Iq-ai Ltd Regulatory News (IQAI)

RNS Number : 8747Q

Flying Brands Limited

10 August 2010

 

FLYING BRANDS LIMITED

 

Announcement of Results for the 26 weeks to 2 July 2010

 

11 August 2010, Flying Brands Limited (LSE: FBDU), the multi channel retailer, today announces interim results for the 26 weeks ended 2 July 2010.

 

Summary

 

Further strategic acquisitions and expansion of the core businesses and a proposed disposal of non-core assets. Results for continuing business in line with expectations and return to paying a dividend.

 

Corporate Developments

 

 

·; Agreement in principle reached for the sale of Benham. The sale is anticipated to be completed during September

 

·; Acquisition of Drake Algar for an initial consideration of £0.50m

 

·; Proposed acquisition of Garden Centre Online for £0.13m

 

 

Results

 

·; Profit before tax from continuing operations excluding one-off redundancy and acquisition-related costs and Greetings Direct in line with expectations at £1.39m (2009: £1.88m)

 

·; Group profit before tax of £0.48m (2009: £2.74m) reflecting the write down in the value of the assets of Benham pending its planned disposal and the continuing winding down of the Greetings Direct business as well as the reduction in profit from continuing operations

 

·; Basic earnings per share of 1.5p (2009: 10.1p). Adjusted earnings per share of 5.3p (2009: 6.7p)

 

·; Net debt reduced to £1.68m (2009: £2.14m)

 

·; Recommencement of dividend payments - interim dividend of 1.6p a share

 

·; Sales in Garden Division were £11.06m (2009: £11.25m) but active customer database increased by 9% to 372,000 (2009: 341,000)

 

·; Following on the acquisition of Flowers Direct in May 2010, sales in the Gifts Division were £3.70m (2009: £4.43m) and active customer base now 304,000 (2009: 268,000)

 

·; Total Web sales in continuing business (excluding Greetings Direct) up by over 15% to £4.88m (2009: £4.02m). Web sales now account for 31.3% of total sales in the core business (2009: 24.1%)

 

Commenting on the results, Stephen Cook, Chief Executive, said:

 

"We continue to make progress with our strategy of transforming the Group into a predominantly online retailer focused on value for money products in gardening and gifts. We are encouraged by the continued strong growth in our active customer base in Gardening Direct and are excited at the prospect of being able to offer our 370,000 active gardening customers a wide-range of value-for-money hardware products. We have been pleased with the rapid integration of Flowers Direct into our Gifts Division and the acquisition of Drake Algar will further strengthen our flowers business.

 

"Our confidence in the future of Flying Brands is reflected in our decision to return to paying dividends and we are pleased to announce the payment of an interim dividend of 1.6p a share."

 

 

 

 

 

 

 

For further information, please contact:

 

Flying Brands Limited 01245 228 300

Stephen Cook, Chief Executive

Anthony Gee, Finance Director

 

Smithfield Consultants 020 7360 4900

John 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: 

 

·; Gifts (Flying Flowers and Flowers Direct making the company one of the UK's leading florists)

·; Garden (Gardening Direct, one of the UK's largest mail order bedding plants and gardening products operations; Garden Bird Supplies, a leading provider of food and accessories for birds and other wildlife)

·; Entertainment (Listen2, a mail order audio books, nostalgic music, DVD and video home shopping retailer)

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

 

Our results for the first half of 2010 reflect the considerable amount of corporate activity at Flying Brands in the year to date.

In May, we acquired the customer base and goodwill and related assets of Flowers Direct, one of the UK's leading flower delivery companies, for a total consideration of £2.95m. Today, we are announcing the acquisition of Drake Algar, one of London's premier florists, for an initial consideration of £0.50m and the proposed acquisition of the Garden Centre Online, an online retailer of gardening hardware, for £0.13m. We have agreed the principal terms of this transaction and have been granted a period of exclusivity until the end of September to enable us to complete the formal documentation. We expect to be able to complete this acquisition before the end of August.

 

We are also announcing the proposed sale of Benham, our collectibles business. We have entered into heads of agreement in respect of this sale, which is conditional on a number of factors. We expect the sale to complete in the first half of September this year.

 

We are also actively seeking a distribution partner for Listen2, our catalogue-based audio books and nostalgic music retailer, to turn it into a more broad-based online retailer of entertainment products

 

We are pleased to announce that Flying Brands is to return to paying dividends with the payment of an interim dividend of 1.6p a share.

 

Financial Results

 

Benham has been treated as a discontinued business in presenting these results. The results of Flowers Direct from 24 May, the date on which we acquired that business, are included in the continuing business results.

 

Flying Brands delivered a profit before tax for the period from the continuing business, excluding one-off redundancy costs (£0.17m), the legal costs associated with acquiring Flowers Direct (£0.11m) and the Greetings Direct profit (£0.21m), of £1.39m, compared with £1.88m in 2009, on revenue from the continuing business of £15.59m, 6.6% down on 2009.

 

We planned to review the carrying value of the Benham stock at the half-year with regard to recent patterns of stock disposals and this review has also taken into account the expected price to be realised on the planned sale of Benham. Accordingly, a net book loss of £0.90m has been recorded reflecting the realisable value of the stock. Group profit before tax was £0.48m (2009: £2.74m) with Benham profits lower by £1.01m (including the £0.90m write down), the winding down Greetings Direct business contributing £0.62m of the shortfall and the remainder being lower profits in the Garden Division.

 

As a result, the basic earnings per share of 1.47p compares to 10.12p in 2009. Adjusting for the stock write down, one-off costs and Greetings Direct gives an adjusted earnings per share of 5.28p (2009: 6.72p). Our gross cash balance at the end of the half-year was £1.15m (2009: £2.14m) with bank loans of £1.38m (2009: £4.28m). There is also an outstanding loan note of £1.45m relating to the deferred consideration of Flowers Direct. We therefore had net debt at the end of the period of £1.68m (2009: £2.14m).

The Board is also announcing the payment of an interim dividend of 1.6p a share to be paid on 24 September 2010 to those shareholders on the register at 20 August 2010. The level of interim dividend takes into account the balance of profitability of the Group between the first and second half of the year and also the intention of the Board to sustain a progressive dividend policy.

 

Proposed disposal of Benham

 

At the time of the announcement of our 2009 results we laid out a clear strategy: to focus on our core business of direct home shopping, offering value for money products in gardening and gifts, whilst also maximizing the value of our entertainment and collectibles brands.

 

The Board conducted a strategic review of the Group in the light of that strategy and came to the conclusion that Benham did not fit in with the other brands in the Group. The Board took the view that the best way of maximising the value of Benham, the Group's collectibles brand, was to sell it to free up capital and resources to invest in the core businesses of gardening and gifts.

 

Accordingly, we have entered into heads of agreement for the sale of Benham. We have granted a period of exclusivity until the end of September to allow for the negotiation of the detailed terms of the sale.

 

The net assets reflect a fair value adjustment of £0.90m in relation to the value of stock. Benham contributed £1.27m (2009: £1.52m) of sales in the period and contributed a net loss before tax of £0.85m (2009: profit of £0.16m). Benham's full year contribution to the Group results in the period ended 1 January 2010 was revenue of £2.96m and a profit before tax of £0.41m.

 

We expect the sale of Benham to be completed in the first half of September.

 

Acquisitions and Proposed Acquisiton

 

In May 2010, we announced the acquisition of Flowers Direct. This significantly strengthened our online business and has given us access to our own relay network of florists. Although there will be substantial cost savings arising from the combination of the two businesses the primary purpose of the acquisition was to provide a strong platform for future growth particularly in the online and relay markets.

 

The acquisition of Drake Algar is a continuation of that strategy. Drake Algar is one of the premier florists in London and will greatly strengthen our design capabilities. Tash Khan, who was a major shareholder and chief executive of Drake Algar, will join our senior management team with a specific remit to develop and improve our relay network and also to build up our corporate and third party business.

 

The Group will acquire Drake Algar for an initial consideration of £0.5m, acquiring net assets of £0.05m. In the 12 months to 31 March 2010, Drake Algar's revenue was £0.53m generating an operating profit of £0.10m. Further consideration will be paid during 2012 based on the performance of the business in the next 18 months.

 

Our Garden Division now has over 370,000 active customers. We are actively exploring a number of ways to extend our relationship with those customers and to offer them a wider range of products outside our traditional range of bedding plants. We have also been seeking ways to extend our online sales in this area.

 

As part of this strategy, we have agreed, subject to contract, to acquire the Garden Centre Online. The Garden Centre Online is an internet retailer selling gardening hardware products ranging from products related to grow your own gardening to garden furniture. This will add greatly to the range of products we can sell our existing customers.

 

The consideration to be paid is expected to be £0.13m. The turnover of the business in the 12 months to August 2009 was £1.25m which generated a loss before tax of £0.11m. It is anticipated that for the period to 31 August 2010, sales will be similar to 2009 with a small loss before tax.

 

Current trading and outlook

We remain confident in the prospects for our gardening business despite the difficult trading conditions this year. The first half of this year has highlighted the need to diversify away from over-reliance on early season bedding plants and the proposed acquisition of the Garden Centre Online is one of the steps we have taken to address this issue. We have also appointed Chris Turner as Commercial Director with a brief to broaden our product range and to extend our selling season. We saw a significant increase in both sales and contribution in June compared to last year and we have a number of other initiatives lined up for the coming months.

 

The acquisition of Flowers Direct has strengthened our Gifts Division and brought with it expertise in online retailing and access to our own florist relay network. The coming months will see us start to take advantage of these assets.

 

The planned disposal of Benham would give us further funds for investment in growing our core businesses, both organically and by acquisition, where appropriate.

 

The first half of this year saw a significant increase in the volume of internet sales in both our core divisions. We have recognised the growing importance of online retailing by appointing Michael Duffy, formerly managing director of Flowers Direct, as Group Marketing Director. Michael has over 10 years experience in online marketing and we are confident that his appointment will accelerate our transition to a predominantly online retailer.

 

Tim TrotterChairman

11 August 2010

Business Review

 

Operating Results for The Period

 

Continuing Business

 

The Group's trading performance in the first half of the year reflected the difficult trading conditions in the gardening sector as a whole caused largely by the poor weather for much of the crucial spring trading season. We believe that in these challenging circumstances the performance of our Garden Division held up well. We were pleased by the strong performance of Gardening Direct in May and June, which in previous years has been a time of very low sales in that business. We were also pleased by very strong customer recruitment in gardening and also by strong growth in internet sales in both our core divisions, Garden and Gifts.

 

Following the strategic review and the decision to seek a purchaser for Benham that business has been treated as a discontinuing business in presenting these results. The results include those for Flowers Direct from 24 May, the date on which we acquired that business.

 

Operating profit, excluding one-off items and Greetings Direct, from the continuing business was £1.44m compared to £2.00m in 2009. Revenue from the continuing business was £15.59m compared to £16.69m. This shortfall was in part a reflection of our continuing focus on profitable sales, particularly in the Gifts Division.

 

Garden Division

 

Sales in the Garden Division were slightly down on last year at £11.06m compared to £11.25m last year. Operating profit was £1.73m compared to £2.19m last year.

 

Gardening

Sales in our core Gardening Direct business were flat compared to last year as a result of our having made up the shortfall that we reported earlier in the season. Contribution margin in this business was affected by a significant increase in fuel costs, partly as a result of an increase in the price of oil compared to last year and partly as a result of the need to use more fuel because of the colder weather during the crucial stages of growing our small plants and also saw an increase in over 10 % in postal delivery costs.

 

We also made the decision to continue to invest heavily in customer recruitment in Gardening Direct and in our new brand Jersey Bedding Plants. We recruited 74,000 new gardening customers (2009: 52,000) and our active database for gardening now stands at 333,000 compared to 299,000 in 2009.

 

Sales and contribution in Gardening Direct were also affected by crop failure during a period of stormy weather. We are currently in dispute with our insurers as to whether or not these losses are covered by our insurance policy. If we were successful in this claim this would result in a material improvement in the financial performance of Gardening Direct.

 

Internet sales for this brand increased from £1.74m to £2.16m and now account for 25.5% of all sales (2009: 19.4%).

 

Garden Bird Supplies

Sales in Garden Bird Supplies (GBS) declined from £2.27m in 2009 to £2.13m but profitability doubled from £0.21m to £0.38m as we reduced the number of customer mailings and recruitment activity in the first half. The number of active customers declined from 42,000 to 39,000 and improving the performance of this brand will be one of our priorities in the second half of the year.

 

We grew internet sales for this brand and these now account for a third of all sales.

 

 

 

Garden Financial

		2010	2009
		£m	£m
Divisional revenue		11.06	11.25
Made up of Gardening		8.93	8.98
GBS		2.13	2.27
Operating Profit excluding one-offs		1.73	2.19
Made up of Gardening		1.35	1.98
GBS		0.38	0.21
Contribution margin %		27.1%	32.0%
Gardening		25.8%	33.5%
GBS		32.5%	25.7%
Customer information
		2010	2009
		'000	'000
Active Database		372	341
made up of Gardening		333	299
GBS		39	42
New customers		82	60
made up of Gardening		74	52
GBS		8	8
On-line revenue as % of sales		27.1%	21.6%
made up of Gardening		25.5%	19.4%
GBS		33.3%	30.2%

 

Gifts Division 

 

Year-on-year comparisons for Flying Flowers continue to be affected by our decision not to chase unprofitable sales and to absorb the impact of the increased VAT when moving postal flower despatch to the UK.

 

Revenue for this brand was therefore £3.39m compared to £4.43m in 2009. Contribution margin worsened partly as a result of the loss of the VAT benefit and partly as result of an unsuccessful advertising campaign for Valentine's Day. We learned valuable lessons from that failure and we were much more pleased with our Mother's Day campaign which saw a very significant increase in profitability compared to last year.

 

We also grew substantially our internet sales in this brand and these accounted for half of all sales in the period.

 

Flowers Direct was acquired during the period. This was the first step in a strategy for greatly enlarging and improving our Gifts Division. In the six weeks of our ownership Flowers Direct sales were £0.31m and it made a small loss of £0.06m. Flowers Direct is an internet brand and over 82% of its sales are generated via the Web.

 

 

Gifts Financial

	2010	2009
	£m	£m
Divisional revenue	3.70	4.43
made up of Flying Flowers	3.39	4.43
Flowers Direct	0.31	-
Operating Loss excluding one-offs	(0.32)	(0.20)
made up of Flying Flowers	(0.26)	(0.20)
Flowers Direct	(0.06)	-
Contribution margin %	13.7%	15.5%
Flying Flowers	12.5%	15.5%
Flowers Direct	26.5%	-

 

Customer information
	2010	2009
	'000	'000
Active Database	304	268
made up of FF	201	268
FD	103	-
New customers	28	23
made up of FF	24	23
FD	4	-
On-line revenue as % of sales	52.5%	33.2%
made up of FF	49.8%	33.2%
FD	82.0%	-

 

Entertainment Division

 

Benham is treated as a discontinued business in these accounts and its sales and profits continued to decline. Operating profit, before the charge for the fair value adjustment to stock, was £0.06m (2009: £0.16m). Sales at Listen2 continued to decline although we did see a significant increase in its contribution margin. We are also actively seeking a distribution partner for the Listen2 business to turn it into a more broad-based online retailer of entertainment products.

 

Entertainment Financial

	2010	2009
	£m	£m
Divisional revenue	2.10	2.54
made up of L2	0.83	1.02
Benham (discontinuing)	1.27	1.52
Operating Profit excluding one-offs	0.08	0.17
made up of L2	0.02	0.01
Benham (discontinuing)	0.06	0.16

 

 

Condensed consolidated income statement for the 26 weeks ended 2 July 2010

 

			Total	On-going	Greetings	Total
			Group	business	Direct	Group
			26 weeks	26 weeks	26 weeks	26 weeks
			to 2 July	to 3 July	to 3 July	to 3 July
			2010	2009	2009	2009
	notes		£'000	£'000	£'000	£'000
Continuing Operations
Revenue	4		15,855	16,687	1,519	18,206
Cost of Sales			(11,600)	(12,154)	(426)	(12,580)
Gross Profit			4,255	4,533	1,093	5,626
Operating Expenses			(2,879)	(2,672)	(259)	(2,931)
Operating (loss)/profit			1,376	1,861	834	2,695
Finance Expense			(60)	(129)	-	(129)
Finance Income			12	12	-	12
Profit before tax	4		1,328	1,744	834	2,578
Taxation	3		(76)	(175)	-	(175)
Profit from continuing operations			1,252	1,569	834	2,403
(Loss)/profit from discontinuing operation (net of tax)	9		(849)			114
Profit for the period			403			2,517
Earnings per Share expressed in pence per share
Basic	6		1.47p			10.12p
Diluted	6		1.44p			10.10p

 

Condensed consolidated balance sheet as at 2 July 2010

			2 July	3 July	1 January
			2010	2009	2010
	notes		£'000	£'000	£'000
Non Current Assets
Goodwill			4,781	3,882	3,882
Intangible Assets			3,224	491	796
Property, plant and equipment			4,575	5,207	4,838
Deferred Tax			129	163	153
Total Non Current Assets			12,709	9,743	9,669
Current Assets
Inventory			702	3,249	2,922
Current income tax receivable			116	-	136
Trade and other receivables			151	765	598
Prepayments			323	478	518
Cash			1,149	2,144	4,325
Assets classified as held for sale	9		1,500	-	-
Total Current Assets			3,941	6,636	8,499
Current Liabilities
Current income tax liabilities			-	(184)	-
Bank Loan and overdrafts			(1,128)	(1,900)	(1,578)
Trade payables			(1,745)	(1,570)	(3,167)
Accruals and other payables			(882)	(1,685)	(2,109)
Total Current Liabilities			(3,755)	(5,339)	(6,854)
Net Current Assets			186	1,297	1,645
Non Current Liabilities
Loans and borrowings			(1,702)	(2,381)	(753)
Total Non Current Liabilities			(1,702)	(2,381)	(753)
Net Assets			11,193	8,659	10,561
Ordinary Shares			282	254	280
Share premium			18,059	16,178	17,916
Capital reserve			(17)	(17)	(17)
Capital Redemption Reserve			22	22	22
Forex Reserve			-	(47)	(44)
Retained Earnings			(7,153)	(7,731)	(7,596)
Total Equity			11,193	8,659	10,561

 

Condensed consolidated statement of comprehensive income for the 26 weeks ended 2 July 2010

		26 weeks to	26 weeks to	52 weeks ended
		2 July 2010	3 July 2010	1 January 2010
		£'000	£'000	£'000
Profit for the period		403	2,517	2,597
Other comprehensive income
Foreign currency translation differences on foreign operations		44	19	22
Total comprehensive income for the period		447	2,536	2,619

 

Condensed consolidated statements of changes in shareholders' equity for the 26 weeks ended 2 July 2010

 

Group

 

								Capital	Foreign
		Share		Share		Capital		Redemption	Exchange	Retained	Total
		Capital		Premium		Reserve		Reserve	Reserve	Earnings	Equity
		£'000		£'000		£'000		£'000	£'000	£'000	£'000
Balance at 2 January 2009		254		16,178		(17)		22	(66)	(10,256)	6,115
Profit for the period		-		-		-		-	-	2,517	2,517
Foreign currency translation differences
on foreign operations		-		-		-		-	19	-	19
Total comprehensive income (restated)		-		-		-		-	19	2,517	2,536
Transactions with owners recorded
directly in equity
Employee share incentives		-		-		-		-	-	8	8
Total transactions with owners		-		-		-		-	-	8	8
Balance at 3 July 2009		254		16,178		(17)		22	(47)	(7,731)	8,659
Profit for the period		-		-		-		-	-	80	80
Foreign currency translation differences on foreign operations		-		-		-		-	3	-	3
Total comprehensive income		-		-		-		-	3	80	83
Transactions with owners recorded
directly in equity
Employee share incentives		-		-		-		-	-	41	41
Deferred tax on employee share incentives		-		-		-		-	-	14	14
Shares issued		26		1,738		-		-	-	-	1,764
Total transactions with owners		26		1,738		-		-	-	55	1,819
Balance at 1 January 2010		280		17,916		(17)		22	(44)	(7,596)	10,561
Profit for the period		-		-		-		-	-	403	403
Foreign currency translation differences on foreign operations				-		-		-	44	-	44
Total comprehensive income	-			-		-		-	44	403	447
Transactions with owners recorded directly in equity
Employee share incentives	-			-		-		-	-	40	40
Shares issued	2			143		-		-	-	-	145
Total transactions with owners	2			143		-		-	-	40	185
Balance at 2 July 2010	282			18,059		(17)		22	-	(7,153)	11,193

 

Condensed consolidated statement of cash flows for the 26 weeks ended 2 July 2010 

 

		26 weeks	26 weeks	52 weeks
		to 2 July	to 3 July	to 1 January
		2010	2009	2010
	notes	£'000	£'000	£'000
Profit for the period		403	2,517	2,597
Adjustment for
Profit less losses on sale of property, plant and equipment		-	12	42
Taxation		76	219	77
Depreciation		368	425	820
Amortisation		84	60	123
Unrealised exchange gains		44	19	22
Decreases/(Increases) in inventories		1,005	370	697
Decreases/(Increases) in receivables		519	453	580
(Decreases)/Increases in payables		(2,879)	(2,752)	(732)
Net finance expenditure/(income)		53	123	226
Share based payments		40	8	49
Cash generated (used in)/generated from operations		(287)	1,454	4,501
Interest received		12	12	13
Interest paid		(70)	(135)	(237)
Tax Paid		(51)	(407)	(561)
Net cash (used in)/generated from operating activities		(396)	924	3,716
Cash flows from investing activities
Purchase of property, plant and equipment		(168)	(55)	(133)
Purchases of intangible asset - software		(357)	-	(368)
Disposal Proceeds		-	35	56
Acquisition of assets of new business	8	(2,895)	-	-
Net cash used in investing activities		(3,420)	(20)	(445)
Net proceeds from issue of Ordinary share capital		145	-	1,764
New loans raised	8	1,445	-	-
Repayment of Borrowings		(950)	(979)	(2,929)
Dividend paid to shareholders		-	-	-
Net cash (used in)/generated from financing activities		640	(979)	(1,165)
Net (decrease)/increase in cash and cash equivalents		(3,176)	(75)	2,106
Cash and cash equivalents at the beginning of the period		4,325	2,219	2,219
Cash and cash equivalents at the end of the period		1,149	2,144	4,325

 

Notes to the condensed consolidated interim financial statements for the 26 weeks ended 2 July 2010

 

1 Accounting policies

1.1 Reporting entity

These Financial Statements are the unaudited Condensed Consolidated Interim Financial Statements (hereafter "the Interim Financial Statements") of Flying Brands Limited, a company registered in Jersey, and its subsidiaries (hereafter "the Group") for the 26 weeks ended 2 July 2010 (hereafter "the interim period").

 

These Interim Financial Statements have been prepared under IFRS applying the accounting policies published in the Group's IFRS Financial Statements for the 52 weeks ended 1 January 2010, published on 11 March 2010, except as disclosed below.

 

1.2 Statement of compliance

These Interim Financial Statements have been prepared on the basis of the recognition and measurement requirements of IFRS in issue that are either endorsed by the EU and effective (or available for early adoption) at 1 January 2010. These Interim Financial Statements have been prepared in accordance with IAS 34, Interim Financial Reporting.

 

These Interim Financial Statements should be read in conjunction with the Consolidated Financial Statements for the 52 weeks ended 1 January 2010 (hereafter "the Annual Report and Accounts"), as they provide an update of previously reported information. They were approved for issue by the Board of Directors on 11 March 2010.

 

The comparative figures for the 52 weeks ended 1 January 2010 are not the Company's statutory accounts for the financial year. These accounts have been reported on by the Company's auditors and delivered to both the UK Financial Services Authority and the Jersey Financial Services Commission. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498 (2) or (3) of the UK Companies Act 2006.

 

1.3 Significant accounting policies

Except as described below, the accounting policies applied by the Group in these Interim Financial Statements are the same as those applied by the Group in its Annual Report and Accounts as at and for the 52 weeks ended 1 January 2010.

 

1.4 Change in accounting policies

Business combinations - IFRS 3 (revised) has been applied in respect of the acquisition of Flowers Direct. The professional expenses incurred in relation to that acquisition has been expensed through the Interim Consolidated Income Statement.

 

1.5 Estimates

The preparation of Interim Financial Statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities at the date of the Interim Financial Statements. If in future such estimates and assumptions, which are based on management's best judgement at the date of the Interim Financial Statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change.

 

The Group operates in a sector where significant seasonal or cyclical variations in total sales and profits are experienced during the financial year.

 

1.6 Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. An operating segment's operating results, for which discrete financial information is available, are reviewed regularly by the Group's Board to make decisions about resources to be allocated to the segment and assess its performance.

 

Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly interest and income tax assets and liabilities.

 

2 Basis of preparation

 

The Company's 2009 Annual Report and Accounts, which was approved by the Board on the 11 March 2010, included information on the business environment in which the Group operates, including the factors that are likely to impact the future prospects of the Group, together with the principal risks and uncertainties that the Group faces. In addition, the notes to the consolidated financial statements set out the Group's objectives, policies and processes for managing its financial and capital risk and its exposures to credit, market and liquidity risk. Many of these risks and uncertainties reported in the 2009 Annual Report and Accounts are such that their potential to impact the Group's operations are inherent and remain valid as regards to their potential impact during the second half of 2010. The impact of the economic environment in which the Group's businesses operates are considered in the Chairman's statement and Chief Executive's report.

 

The Group has a treasury loan facility with Barclays Wealth on which there is £1,381,000 outstanding at 2 July 2010 (1 January 2010: £2,331,000). The Group issued a loan note of £1,500,000 on 24 May 2010, in favour of Zeus Private Equity, in relation to deferred consideration for the acquisition of the assets of Flowers Direct. This amount becomes payable in August 2011. There is no interest accruing on this loan.

 

The Directors have prepared trading and cash flow forecasts for a period of one year from the date of approval of these Interim Financial Statements. The forecast is based on assumptions in respect of future trading, in particular, revenue and gross margins being consistent with the first half of 2010. The Directors have a reasonable expectation that the Group has adequate cash headroom and expects to meet all banking within its covenant requirements. Accordingly, they continue to adopt a going concern basis in preparing the financial statements of the Group.

 

3 Income tax expense

The interim tax charge is based on a full year forecast tax rate for the Group, which generates an estimated charge of £76,000 (2009: £219,000) which is an effective rate of 11% (2009: 8%).

 

4 Segmental analysis

The Group has four reportable segments as described below which are the Group's strategic business units. These business units offer different products and services, and are managed separately because they require different marketing and operational strategies.

 

For each of the strategic business units the CEO reviews internal management reports on a monthly basis.

 

 

Segment Result

 

		Gifts		Greetings	Continuing	Discontinuing	Total
	Garden	Flowers	Entertainment	Direct	Operations	Entertainment	Group
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
26 weeks ended 2 July 2010
Revenue	11,064	3,696	831	264	15,855	1,270	17,125
Reportable segment profit before interest and tax	1,730	(316)	25	212	1,651	59	1,710
Redundancy and reorganisation					(168)	-	(168)
One-off acquisition costs					(107)	-	(107)
Fair value stock write down					-	(903)	(903)
Interest payable					(60)	(5)	(65)
Interest receivable					12	-	12
Profit before tax					1,328	(849)	479

 

 

Segment Result

 

		Gifts		Greetings	Continuing	Discontinuing	Total
	Garden	Flowers	Entertainment	Direct	Operations	Entertainment		Group
	£'000	£'000	£'000	£'000	£'000	£'000		£'000
26 weeks ended 3 July 2009
Revenue	11,245	4,425	1,017	1,519	18,206	1,518		19,724
Reportable segment profit before interest and tax	2,187	(197)	11	834	2,835	164		2,999
Redundancy and reorganisation					(140)	-		(140)
Interest payable					(129)	(6)		(135)
Interest receivable					12	-		12
Profit before tax					2,578	158		2,736

 

There is no inter-segment revenue to report.

 

5 Dividends

There were no dividends paid in the period (2009: £nil). An interim dividend is proposed of 1.6p (2009 - nil) per share, which is a value of £449,000. This will be paid to members on the register on 20 August and executed on 24 September 2010.

 

6 Earnings per ordinary share

Basic

Basic 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.

 

	2 July			3 July		1 January
	2010			2009		2010
Profit attributable to equity holders of the Company (£'000)	403			2,517		2,597
Weighted average number of shares in issue, less weighted
average number of treasury shares ('000)	27,471			24,868		25,240
Basic earnings per share	1.47 p			10.12p		10.29p

 

Adjusted

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.

 

		2 July		3 July		1 January
		2010		2009		2010
		£'000		£'000		£'000
Earnings used to calculate basic and diluted EPS		403		2,517		2,597
Profit attributable to Greetings Direct after tax		-		(834)		(1,100)
Redundancy and reorganisation costs		121		101		275
One-off acquisition costs		77		-		-
Discontinuing operations		849		(114)		(344)
Earnings before exceptional items		1,450		1,670		1,428
Basic earnings per share before exceptional items		5.28p		6.72p		5.66p

 

Diluted

Diluted earnings per share are 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: LTIP awards.

 

The calculation is performed for the LTIP awards 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 awards. 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 awards.

 

 

	2 July			3 July	1 January
	2010			2009	2010
Profit attributable to equity holders of the Company (£'000)	403			2,517	2,597
Weighted average number of shares in issue ('000)	27,471			24,868	25,240
Adjustment for options ('000)	556			55	430
Weighted average number of ordinary shares for diluted eps ('000)	28,027			24,923	25,670
Diluted earnings per share	1.44p			10.10p	10.12p

 

7 Related party transactions

Mr S S Cook, the Group's Chief Executive, acquired a further 35,000 units of the share capital of the Company on 21 April 2010 and now holds 11.46% of the Company's share capital. On 20 April 2010 Mr J P Henwood, a Non-Executive Director of the company and Mr A M Gee, the Group Finance Director, acquired a further 30,000 and 20,000 units respectively in the company. Mr Henwood's holding represents 0.14% and Mr Gee's holding represents 0.07% of the Company's share capital.

 

All other material related party transactions were consistent to those disclosed in the 2009 Annual Report and Accounts.

 

8 Acquisition of the assets of Flowers Direct

On 24 May 2010, the Group purchased from the administrator of Flowers Direct Online Limited some assets including the web domains, trademarks, computer systems and assets to enable it to run a florist relay network. The purchase will enable the Group to increase the scale of its Gifts Division and gives the Group a brand whose customers are complementary to those of its existing Gifts business.

 

In the six weeks since the acquisition Flowers Direct contributed revenue of £313,000 and a loss of £63,000. As the Group only bought assets of the business we are unable to determine the revenue and profit that would have been generated if the business had been owned since 2 January 2010.

 

The following summarises the consideration paid for assets acquired:

 

	£'000
Purchase consideration
- Cash paid	1,450
- Loan note issued	1,445
Total purchase consideration	2,895
Fair value of net assets acquired	1,996
Goodwill	899

 

 

The loan note was issued on 24 May 2010 and is repayable by 31 August 2011. The amount due for payment is £1,500,000 and is interest free. The amount disclosed above is the fair value of the loan note discounted at the Group's current borrowing rate. The preliminary fair value of the assets and liabilities acquired as part of the acquisition are shown below:

 

 

 

 

 

 

 

 

	Balance sheet	Fair value	Adjusted
	value	adjustments	balance sheet
	£'000	£'000	£'000
Trade debtors	84	(27)	57
Software (included in intangibles)	466	(27)	439
Customer lists (included in intangibles)	--	100	100
Florist relay network (included in intangibles)	-	1,618	1,618
Trade payables	(218)	-	(218)
	332	1,664	1,996

 

 

The customer list valuation has been based on the customers acquired (103,000 active customers), the retention rates and the anticipated revenue. This has been discounted at the Group's weighted average cost of capital (WACC) 9.64%.

 

The florist relay network has been valued based on the recognised attrition rate for florists leaving the network, the average income received from florists and also the revenue generated from Flowers Direct web sites for which orders are fulfilled by the florist network. This revenue has been discounted at the Group's WACC of 9.64%.

 

9 Discontinuing operation

Management has decided that the Benham operation is not a part of its core growth strategy and that the Benham business be offered for sale. As a result at the balance sheet date the segment has been classified as held for sale and discontinuing operation. The comparatives in the Group income statement have been re-presented to show the discontinuing operation separately from the continuing business. The planned sale values the assets below their carrying value. This is primarily based around a lower stock valuation and therefore the value of the stock has been written down by £903,000.

 

Results of the discontinuing operation

	2 July	3 July
	2010	2009
	£'000	£'000
Revenue	1,270	1,518
Expenses	(2,119)	(1,360)
Results from operating activities	(849)	158
Tax	-	(44)
Effect on profit for the period	(849)	114
Basic (loss)/earning per share	(3.09)p	0.46p
Diluted (loss)/earning per share	(3.03)p	0.46p
Cash flow from discontinuing operations
Net cash from/(used in) operating activities	394	(99)

 

 

Assets held for sale

 

	Book value		Fair value	Carrying value
			adjustment	at 2 July 2010
	£'000		£'000	£'000
Plant and equipment	62		-	62
Customer lists	2		-	2
Trade and other receivables	197		-	197
Deferred tax assets	24		-	24
Inventory	2,118		(903)	1,215
Assets held for sale	2,403		(903)	1,500

 

10 Post balance sheet events

 

On 22 July 2010 the Group agreed to borrow £3,000,000 from Barclays Wealth, a subsidiary of Barclays Bank plc, repayable over a period of 3 years at an interest rate 2.25% above Libor. This loan will refinance the existing loan facility of £1,381,000 and help the Group to meet its liabilities arising from the purchase of Flowers Direct. As yet the Group has not drawn down on this facility.

 

On 10 August 2010 the Group acquired 100% of the share capital of Arrossisca Limited, which trades as Drake Algar, an upmarket florist, for £500,000, acquiring net assets with a book value of £47,000. In the 12 months to 31 March 2010, Drake Algar's revenue was £0.53m generating an operating profit of £0.10m. Further consideration will be paid during 2012 based on the performance of the business in the next 18 months up to a maximum of £200,000.

 

 

 

 

 

Responsibility Statement of the Directors in respect of the Condensed Consolidated Interim Financial Statements

 

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU

 

• The interim management report includes a fair review of the information required by:

 

a:DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first 26 weeks of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining 26 weeks of the year; and

b:DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first 26 weeks of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

 

S S Cook Chief Executive A M Gee Finance Director

11 August 2010 11 August 2010

 

 

 

 

 

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