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 with banks and other short-term highly liquid investments with maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral 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 Summary of significant accounting policies continued 

1.11 Bank borrowings 

Interest-bearing loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. 

1.12 Loan notes receivables 

The loan note is receivable from an associate and is initially recognised at fair value. The financial asset is accounted for as a loan and receivable under IAS 39.

1.13 Share capital 

Ordinary shares 

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of Ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. 

Repurchase of share capital (treasury shares) 

When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effects, and is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from retained earnings. 

1.14 Share-based payments 

The fair value of the employees services received in exchange for the grant of share 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 VAT and any trade discounts. Revenue is recognised at the date of despatch of goods to customers. Provision is made for refunds in the period the goods are despatched. Provision is made for expected returns or bad debts of continuity products. Credit card commission and the cost of overseas bouquets are treated as cost of sales. Interest income is recognised on an accruals based method. 

1.16 Leases 

Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Rentals payable under operating leases are taken to the Income Statement on a straight-line basis over the lease term. 

Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an equal amount to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. 

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. 

 

1 Summary of significant accounting policies continued 

1.17 Dividend distribution 

Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved. 

1.18 Taxation 

Income tax payable is provided on taxable profits using tax rates enacted or substantively enacted at the Balance Sheet date. 

Deferred taxation is provided in full, using the liability method on temporary differences 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 it relates to items recognised directly in equity, in which case it is recognised in equity. 

1.19 Pensions 

The Group makes contributions to some employees' and Directors' personal pension defined contribution schemes which are accounted for on an accruals basis. 

1.20 Marketing expenditure 

The Group charges external campaign marketing expenditure to the Income Statement in the accounting period in which the marketing materials are distributed.

1.21 Fixed asset investments - Company 

Investments held as fixed assets are stated at cost less provision for any impairment. 

1.22 Financial instruments 

(a) Financial guarantee contracts 

Where Group companies enter into financial guarantee contracts to guarantee the indebtedness 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 formal contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. 

(b) Non-derivative financial instruments 

Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables. 

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below. 

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purposes of the statement of cash flows. 

1 Summary of significant accounting policies continued

1.23 Termination benefits 

Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits are recognised as an expense if it is probable the offer will be accepted. 

1.24 Accounting standards issued but not adopted 

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 2 January 2009, and have not been applied in preparing these consolidated financial statements: 

The following standards and interpretations, issued by the IASB and the International Financial Reporting Interpretations Committee (IFRIC), are effective for the first time in the current financial year and have been adopted by the group with no significant impact on its consolidated results or financial position. 

• IFRS 2 (Revised) Group and treasury share transactions

• IFRIC 12 Service concession arrangements

• IFRIC 13 Customer loyalty programmes

• IFRIC 14, IAS 19 The limit on defined benefit assets

The following standards and interpretations, issued by the IASB or IFRIC, have not yet been adopted by the group:

• IAS 1 (Revised) Presentation of financial statements (effective for annual periods beginning on or after 1 January 2009)

• IAS 27 (Revised) Consolidated and separate financial statements (effective for annual periods beginning on or after 1 July 2009)

• Amendment to IAS 38 Intangible assets (effective for annual periods beginning on or after 1 January 2009)

• Amendment to IFRS 2 Share-based payments (effective for annual periods beginning on or after 1 January 2009)

• IFRS 3 (Revised) Business combinations (effective for annual periods beginning on or after 1 July 2009)

• IFRS 8 Operating segments (effective for annual periods beginning on or after 1 January 2009)

• IFRIC 15 Agreements for the construction of real estate (effective for annual periods beginning on or after 1 January 2009)

• IFRIC 16 Hedges of a net investment in a foreign operation (effective for annual periods beginning on or after 1 October 2008)

• IFRIC 17 Distributions on non-cash assets to owners (effective for annual periods beginning on or after 1 July 2009)

The amendment to IAS 38 clarifies the accounting for advertising expenditure. The Group is currently assessing the impact this amendment to the standard would have on the results and net assets of the Group. 

IFRS 8 contains requirements for the disclosure of information about an entity's operating segments and also about the entity's products and services, the geographical areas in which it operates, and its major customers. The standard is principally concerned with disclosure and replaces IAS 14 Segment reporting. The group is currently assessing the impact this standard would have on the presentation of its consolidated results. 

The Group does not currently believe the adoption of the remaining standards or interpretations would have a material impact on the consolidated results or financial position of the group. With the exception of IAS 1 (Revised), the amendments to IFRS 8 and the amendments to ISA 38, none of the above standards and interpretations not yet adopted by Flying Brands has been endorsed or adopted for use in the European Union.

  Notes to Financial Statements continued

2 Financial risk and credit risk management 

The Group has exposure to the following risks from its use of financial instruments: 

Credit risk 

Liquidity risk 

Market risk 

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risks and the Group's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. 

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. 

The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. 

The Group Audit Committee oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. 

(a) Credit risk 

Credit risk is the risk of financial loss to the Group if a customer fails to meet its contractual obligations, and arises principally from the Group's receivables from customers. 

Trade and other receivables 

The Group's exposure to credit risk is influenced by the type of customer the Group contracts with. The Group is exposed to a high number of low value receivables from retail customers. The Group assess the risk of these customers by applying historical trends to the likely event of these customers defaulting. 

Impairment to the value of this receivable is applied in line with the historical trends identified and any changes in risk to the portfolio of the debt. 

(b) Liquidity risk 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. 

The Group had no overdraft facility at year end but a £500,000 facility was reinstated in March 2009 to enable it to manage its liquidity risk. 

(c) Market risk 

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. 

2 Financial risk and credit risk management continued 

 

Currency risk 

The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Group entities, primarily the Euro, US Dollar and Australian Dollar. The risks in the period to 2 January 2009 were minimal. 

The Group currently does not hedge any of its currency exposure due to the minimal impact of these currencies, and will not need to in the foreseeable future following the decision to close the overseas operations. 

Interest rate risk 

The Group has both fixed rate and floating rate loans. Thus the Group has some exposure to interest rate risk.

(d) Capital management 

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Group defines as net operating income divided by total shareholders' equity. The Board of Directors also monitors the level of dividends to ordinary shareholders. 

From time to time the Group purchases its own shares on the market; the timing of these purchases depends on market prices. Primarily the shares are intended to be used for issuing shares under the Group's share option programme. Buy and sell decisions are made on a specific transaction basis by the Board of Directors; the Group does not have a defined share buy-back plan. 

There were no changes in the Group's approach to capital management during the year. 

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. 

3 Critical accounting estimates and judgements 

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are discussed below. 

(a) Estimated impairment of goodwill 

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 1.7. The recoverable amounts of cash generating units have been based on value-in-use calculations. These calculations require the use of estimates (note 8). 

4 Segmental analysis 

The Directors of Flying Brands Limited are of the opinion that, whilst the Group markets a number of different brands, all the business of the Group is operated within 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 is by 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 of these services and assets by the appropriate segment

 

4 Segmental analysis continued

4.1 Segmentation by primary divisions  a) Segment results 

Period ended  2 January 2009	Gifts Flowers	Garden	Entertainment	Total ongoing business	Gifts Greetings Direct*	Total Group
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue*	11,634	15,905	6,069	33,608	8,939	42,547
Segment result	(218)	1,359	649	1,790	(13,206)	(11,416)
Interest payable						(411)
Interest receivable						127
Loss before tax						(11,700)
Taxation						(342)
Loss after tax						(12,042)

*Included in the segment results for Greetings Direct is a charge relating to the impairment of goodwill (see  note 14) of £11,581,000

Period ended 28 December 2007	Gifts Flowers	Garden	Entertainment	Total ongoing business	Gifts Greetings Direct	Total Group
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue*	12,288	17,092	6,760	36,140	10,126	46,266
Segment result	1,203	2,856	576	4,635	420	5,055
Loss from associate						(42)
Write-off associate investment						(243)
Abortive acquisition costs						(749)
Interest payable						(539)
Interest receivable						134
Profit before tax						3,616
Taxation						(334)
Profit after tax						3,282

*Garden Division revenue includes £0.6m relating to a non-recurring VAT rebate.

 

4 Segmental analysis continued

b) Assets and Liabilities

 

Period ended 2 January 2009	Gifts	Garden	Entertainment	Total
	£'000	£'000	£'000	£'000
Segment assets (including goodwill)	1,114	12,498	4,171	17,783
Segment assets (excluding goodwill)	1,114	9,116	3,671	13,901
Segment liabilities	(8,416)	(1,572)	(1,509)	(11,497)
Depreciation	310	560	137	1,007
Amortisation of intangible assets	-	143	31	174
Capital expenditure on property, plant and equipment	118	111	41	270

Period ended 28 December 2007	Gifts	Garden	Entertainment	Total
	£'000	£'000	£'000	£'000
Segment assets (including goodwill)	18,877	12,614	3,991	35,482
Segment assets (excluding goodwill)	7,296	9,232	3,491	20,019
Segment liabilities	(12,695)	(1,554)	(1,928)	(16,177)
Depreciation	286	667	106	1,059
Amortisation of intangible assets	107	154	31	292
Capital expenditure on property, plant and equipment	751	456	99	1,306

Due to the nature of the assets and liabilities in the Gifts division it is not possible to split assets and liabilities between Flowers and Greetings Direct.

4.2 Segmentation by geographical area

Revenue by geographical area	53 weeks ending  2.1.09 Revenue by customer  location £'000	52 weeks ending  28.12.07 Revenue by customer  location £'000
Jersey, Channel Islands	64	62
United Kingdom	38,038	43,634
Australasia	3,498	822
Europe	635	1,427
Rest of World	312	321
	42,547	46,266

  4 Segmental analysis continued

Capital expenditure and assets by geographical area	53 weeks ending  2.1.09 Capital expenditure	2.1.09 Total assets	52 weeks ending 28.12.07 Capital expenditure	28.12.07 Total assets
	£'000	£'000	£'000	£'000
Jersey, Channel Islands	86	14,315	222	26,802
United Kingdom	183	2,728	1,082	7,845
Australasia	1	710	2	835
Europe	-	-	-	-
Rest of World	-	30	-	-
	270	17,783	1,306	35,482

5 Taxation

 

	53 weeks  ending  2.1.09 £'000	52 weeks  ending  28.12.07 £'000
Current tax
Jersey income tax	102	319
UK corporation tax	119	627
Over provision in previous periods	(39)	(466)
Total current tax	182	480
Deferred tax
Increase /(decrease) in provision for the period	160	(146)
Total tax on profit	342	334

The tax assessed for the period is different from the standard rate of income tax, as explained below:

 

5 Taxation continued

 

	53 weeks  ending  2.01.09 £'000	52 weeks ending 28.12.07 £'000
(Loss)/profit before tax	(11,700)	3,616
(Loss)/profit before tax multiplied by the standard rate of Jersey income tax of 10%	(1,170)	362
Adjustments to tax in respect of prior periods	(39)	(466)
Adjustments in respect of foreign tax rates	142	263
Expenses not deductible for taxation purposes	1,153	239
Other	(2)	6
Unutilised losses	255	(7)
Amortisation on intangibles not allowable	3	3
Disposal of building: capital gains not subject to taxation	-	(66)
Tax charge for period	342	334

The UK current tax rate reduced from 30% to 28% with effect from 1 April 2008. In line with this change, the rate applied to UK current tax provisions is an effective rate of 28.5%. 

Jersey income tax has been provided at 10% for the period ended 28 December 2007 and 2 January 2009 following the Income Tax (Amendment No 28) (Jersey) Law 1961 being registered by the Royal Court of the Island on 22 June 2007. The income tax rate for future periods will be 0% and as a result the rate for deferred tax assets and liabilities in Jersey resident subsidiaries has also been reduced from 10% to 0%. 

6 Dividends 

	53 weeks ending 2.1.09 £'000	52 weeks ending 28.12.07 £'000
Dividends on equity shares
Final dividend for 2007 proposed in March 2008, agreed at annual general meeting in April 2008 at 3.00p (2007: 6.30p)	747	1,567
Interim dividend of nil p per Ordinary share in July 2008 (2007: 3.30p)	-	821
	747	2,388

The Directors are not proposing a final dividend in respect of the financial period ended 2 January 2009.

 

Notes to Financial Statements continued

7 (Loss)/earnings per ordinary share 

Basic 

Basic (loss)/earnings per share is calculated by dividing the profit attributable to the equity holders of the Company by the weighted average number of Ordinary shares in issue during the period, excluding Ordinary shares purchased by the Company and held as treasury shares.

	53 weeks ending  2.1.09	52 weeks ending 28.12.07
(Loss)/profit attributable to equity holders of the Company (£'000)	(12,042)	3,282
Weighted average number of Ordinary shares in issue, less weighted average number of treasury shares (thousands)	24,868	24,863
Basic (loss)/earnings per share (pence per share)	(48.42)	13.20

Adjusted earnings per share which excludes one-off items is presented in addition to that required by IAS 33 Earnings per share as the Directors consider that this gives a more appropriate indication of underlying performance.

	53 weeks  ending  2.1.09	52 weeks ending 28.12.07 (restated)*
(Loss)/earnings used to calculate basic and diluted EPS	(12,042)	3,282
Impairment of goodwill	11,581	-
Loss/(profit) attributable to Greetings Direct (after tax)	1,725	(473)
Abortive acquisition costs (note 6)	-	749
Write off of associate	-	243
Prior year VAT rebate (after tax) (note 4)	-	(412)
Restructuring costs (after tax) (note 8)	125	179
Loss on write-off of assets due to sale of building (note 8)	-	115
Profit on disposal of a building	-	(343)
Earnings before one-off items	1,389	3,340
Adjusted earnings per share before one-off items (pence)	5.59	13.44

*Restated for impact of Greetings Direct managed close down. 

Diluted 

Diluted (loss)/earnings per share is calculated by adjusting the weighted average number of Ordinary shares outstanding to assume conversion of all dilutive potential Ordinary shares. The Company has one category of dilutive potential Ordinary shares: share options. 

The calculation is performed for the share options to determine the number of Ordinary shares that could have been acquired at fair value (determined as the average market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. 

7 (Loss)/earnings per ordinary share continued

Currently there are no employee share options or awards that are anticipated to meet the performance criteria required for these to be exercised. As a result at 2 January 2009 there were no dilutions or potential dilutions to Ordinary shares. 

	53 weeks ending 2.1.09	52 weeks ending 28.12.07
(Loss)/profit attributable to equity holders of the Company (£'000)	(12,042)	3,282
Weighted average number of Ordinary shares in issue less weighted average number of treasury shares (thousands)	24,868	24,863
Adjustment for share options (thousands)	-	115
Weighted average number of ordinary shares for diluted earnings per share (thousands)	24,868	24,978
Diluted (loss)/earnings per share (pence per share)	(48.42)	13.14

8 Goodwill and intangible assets

The Group	Trade marks	Customer lists	Total intangibles	Goodwill	Total
	£'000	£'000	£'000	£'000	£'000
Cost
At 28 December 2007	431	1,472	1,903	15,463	17,366
Additions	-	-	-	-	-
At 2 January 2009	431	1,472	1,903	15,463	17,366
Amortisation
At 28 December 2007	126	1,052	1,178	-	1,178
Charges for the period - impairment of goodwill	-	-	-	11,581	11,581
Charges for the period - amortisation	56	118	174	-	174
At 2 January 2009	182	1,170	1,352	11,581	12,933
Net book value 2 January 2009	249	302	551	3,882	4,433

  8 Goodwill and intangible assets continued

The Group	Trade marks	Customer lists	Total intangibles	Goodwill	Total
	£'000	£'000	£'000	£'000	£'000
Cost
At 29 December 2006	431	1,472	1,903	15,968	17,871
Additions	-	-	-	-	-
Adjustments for contingent consideration		-	-	(505)	(505)
At 28 December 2007	431	1,472	1,903	15,463	17,366
Amortisation
At 29 December 2006	70	816	886	-	886
Charges for the period	56	236	292	-	292
At 28 December 2007	126	1,052	1,178	-	1,178
Net book value 28 December 2007	305	420	725	15,463	16,188

a) Garden Bird Supplies and Silverminds 

On 29 September 2005 the Group acquired 100% of the share capital of Garden Bird Supplies Limited, a home shopping retailer of garden bird food and accessories. The Group acquired a customer list of 486,000 names and the Ultiva trademark and other net assets with a fair value of £155,000. The goodwill acquired was £3,382,000, which is attributable to the high profitability of the acquired business and the significant synergies expected to arise after the Group's acquisition. 

A further £500,000 of goodwill is the carrying value of the goodwill acquired on the purchase of Silverminds Limited. 

Annual impairment test 

The recoverable amounts of goodwill associated with each cash generating unit is based on its value in use which is based on the anticipated future cash flows discounted at the Group's WACC (Weighted Average Cost of Capital) being 6.64% (2007: 9.03%). 

Value in use is based on the following key assumptions: 

• Forecasts are prepared taking into account historical trading performance, anticipated changes in future market   conditions and anticipated changes in the taxation rates in Jersey and the UK.

• Tests have been conducted by reviewing the annual profits generated in 2008 and adding the sales arising in other of  the Group's brands from customers of Garden Bird Supplies and Silverminds.

• Performance is analysed against future projections of the brands' performance and historic information about  customer retention and profit margins.

•  Assumed no profit growth in 2009 for GBS and a 20% reduction for Silverminds.

These assumptions will be reviewed annually by the Directors to ensure that the test of impairment reflects the latest performance of the brands and wider economic conditions. Currently there is no impairment required.

8 Goodwill and intangible assets continued 

b) Greetings Direct 

On 15 September 2006 the Group acquired 100% of the share capital of direct greeting card businesses: Greetings Direct Limited, Greetings Direct International Limited and Greetings Direct Trading Limited (together Greetings Direct) for cash. The Company had a database of 700,000 customers of which approximately 52,000 were active customers at the date of acquisition. The goodwill acquired was £12,086,000. The total cost of the acquisitions was £12,885,000, being cash consideration to the shareholders of £12,160,000 and direct costs attributable to the acquisition of £725,000. £1,700,000 of the consideration was held in an escrow account at 29 December 2006 and was released to the shareholders on 11 January 2007 after certain conditions had been met. 

As a result of certain performance criteria not being achieved in the period ending 28 December 2007, £505,000 of contingent consideration was not paid to the previous shareholders of Greetings Direct. Thus the goodwill acquired was reduced to £11,581,000. 

On 15 December 2006, Greetings Direct Trading Limited merged with Flying Flowers (Jersey) Limited under Article 127(c) of the Companies (Jersey) Law 1991 and from that date Greetings Direct Trading Limited ceased to be a company incorporated under the Law. 

At the period ended 28 December 2007 the Directors believed that the business model and Greetings Direct concept could be successfully launched in the USA in 2008, which would have been part of the same cash generating unit that goodwill on acquisition was attributable to, and thus considered no impairment of goodwill was necessary. 

On 3 July 2008 the Group announced its intention to close down immediately its USA division of Greetings Direct and to start a managed closure of the UK and Australia operations of Greetings Direct over the ensuing 12 months. The decision was made because the response rates to the introductory test mailing in June 2008 in the United States were extremely disappointing and this meant that the economies of scale expected to be achieved in the UK and Australia would not be possible. This combined with the deterioration of the bad debts and returns metrics in both the UK and Australia meant that these two geographies would be loss making in 2008 with little probability of profit in 2009. The winding down of these operations will allow the Group to focus on growing its core brands of Flying Flowers, Gardening Direct and Garden Bird Supplies. 

The Directors consider that the intangible assets will have negligible value; a full impairment of the carrying value of the goodwill related to Greetings Direct of £11,581,000 has been made. 

The results of Greetings Direct which have been included in the Consolidated Income Statement are as follows: 

	53 weeks ending 2.1.09 £'000	52 weeks ending 28.12.07 £'000
Revenue	8,939	10,126
Cost of sales	(8,539)	(8,599)
Gross profit	400	1,527
Operating expenses	(2,025)	(1,107)
(Loss)/profit before interest, tax and impairment	(1,625)	420

Notes to Financial Statements continued

For the period ending 2 January 2009 a provision of £248,000 has been charged against cost of sales for stock which will not be utilised in the winding down of the operation. An accrual of £283,000 against committed and announced redundancies and associated costs as a result of the closure decision has been provided in operating expenses.

9 Bank loans and overdraft 

	Group	Company	Group	Company
	2.1.09	2.1.09	28.12.07	28.12.07
	£'000	£'000	£'000	£'000
Bank overdraft	-	-	-	-
Bank loans	5,231	-	7,125	-
	5,231	-	7,125	-
The borrowings are repayable as follows:		-
On demand or within one year	1,900	-	1,900	-
In the second year	1,900	-	1,900	-
In third to fifth years inclusive	1,431	-	3,325	-
Less: Amount due for settlement within 12 months (shown under current liabilities)	(1,900)	-	(1,900)	-
Amount due for settlement after 12 months	3,331	-	5,225	-

All loans and overdrafts are Sterling denominated.

The weighted average interest rates paid were as follows:

	53 weeks  ending  2.1.09	52 weeks  ending  28.12.07
Bank Overdrafts	5.50%	6.50%
Bank Loans	6.68%	6.46%

Two bank loans totalling £9,500,000 were arranged on 15 September 2006, one at fixed interest rates and thus exposing the Group to fair value interest rate risk. The other borrowing was arranged at floating rates, thus exposing the Group to cash flow interest rate risk. As a result of the decision to close Greetings Direct (see note 14) management's expectations of future profits are now lower than previously expected. As a result the Group agreed with its bank new debt and interest service covenants over the outstanding bank debts. Following this the interest rate charged on the loans has been revised as noted below. The other principal features of the Group's loans are as follows: 

(a) A loan of £4,500,000. 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 1.0% (2007: 0.6%) above LIBOR. In March 2009 this was increased to 2% above LIBOR. 

(b) A loan of £5,000,000. 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 1.0% (2007: 0.6%) margin. In March 2009 this was increased to 2% above LIBOR.

9 Bank loans and overdraft continued

During 2008, Barclays bank plc registered a bond for £7,200,000 in respect of the Group's freehold property as security against these loans. This security had been previously held as unregistered promissory notes. 

At 2 January 2009 the Group had no (2007: £0.5m) overdraft facility available (see note 16 for liquidity risks). 

Barclays Bank plc has a right to full set off between all companies within the Flying Brands Limited Group. The Group had no overdraft facility at the year end but the £500,000 facility was subsequently reinstated in March 2009. An overdraft facility of £500,000 was partially used for two months during the financial period.

10 Financial instruments 

The section headed Treasury within the Financial review details the Group's policy for the holding and issuing of financial instruments. IFRS requires numerical disclosures in respect of financial assets and liabilities and these are set out below. 

Fair value of financial assets and liabilities 

	Book Value 2.1.09	Fair Value 2.1.09	Book Value 28.12.07	Fair Value 28.12.07
	£'000	£'000	£'000	£'000
Financial assets
Cash and cash equivalents	2,219	2,219	4,872	4,872
Trade and other receivables, net of impairment	1,245	1,245	1,858	1,858
	3,464	3,464	6,730	6,730
Flexible liability
Fixed rate bank loan	(2,753)	(2,889)	(3,750)	(3,750)
Floating rate bank loan	(2,478)	(2,478)	(3,375)	(3,375)
Finance lease liability	(29)	(29)	-	-
Trade payables	(3,228)	(3,228)	(6,781)	(6,781)
Accruals and other payables	(2,637)	(2,637)	(1,329)	(1,329)
	(11,125)	(11,261)	(15,235)	(15,235)

The carrying amounts of trade and other receivables, trade payables and accruals and other payables stated at book value above all have the same fair value due to their short-term nature. 

The fixed rate bank loan has been discounted to a fair value based on the difference between the fixed rate charge and the bank base rate at 2 January 2009 plus the 1% margin charged for this facility. There was no material variance between book and fair value for this loan at 28 December 2007. 

The same calculation has been performed on the floating rate bank loan and there is no material difference between the book and fair value of this liability. 

Calculations were also performed on the finance lease liability but due to the size of this liability the difference between the book and fair value of this liability was not material. 

10 Financial instruments continued

Credit risk 

Credit risk is the risk that counterparties to financial instruments do not perform according to the terms of the contract or instrument. The Group is exposed to counterparty credit risk when dealing with its customers and certain financing activities. 

The immediate credit exposure of financial instruments is represented by those financial instruments that have a net positive fair value by counterparty at 2 January 2009. The Group considers its maximum exposure to be: 

	2.1.09 £'000	28.12.07 £'000
Financial assets
Cash and cash equivalents	2,219	4,872
Trade and other receivables, net of impairment	1,245	1,858
	3,464	6,730

All cash balances and short-term deposits are held with an investment grade bank who are our principal bankers (Barclays Bank plc). 

Although the Group has seen no direct evidence of changes to the credit risk of its counterparties, the current focus on financial liquidity in all markets has introduced increased financial volatility. The Group is monitoring the changes to its counterparties' credit risk.

Trade receivables 

The majority of the trade receivables balance relates to the greetings card business and is made up of balances to individuals, with the majority below £50. Therefore the Group has limited exposure to the risk of one of its customer's credit status. However, as the balance does consist of small amounts to individuals the Group is aware that changes in general economic conditions can significantly affect the Group's credit risk. The Group monitors on a monthly basis the receivable balance and makes impairment provisions when debt reaches a certain age. All debts over six months old are placed with third party credit agencies to recover as much debt as possible. 

The ageing of trade receivables at the reporting date was: 

	Group Gross 2.1.09	Group Impairment 2.1.09	Group Gross 28.12.07	Group Impairment 28.12.07
	£'000	£'000	£'000	£'000
Not past due	951	(119)	939	(136)
Past due 0-30 days	294	(222)	866	(203)
More than 30 days past due	1,078	(930)	924	(565)
Total	2,323	(1,271)	2,729	(904)

 

10 Financial instruments continued 

The movement in the allowance for impairment in respect of trade receivables during the year was as follows:

	2.1.09 £'000	28.12.07 £'000
Balance at 29 December 2007/30 December 2006	(904)	(418)
Impairment loss recognised	(367)	(486)
Balance at 2 January 2009/28 December 2007	(1,271)	(904)

The majority of the trade receivables balance is made up of balances to individuals, with the majority below £50. 

Included in the impairment is £93,000 (2007: £83,000) of anticipated debt recovery on debts already written off. 

Liquidity risk 

Liquidity risk is the risk the Group will encounter difficulty in meeting its obligations associated with financial liabilities as they fall due.  The Finance Director is responsible for monitoring and managing liquidity and ensures that the Group has sufficient headroom in its committed facilities to meet unforeseen and abnormal requirements. During 2008 the Group had an overdraft facility of £500,000 which was withdrawn in December 2008 when the facility was no longer required. This facility was reinstated in March 2009 following discussion with the Group's principal banker and improves the Group's cash headroom position. 

Available headroom and cash requirements are monitored by the use of detailed cash flow and profit forecasts, which are reviewed at least quarterly, or more often as required. The Group also has to report its expected headroom and future cash flows to its principal banker quarterly. The Group particularly focuses on its management of working capital. 

The following are the contractual maturities of financial liabilities: 

2 January 2009	Carrying Amount	Contractual cash flows	6 months or less	6 to 12 months	1 to 2 years	2 to 5 years
	£'000	£'000	£'000	£'000	£'000	£'000
Non-derivative liabilities
Secured bank loans	5,231	5,231	950	950	1,900	1,431
Finance lease liability	29	38	4	5	9	20
Trade payables	3,228	3,228	3,228	-	-	-
Accruals and other payables	2,637	2,637	2,579	58	-	-
	11,125	11,134	6,761	1,013	1,909	1,451

 

10 Financial instruments continued 

28 December 2007	Carrying Amount	Contractual cash flows	6 months or less	6 to 12 months	1 to 2 years	2 to 5 years
	£'000	£'000	£'000	£'000	£'000	£'000
Non-derivative liabilities
Secured bank loans	7,125	7,125	950	950	1,900	3,325
Finance lease liability	-	-	-	-	-	-
Trade payables	6,781	6,781	6,781	-	-	-
Accruals and other payables	1,329	1,329	1,329	-	-	-
	15,235	15,235	9,060	950	1,900	3,325

Cash flow management 

The Group produces an annual budget which it updates quarterly with actual results and forecasts for future periods for profit and loss, balance sheet and cash flows. The Group uses these forecasts to report against and monitor its cash position. If the Group becomes aware of a situation in which it would exceed its current facilities it would approach its principal banker for an increase in short term financing and apply other mitigating actions involving management of its cost base which is within the Groups control. The Group would also employ working capital management techniques to manage the cash flow in periods of peak usage. 

The Group has seasonal cash flow and has limited excess cash in the second half of the year. On current base forecast it is unlikely that the Group would require facilities. However, due to the current uncertainty in economic conditions the Group approached its principal bankers in March 2009 to agree a reinstatement of its £0.5 million facility which was withdrawn in December 2008 as the Group had significant excess cash. An agreement was reached with its principal bankers and the facility of £0.5 million reinstated giving the group further flexibility of cash headroom should certain downside sensitivities prevail to meet short term working capital requirements in the second half of 2009. This facility is due for renewal in March 2010.

Covenants

The Group has two treasury bank loans (see note 9) which were taken out to finance acquisitions. These loans have debt and interest service covenants attached to them. The Group is required to meet its covenants each quarter and inform its bank of any breach or likely breach of these covenants as soon as the Group is aware. Both of the covenants are based on earnings before interest, tax, depreciation and amortisation (EBITDA) on a rolling 12 month period. The debt service covenant sets targets for EBITDA as a proportion of annual cost of debt repayments and net interest cost in the period. The interest service cover covenant sets quarterly targets for EBITDA compared to net interest costs. 

During the first half of 2008, the trading performance of the Group meant that it would breach its original debt service covenant requirement. The Group renegotiated the covenants on the outstanding loan balance and new covenants were agreed with the bank in July 2008. Following a continued decline in trading in the second half of 2008 the Group obtained a further relaxation of its debt service covenant in March 2009. The base forecast of the Group indicates that the Group will now meet its revised covenants. 

 

10 Financial instruments continued 

Currency risk 

The Group's exposure to foreign currency risk was as follows based on notional amounts: 

	Aus$ 2.1.09	Aus$ 28.12.07	US$ 2.1.09	US$ 28.12.07
	£'000	£'000	£'000	£'000
Trade and other receivables net of impairment	127	337	-	-
Cash and cash equivalents	442	83	29	-
Accrual and other payments	(64)	(16)	(191)	-
Trade payables	(42)	(132)	-	-
Gross balance sheet exposure	463	272	(162)	-

The Group currently has minimal exposure to foreign currency thus does not have any hedging.

The following significant exchange rates were applied during the year:

	Average rate 53 weeks  ending  2.1.09	Average rate 52 weeks ending 28.12.07	Average rate 53 weeks ending  2.1.09	Average rate 52 weeks ending 28.12.07
AUS$	2.021	2.268	2.087	2.285
US$	1.826	-	1.442	-

Currency sensitivity analysis 

The Group does not have any translation exposure at the year end on overseas financial assets and liabilities as a result of assets and liabilities in these countries being in local currency. 

The exposure to foreign exchange gains and losses on translating the financial statements of subsidiaries into Sterling is not included in this sensitivity analysis as there is no impact on the Income Statement and the gains and losses are recorded directly in the foreign exchange translation reserve in equity. 

A sensitivity of a 10% strengthening of the Sterling average rate on the Group's foreign operations into Sterling would result in a reduced loss in 2008 of £9,000 in Australia (2007: higher loss £96,000) and reduced the loss in the USA by £79,000. 

 

10 Financial instruments continued 

Interest rate risks 

	2.1.09	28.12.07
	£'000	£'000
Fixed Rate instruments
Financial Liabilities	(2,753)	(3,750)
Variable rate Instruments
Financial Liabilities	(2,478)	(3,375)
Cash	2,219	4,872

The impact of profit and equity of a 100 basis points increase in the interest rates would be to reduce both by £7,000 (2007: £15,000). 

11 Related party 

Mr T H S Trotter is Chairman of Smithfield Consultants Limited, who were paid £25,000 (2007: £25,000) during the period for financial public relations consultancy services. 

Under IAS24 the following transactions are deemed related party transactions. Flying Brands Limited (the Company) had the following transactions with its subsidiary undertakings during the period. 

Interest of £7,000 was received from Benhams Collectors Club Limited and £75,810 interest was receivable from Flying Flowers (Jersey) Limited in respect of interest on an inter group bank deposits. 

At 2 January 2009 Flying Brands Limited was owed £44,000 by Benham Collectors Club Limited. Flying Brands Limited owed £22,000 to Flying Flowers (Jersey) Limited, DPA Direct Limited £16,000 and Garden Bird Supplies Limited £9,000. 

The Group started using in 2008 a new web platform for its internet transactions from Ecommera, a joint venture of West Coast Capital. The cost of this service in the first year was £295,000. 

Mr S S Cook, the Chief Executive of the Group (appointed 18 February 2009), who was previously Chairman of the Audit Committee until appointed Chief Executive on 18 February 2009, has performed consultancy services to the Group during the period for which he received compensation of £220,000.

12 Directors' Responsibilities in respect of the Financial Statements

The financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit for the Company and the undertakings included in the consolidation taken as a whole; and 

Pursuant to Disclosure and Transparency Rules, Chapter 4, the Company's annual report contain a fair review of the development and performance of the business and the position of the Company, and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

The contents of this announcement, including the responsibility statement above, have been extracted from the annual report and accounts for the year ended 2 January 2009 which can be found at www.flyingbrands.com and will be despatched to shareholders on Friday 20 March 2009. Accordingly the responsibility statement makes reference to the financial statements of the Company and the group and to the relevant narratives appearing in that annual report and accounts rather than the contents of this announcement.

Stephen Cook Graham Norton

Chief Executive Finance Director

 

On behalf of the board

13 March 2009

ENDFR JTMPTMMABBFL