Last checked at 31 Jul 2009 07:00
FLYING BRANDS LIMITED
Interim Results for the 26 weeks to 3 July 2009
31 July 2009, Jersey. Flying Brands Limited (LSE: FBDU), the multi channel retailer, today announces interim results for the 26 weeks ended 3 July 2009.
Summary
Improved trading performance and benefits from cost reduction and efficiency programme
Profit before tax from ongoing business increased to £1.90m (2008: £1.07m)
Group profit before interest, tax and impairment increased to £2.86m (2008: (£0.30m))
Basic Earnings Per Share was 10.1p (2008: loss (48.8p))
Sales from ongoing business flat on a like-for-like basis with Gardening Direct showing an 8% like-for-like increase in sales in the key Spring season
Profit before interest and tax for the Garden Division increased by over a third to £2.11m (2008: £1.53m)
Sales at Flying Flowers down 7% but cost control and improved operational efficiency reduced loss before interest and tax to (£0.25m) (2008: (£0.51m))
Profit before interest and tax in Entertainment Division flat at £0.17m
The Group's overall active database grew by 2% in the first half of 2009 with Gardening Direct recruiting over 52,000 new customers in the period
Significant reduction in net debt from £4.1m (June 2008) to £2.1m
Strong cash generation of £0.92m from operating activities (2008: net cash loss of £0.98m)
Anthony Gee appointed Group Finance Director
Commenting on today's announcement, Stephen Cook, Chief Executive, said:
"These results reflect an improved trading performance and the first benefits from the cost reduction and efficiency programmes that we have implemented. We are particularly pleased with the performance of our Garden division, where we grew active customers, sales and profits.
"The second half performance is dependent on a small number of key campaigns the results of which have become more difficult to predict in recent years. However, we remain confident that the first half improvement can be continued in the second half of the year."
For further information, please contact:
Flying Brands Limited 0844 884 6465
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 home shopping
group. 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, the UK's largest flowers by post brand, despatching over 700,000 bouquets a year)
* Garden (Gardening Direct, one of the UK's largest mail order bedding plants and gardening products operations; Garden Bird Supplies, a leading provider of food and accessories for birds and other wildlife )
* Entertainment (Listen2, a mail order audio books, DVD and music distributor; Benham, the collectables specialist)
More information can be found at: www.flyingbrands.com
Chairman's statement
Business Summary
The first half of 2009 has seen the Group's trading performance improve in comparison to 2008. It is very pleasing that despite the poor general economic conditions, Flying Brands has delivered a profit before tax from ongoing business of £1.90m compared to £1.07m in 2008 (after restating marketing expenditure). Revenue from the ongoing business was £18.21m, 4% down on 2008. We saw our revenues in the Garden division grow by 1% despite the loss of the Sarah Raven brand which generated £0.67m of sales in 2008. We were very encouraged by the performance of Gardening Direct in the critical spring trading season, where sales increased by 8%. We saw sales decline between 7% and 15% in our Gifts and Entertainment businesses respectively and these divisions were affected not only by the general economic conditions but by a smaller number of active customers. However, thanks to a very successful Spring gardening recruitment campaign in the national press we did see the Group's overall active customer database grow in the first half of 2009 by 2%, something we have not achieved for several years.
We are now beginning to see the benefits of the cost reduction programme. Our contribution margin has improved in the first half of 2009 as we have improved operating efficiencies in our call centre, growing and despatch operations. We are also seeing benefits from the price increases implemented in the second half of 2008 and the decision not to discount product in our key peak trading seasons. This resulted in profit before interest and tax from ongoing business growing 70% to £2.03m.
In July 2008 we announced the decision to close the Greetings Direct business, which resulted in an impairment of the goodwill value of £11.58m. During the first half of 2009 we continued to supply existing customers, as planned, with products in both the UK and Australia. The performance of the business in this period has been much better than our expectations. These customers have remained with the business longer than we anticipated and are much better payers and return fewer products than expected. As a result the business has generated a profit of £0.83m and also contributed to our improved operating cash position. The number of customers in Australia has now reached a point where they are no longer profitable to retain so we ceased mailing those customers in June 2009. However, we have decided to extend product mailings to customers in the UK until December 2009.
The basic earning per share of 10.1p compares to a loss per share of 48.8p in 2008. Net cash generated from operating activities was £0.92m compared to net cash loss of £0.98m in 2008. Overall net debt stood at £2.14m at 3 July 2009 compared to £4.13m at 27 June 2008 and £3.04m at the year end. However, the Board has considered the Group's strategy and the current general economic conditions and does not recommend the payment of an interim dividend (2008 - £nil).
Outlook and strategy
The current economic crisis, although having some effect on the Group, has been less severe on this business than others. In our Annual Report and Accounts we stated that we felt that gardening performs well in a recession and that has been reflected by the success of Gardening Direct in the first half. Our other businesses, particularly Flying Flowers, have suffered from lower demand and we realise that there are still many challenges facing the Group, both from the general economic conditions and specific trading issues for particular divisions.
The Group has embarked on a cost cutting programme which was implemented by Stephen Cook, after his appointment as Chief Executive. In the first half of the year this focussed on reducing staff overheads, generating continued operational efficiencies and reviewing areas of large spend such as our marketing expenditure programme. It is hoped that we will see some benefit from these initiatives in the second half of this year but more likely the effect will become clearer in 2010. We will continue to review the cost base and more savings will be sought in the second half of this year.
However, the Board realises that cost cutting will not promote long term growth in the business and Stephen, the Board and the senior management team are working on producing a strategy which will aim to bring revenue growth back to the Group. We were very encouraged by the success of our off-the-page advertising campaign for Gardening Direct in the Spring and were pleased that customer numbers did grow in the first half. Further opportunities to increase our customer numbers, extend our product range and increase the value we extract from our key database asset will be the focus from now on. We have restructured the marketing function to focus much more on the creative message rather than the routine task of producing catalogues to mail to customers. We have made progress online with internet sales now accounting for 21% compared to 17% in 2008, but we must find ways to attract new customers to our websites to try our brands for the first time.
Financing
2008 was a challenging year for the Group in terms of its financial position and at the year end we reported to you that we had approached our bank to reinstate our overdraft facility of £0.5m and that they had also agreed to relax our loan covenants. I am happy to report that due to the stronger trading performance in the first half of 2009 we have met our covenant targets and our cash position is much better than we expected. Our forecasts for the remainder of 2009 and the early part of 2010 show that the Group has sufficient headroom on its short term cash facilities and that banking covenants should be met in that period. We continue to meet our loan repayments as they fall due.
Board and staff
We welcomed Stephen Cook as Group Chief Executive in February 2009 and he has already begun to implement many changes within the business. On 31 May 2009 Graham Norton resigned his position as Group Finance Director. I would like to thank Graham for his contribution over the past four years. Anthony Gee, previously the Group Financial Controller, was appointed Group Finance Director.
We would like to thank our staff for their continued support and loyalty throughout the past six months.
Tim Trotter Chairman
31 July 2009
Chief Executive's Report
Operating results for period
| 26 weeks to 3 July 2009 | 26 weeks to 27 June 2008 | |||||||||||
| Total | Total |
| ||||||||||
| Garden | Gifts | Entertainment | Ongoing business | Greetings Direct | Total Group | Garden | Gifts | Entertainment | Ongoing business | Greetings Direct | Total Group | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Sales | 11,245 | 4,425 | 2,535 | 18,205 | 1,519 | 19,724 | 11,184 | 4,763 | 2,978 | 18,925 | 5,248 | 24,173 |
| Contribution* | 3,593 | 686 | 852 | 5,131 | 1,093 | 6,224 | 3,043 | 482 | 957 | 4,482 | (883) | 3,599 |
| Overheads | (1,425) | (934) | (687) | (3,046) | (259) | (3,305) | (1,356) | (916) | (762) | (3.034) | (608) | (3,642) |
| Amortisation of Intangibles | (60) | - | - | (60) | - | (60) | (65) | - | (10) | (75) | - | (75) |
| Reorganisation Costs | - | - | - | - | - | - | (96) | (73) | (15) | (184) | - | (184) |
| Profit before interest, tax and impairment | 2,108 | (248) | 165 | 2,025 | 834 | 2,859 | 1,526 | (507) | 170 | 1,189 | (1,491) | (302) |
| Impairment of Goodwill | - | - | - | - | - | - | - | - | - | - | (11,581) | (11,581) |
| Profit/(loss) before interest and tax | 2,108 | (248) | 165 | 2,025 | 834 | 2,859 | 1,526 | (507) | 170 | 1,189 | (13,072) | (11,883) |
| Interest | (123) | - | (123) | (115) | - | (115) | ||||||
| Profit/(loss) before tax |
|
|
| 1,902 | 834 | 2,736 | 1,074 | (13,072) | (11,998) | |||
* The directors manage each division at a contribution level and believe this is a more meaningful measurement than gross profit.
Overview
The Group's performance in the first half of the year reflected the positive trend identified in our interim management statement of 22 April. Profit before tax from the ongoing business for the period was £1.90m compared to £1.07m in 2008. This improvement was driven largely by the success of the renewed recruitment activities in the Garden division that we announced in our 2008 results announcement on 13 March together with the fact that we are starting to see the benefits of our increased focus on cost control and operational efficiency.
Sales in the ongoing business were £18.21m compared to £18.93m in the same period in 2008, although 2008 included £0.67m of sales in the now-closed Sarah Raven business. Sales in our core Gardening Direct business grew by 8% on a like-for-like basis. Sales in our Garden Bird Supplies business also grew by 3% in the period. This strong sales performance in the Garden division was offset by a 7% decline in sales in Flying Flowers and by significant declines in sales in our Listen2 and Benham businesses. The sales performance of Flying Flowers was disappointing and we are taking actions to address this decline, some of which we have detailed below. The declines in sales in Listen2 and Benham were to a large extent the result of our decision to focus more on profitability and cash generation in these businesses.
The results of our greater focus on cost control and operational efficiency are clearly evident in these results. In the first half of 2009 we generated £0.65m more of contribution from £0.72m less of sales. Overall contribution from the ongoing business was £5.13m compared to £4.48m in 2008. All of our brands posted improvements in contribution margin as we realised operating efficiencies in our call centre, growing and despatch operations. We also saw the benefits of the price increases implemented in the second half of 2008 and the decision not to discount product in our key peak trading seasons. The combined effect of these was particularly apparent in Flying Flowers where we improved our contribution margin from 10.1% to 15.5%. This helped that brand to grow its contribution by 42% to £0.69m during a period when its sales fell by 7%.
Our marketing costs as a percentage of sales have not yet seen the same sort of improvement but we have now reorganised our printing and postage procurement operation and we do expect to see a significant benefit from this reorganisation in 2010.
Overheads in the ongoing business remained flat year-on-year. In our most recent interim management statement we announced that we were commencing a reorganisation programme and that we were targeting a reduction in salaried employee costs (which total approximately £3m) of more than 15%. That reorganisation has now largely been completed and overall we have taken approximately £0.60m of salary costs out of the group on an annualised basis. Not all of these salary costs are included in "overheads" but we do expect to see a reduction in the level of overheads over the course of the full year.
We continue to grow our Internet sales both in absolute terms and as a percentage of overall revenues. Our main Internet brands are Flying Flowers, Gardening Direct and Garden Bird Supplies and the Internet accounted for approximately 25% of sales in these brands in the first half of this year. This compares with 22% for the same period last year.
Our successful recruitment campaign in Gardening Direct also meant our active database in Gardening Direct, Garden Bird Supplies and Flying Flowers grew from 589,000 at the beginning of the half year to 610,000 at the end. Gardening Direct recruited over 52,000 names in that period compared to just over 27,000 names in the same period last year. This is the first time for several years that we have increased the size of our active customer base over a six month period.
During the first half of 2009 we continued to supply existing Greetings Direct customers with product. These customers have remained with the business longer than we anticipated and are good payers who return fewer products. As a result the business has achieved a profit of £0.83m. The number of customers in Australia has now fallen to a level where they are no longer profitable to retain so we ceased mailing these customers in June 2009. However, we have decided to extend product mailings to Greetings Direct customers in the UK until December 2009.
Overall our increased operating efficiency resulted in net cash generated from operating activities of £0.92m compared to a net cash loss of £0.98m in the equivalent period in 2008. Overall net debt reduced to £2.14m (compared to £4.13m at 27 June 2008) a reduction of £0.90m in the six month period. Our trade payables also reduced from £3.94m to £1.57m.
Garden
Sales in the Garden division were £11.25m, up from £11.18m in the first half of 2008 that included sales of £0.67m in the now-discontinued Sarah Raven business. Profit before interest and tax was £2.11m compared to £1.53m.
Gardening Direct
Gardening Direct revenue for the half-year was £8.98m an increase of £0.67m over the equivalent period last year. Database sales were flat which in itself was a pleasing result given the lower customer base going into the Spring campaign and the increase in revenues was attributable almost entirely to our successful Spring recruitment campaign. Our customer recruitment sales were up 85% on 2008. At the time of the announcement of our 2008 results we said that our Spring marketing campaign would be closely monitored to ensure that it did not adversely affect overall contribution margins. In fact the Spring marketing campaign, which consisted mainly of traditionally expensive off-the-page advertising in national newspapers, generated an overall positive contribution as opposed to the expected loss.
Our recruitment campaign was centred mainly around our revamped core offering and we believe that its success shows that there is still a healthy consumer interest in our core offering of value for money Spring bedding plants which are attractive to the hobby gardener.
We also saw increased interest in our expanded range of fruit and vegetables and we intend to improve our offering in this area in the Autumn and in next year's Spring selling season. We continue to believe that the increased interest in "grow your own" will lead not only to increased sales of fruit and vegetables but also to an increased interest in "grow your own" ornamental plants as people realise the pleasure to be had in "proper" gardening.
Our active customer base in Gardening Direct now stands at 299,000, an increase of 15% over the six month period. Not only did we recruit considerably more new customers than budgeted but we also improved our reactivation of dormant customers and our retention rate of existing active customers.
Internet sales for this brand continue to increase and now represent 19% of overall sales.
Contribution for this brand increased from £2.44m to £3.01m. This was attributable to increased sales and greater operational efficiency. This led to our contribution margin improving by 4 points to 33.5%. Overall we are very encouraged by the progress made in this brand in the first half.
Garden Bird Supplies
Garden Bird Supplies had a satisfactory first half. Revenues were up marginally at £2.27m compared to £2.21m but contribution increased from £0.49m to £0.58m. Our contribution margin for the period increased from 22.2% to 25.6%. This was partly a result of the price increases we put through in the second half of last year but was also a result of our deliberate policy to switch our customers to larger bag sizes that increase our average order value and improves our operating metrics.
Our active customer base remained flat over the period and Internet sales, as a percentage of overall sales are now 31%
Gifts - Flying Flowers
Revenue for this brand was 7% down at £4.43m which reflected a very poor Mother's Day campaign and the continuing decline in sales for this brand that has now been observed for a number of years.
This decline in sales was temporarily arrested over the last Christmas trading period but at the cost of an unacceptable decline in margins. We have recently concentrated on restoring margins in this brand to an acceptable level and despite a £0.34m fall in sales, contribution increased from £0.48m to £0.69m. This was achieved in a number of ways. Margins have been improved by price increases and a reduction in the number of discounted offers; costs have been tightly controlled; and there has been an improvement in operational efficiency in the call centre and despatch centre.
Response rates have held up reasonably well for our active customer base but we have seen a decline in dormant reactivation and our recruitment efforts so far this year have been disappointing.
It is apparent that the rebranding exercise last year will not of itself be enough to return this brand to profitable customer growth and we are currently undertaking a more thorough review of our product range, pricing and marketing.
As a first step in this exercise we have recently changed the UK-based supplier of our courier range and also introduced a new value courier range. This has resulted in a significant reduction in the complaint rates for our courier range and our new value courier range has accounted for over 10% of sales in its first month.
Entertainment
The Entertainment Division's revenue for the first half of 2009 was £2.54m compared with £2.98m in 2008. Profit before interest and tax at £0.17m was level with 2008.
Listen2
First-half sales at £1.02m were down 16% year-on-year. Margins were maintained and we made good progress with clearing old stock titles. However, marketing costs increased as a percentage of sales and we are currently analysing who, when and what we mail our customers to see if we can be more effective in our marketing communications.
Benham
Sales for the first half in this brand were £1.52m compared to £1.76m last year. This shortfall was attributable mainly to lower trade sales and to lower sales of rare stamps and autographs.
Previous management diversified into rare stamps and autographs because of a perceived decline in interest in Benham's traditional first day covers business. The business has also in the past relied on trade sales for a significant part of its profits.
However, both these areas of business lead to Benham having to maintain a high level of stock that has to be financed and can also lead to the division reporting profits that are not reflected in the amount of cash actually generated by the business.
We are focusing more on the traditional club business and this area showed a 4% increase in revenues during the period. We are exploring ways of turning the clubs into more web-based communities that should lead to an increase in sales and also help to reduce marketing costs.
Tony Grodecki, the managing director of Benham had a long-standing contract that entitled him to 30% of any proceeds arising from the sale of the business and a share of the profits of the business. We do not believe that this arrangement is in the best interests of the long-term profitable management of the Group as a whole.
Mr. Grodecki has recently been promoted to managing director of the Entertainment division as a whole with a brief to increase the efficiency and profitability of that division. His salary package has been improved to reflect the increased responsibility.
In addition we have agreed to buy out Mr. Grodecki's profit sharing arrangements for £125,000 to be satisfied by the issue to him of 208,333 units in Flying Brands at a price of 60p a unit.
The arrangements with Mr. Grodecki will be mildly earnings-dilutive this year but should be earnings enhancing in subsequent years.
Group Performance
The strong performance of the ongoing business together with the better than expected performance of the Greetings Direct business means that group profit before interest, tax and impairment was £2.86m compared to a loss of £(0.30m) in the same period last year.
Outlook and Future Strategy
We have made a good start to our cost-cutting programme and to our drive to increase our overall operational efficiency. We are starting to see the benefits of these already. Their effect will be more marked in the second half of this year but the full benefit will not be apparent until our 2010 financial results.
We continue to seek cost-savings in the business and are confident that we will be able to take further costs out of the business in the second half of the year. We recognise that cost cutting alone will not return this business to long-term growth and we are working hard on initiatives to grow revenues as well.
Our recent restructuring was not simply about reducing costs. It is intended to drive a change in culture throughout the business to place far more emphasis on creative marketing and product development. We are in the process of recruiting a top-flight marketing director and the costs of doing so have been taken into account in our calculation of the amount of the overall salary savings obtained as a result of the recent reorganisation.
Our first half performance has borne out our belief that our Garden division should do relatively well in these times of economic stringency and we are reviewing our range to make sure that it stays in touch with recent trends in gardening.
We believe that our gardening products offer great value for money particularly when compared to the costs of buying more mature product from gardening centres. We also believe that there is a renewed interest in gardening as a hobby. We do not believe that the recent upsurge interest in "grow your own" is confined to fruit and vegetables. We are extending our range in these areas but we are also changing our marketing materials and in particular our website to help existing and future customers to get the most out of gardening as a hobby.
We saw a significant increase in sales in the Garden Bird Supplies business around the time of the BBC's "Springwatch" and continue to be encouraged by the more recent level of sales in this business. We continue to improve our website to make it more informative and entertaining and to increase awareness of the need to feed the birds all the year round and not just in cold weather.
For these reasons, we believe that our Garden division will be the prime driver of growth in the business in the medium-term but we continue to believe that value-for-money gifts should prove attractive even in times of economic hardship.
It is apparent, however, that the current Flying Flowers product simply is not attractive enough to the current market. We will continue to offer great value-for-money postal bouquets for our traditional customers and indeed we intend to increase our levels of service and product quality in this area. However, we recognize the need to make our products more attractive to new customers and to this end we will build on the success of our recently-introduced value-courier range and extend our offerings in this area.
We have also recently signed heads of agreement with Teleflorist, the second largest florist relay network in the UK with over 1,600 participating florists. This will enable us to offer a same-day delivery service by local florists that will complement our existing postal and courier-delivered ranges and will greatly increase the attractiveness of our range to a wider range of potential customers.
Overall we are pleased with the rapid progress we have made in changing the Flying Brands business in the last few months. Our first half performance was significantly better than that of last year and we are starting to put in place the building blocks of future growth. However, the second half of the year is reliant on the Gardening Direct Autumn selling season and on the performance of Flying Flowers in the peak Christmas season. The Autumn selling season is much more difficult to predict than that of Spring and the trading performance of Flying Flowers in recent peak periods has been very disappointing. However, we remain confident that the first half improvement can be continued in the second half of this year.
Stephen Cook
Chief Executive
31 July 2009
Condensed Consolidated Interim Statement of Comprehensive Income
for the 26 weeks ended 3 July 2009
| notes | Ongoing business
26 weeks to 3 July 2009 £'000 | Greetings Direct 26 weeks to 3 July 2009 £'000 | Total Group 26 weeks to 3 July 2009 £'000 | Ongoing business (restated) 26 weeks to 27 June 2008 £'000 | Greetings Direct (restated) 26 weeks to 27 June 2008 £'000 | Total Group (restated) 26 weeks to 27 June 2008 £'000 | Total Group (restated) 53 weeks to 2 January 2009 £'000 | |
| Revenue | 4 | 18,205 | 1,519 | 19,724 | 18,925 | 5,248 | 24,173 | 42,547 |
| Cost of sales | (13,015) | (426) | (13,441) | (14,059) | (6,131) | (20,190) | (34,084) | |
| Gross profit | 5,190 | 1,093 | 6,283 | 4,866 | (883) | 3,983 | 8,463 | |
| Other Operating expenses | (3,165) | (259) | (3,424) | (3,677) | (608) | (4,285) | (8,509) | |
| Impairment of Goodwill | 8 | - | - | - | - | (11,581) | (11,581) | (11,581) |
| Operating profit/ (loss) | 2,025 | 834 | 2,859 | 1,189 | (13,072) | (11,883) | (11,627) | |
| Finance expense | (135) | - | (135) | (218) | - | (218) | (411) | |
| Finance income | 12 | - | 12 | 103 | - | 103 | 127 | |
| Profit/ (loss) before tax | 4 | 1,902 | 834 | 2,736 | 1,074 | (13,072) | (11,998) | (11,911) |
| Taxation | 3 | (219) | - | (219) | (3) | (133) | (136) | (302) |
| Profit/ (loss) for the period | 1,683 | 834 | 2,517 | 1,071 | (13,205) | (12,134) | (12,213) | |
| Earnings/ (loss) per Share expressed in pence per share | 6 | |||||||
| Basic | 10.12p | (48.79)p | (49.11)p | |||||
| Diluted | 10.10p | (48.66)p | (49.11)p |
Footnote:
The statement of comprehensive income relates to continuing operations at 3 July 2009.
Condensed Consolidated Interim Statement of Financial Position
as at 3 July 2009
| notes | 3 July 2009 £'000 | 27 June 2008 (restated) £'000 | 2 January 2009 (restated) £'000 | |
| Assets | ||||
| Non-current assets | ||||
| Goodwill | 8 | 3,882 | 3,882 | 3,882 |
| Intangible assets | 491 | 650 | 551 | |
| Property, plant and equipment | 5,207 | 6,035 | 5,623 | |
| Deferred tax | 163 | 150 | 163 | |
| 9,743 | 10,717 | 10,219 | ||
| Current assets | ||||
| Inventories | 3,249 | 4,307 | 3,619 | |
| Trade and other receivables, net of impairment | 765 | 1,504 | 1,245 | |
| Prepayments | 478 | 857 | 451 | |
| Cash and cash equivalents | 2,144 | 2,046 | 2,219 | |
| 6,636 | 8,714 | 7,534 | ||
| Liabilities | ||||
| Current liabilities | ||||
| Current income tax liabilities | (184) | (339) | (372) | |
| Bank loans and overdraft | (1,900) | (1,900) | (1,900) | |
| Finance Lease liabilities | - | - | (5) | |
| Trade payables | (1,570) | (3,938) | (3,228) | |
| Accruals and other payables | (1,685) | (2,661) | (2,778) | |
| Net current assets/ (liabilities) | 1,297 | (124) | (749) | |
| Non-current liabilities | ||||
| Bank loans | (2,381) | (4,275) | (3,331) | |
| Finance Lease liabilities | - | - | (24) | |
| (2,381) | (4,275) | (3,355) | ||
| Net assets | 8,659 | 6,318 | 6,115 | |
| Shareholders' equity | ||||
| Ordinary shares | 254 | 254 | 254 | |
| Share premium | 16,178 | 16,178 | 16,178 | |
| Capital reserve | (17) | (17) | (17) | |
| Capital redemption reserve | 22 | 22 | 22 | |
| Foreign exchange reserve | (47) | (104) | (66) | |
| Retained earnings | (7,731) | (10,015) | (10,256) | |
| Total equity | 8,659 | 6,318 | 6,115 |
Condensed Consolidated Statement of Changes in Shareholders' Equity
for the 26 weeks ended 3 July 2009
|
|
| ||||||
| Share capital | Share premium | Capital reserve | Capital redemption reserve | Foreign Exchange reserve | Retained earnings | Total equity | |
| Reserves Reconciliation | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Balance at 28 December 2007 as previously stated | 254 | 16,178 | (17) | 22 | (24) | 2,892 | 19,305 |
| (Loss) for the period | - | - | - | - | - | (12,134) | (12,134) |
| Employee share option scheme | - | - | - | - | - | (26) | (26) |
| Dividend | - | - | - | - | - | (747) | (747) |
| Exchange loss | - | - | - | - | (80) | - | (80) |
| Balance at 27 June 2008 | 254 | 16,178 | (17) | 22 | (104) | (10,015) | 6,318 |
| (Loss) for the period | - | - | - | - | - | (79) | (79) |
| Employee share option scheme | - | - | - | - | - | (162) | (162) |
| Exchange gain | - | - | - | - | 38 | - | 38 |
| Balance at 2 January 2009 | 254 | 16,178 | (17) | 22 | (66) | (10,256) | 6,115 |
| Profit for the period | - | - | - | - | - | 2,517 | 2,517 |
| Employee share option scheme | - | - | - | - | - | 8 | 8 |
| Exchange gain | - | - | - | - | 19 | - | 19 |
| Balance at 3 July 2009 | 254 | 16,178 | (17) | 22 | (47) | (7,731) | 8,659 |
Condensed Consolidated Interim Cash Flow Statements
for the 26 weeks ended 3 July 2009
| 26 weeks to | 26 weeks to | 53 weeks to | ||
| 3 July | 27 June | 2 January | ||
| 2009 | 2008 | 2009 | ||
| (restated) | (restated) | |||
| notes | £'000 | £'000 | £'000 | |
| Profit/ (loss) for the period | 2,517 | (12,134) | (12,213) | |
| Adjustment for | ||||
| Profit less losses on sale of property, plant and equipment | 12 | (4) | 4 | |
| Impairment of goodwill | 8 | - | 11,581 | 11,581 |
| Taxation | 219 | 136 | 302 | |
| Depreciation | 425 | 500 | 1,007 | |
| Amortisation | 60 | 75 | 174 | |
| Unrealised exchange gain/(loss) | 19 | (80) | (42) | |
| Decreased/ (increased) in inventories | 370 | (216) | 472 | |
| Decrease in receivables | 453 | 1,310 | 1,970 | |
| Decrease in payables | (2,752) | (1,538) | (2,107) | |
| Net finance expenditure | 123 | 115 | 284 | |
| Share based payments | 8 | (26) | (188) | |
| Cash generated from operations | 1,454 | (281) | 1,244 | |
| Interest received | 12 | 126 | 129 | |
| Interest paid | (135) | (218) | (412) | |
| Tax paid | (407) | (607) | (750) | |
| Net cash from operating activities | 924 | (980) | 211 | |
| Cash flows from investing activities | ||||
| Purchase of property, plant and equipment | (55) | (174) | (270) | |
| Proceeds from sale of property, plant and equipment | 35 | 25 | 18 | |
| Net cash used in investing activities | (20) | (149) | (252) | |
| Cash flow from financing activities | ||||
| Net loans raised | - | - | 35 | |
| Repayment of borrowings | (979) | (950) | (1,900) | |
| Dividends paid to shareholders | - | (747) | (747) | |
| Net cash used in financing activities | (979) | (1,697) | (2,612) | |
| Net (decrease) in cash and cash equivalents | (75) | (2,826) | (2,653) | |
| Cash and cash equivalents at | ||||
| 2 January 2009/28 December 2007 | 2,219 | 4,872 | 4,872 | |
| Cash and cash equivalents at | ||||
| 3 July 2009/ 27 June 2008/ 2 January 2009 | 2,144 | 2,046 | 2,219 |
Notes to the Condensed Consolidated Interim Financial Statements
For the weeks ended 3 July 2009
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 3 July 2009 (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 53 weeks ended 2 January 2009, published on 13 March 2009, 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 53 weeks ended 2 January 2009 (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 13 March 2009.
The comparative figures for the 53 weeks ended 2 January 2009 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 237 (2) or (3) of the UK Companies Act 1985.
1.3 Significant accounting policies
Except as described below, the accounting policies applied by the Group in the Interim Financial Statements are the same as those applied by the Group in its Annual Report and Accounts as at and for the 53 weeks ended 2 January 2009.
1.4 Change in accounting policies
Determination of operating segments - As of 1 January 2009 the Group has adopted IFRS 8 Operating segments. The new accounting policy in respect of segment operating disclosures has not led to a change in the number and/or definition of segments previously presented on the basis that the information disclosed is consistent to that provided to the CEO, who is the Group's chief operating decision maker.
Presentation of financial statements - the Group has applied revised IAS1 Presentation of financial statements, which became effective as 1 January 2009. This presentation has been applied in these Interim Financial Statements as of and for the period ended 3 July 2009. Comparative information has been represented so that it is also in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects there is no impact on earnings per share.
Accounting for marketing expenditure - the Group has applied in its Interim Financial Statements amended IAS 38 intangible assets which clarifies the accounting for the Group's marketing expenditure. This amendment has been applied retrospectively in accordance with IAS8 Accounting Policies, Changes in Accounting Estimates and Errors and comparatives have been restated accordingly (see note 10).
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 Operating segments
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 are reviewed regularly by the CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
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 2008 Annual Report and Accounts which was approved by the Board on the 13 March 2009, 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 2008 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 2009. The impact of the economic environment in which the Group's businesses operates are considered in the Chairman's statement and Chief Executives report.
The Group has a treasury loan facility with Barclays Wealth on which there is £4,281,000 outstanding at 3 July 2009 (2 January 2009:£ 5,231,000 ). The Group maintains an overdraft facility of £500,000 to fund its working capital requirements which was unutilised during the 26 weeks ended 3 July 2009.
The Directors have prepared trading and cash flow forecasts for a period of 1 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 2009. The Directors have a reasonable expectation that the Group has adequate cash headroom and expects to meet all banking 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 for the Group which generates an estimated charge of £219,000 (2008 - £136,000), which is an effective rate of 8%. The income tax rate in Jersey has been reduced to nil for the 26 weeks ended 3 July 2009 following the Income Tax (Amendment No. 28) (Jersey) Law being registered by the Royal Court on 22 June 2007.
4 Segmental analysis
The Group has four reportable segments as described below which are the Groups 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
Segmentation by primary divisions
| 26 weeks ended 3 July 2009 | Garden | Gifts Flowers | Entertainment | Ongoing business | Gifts Greetings Direct | Total Group |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Revenue | 11,245 | 4,425 | 2,535 | 18,205 | 1,519 | 19,724 |
| Segment result | 2,108 | (248) | 165 | 2,025 | 834 | 2,859 |
| Interest payable | (135) | |||||
| Interest receivable | 12 | |||||
| Profit before tax | 2,736 |
There is no inter-segment revenue to disclose. There has not been a material change in the total segment assets from the position at 2 January 2009
| 26 weeks ended 27 June 2008 (restated) | Garden | Gifts Flowers | Entertainment | Ongoing business | Gifts Greetings Direct* | Total Group |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Revenue | 11,184 | 4,763 | 2,978 | 18,925 | 5,248 | 24,173 |
| Segment result | 1,526 | (507) | 170 | 1,189 | (13,072) | (11,883) |
| Interest payable | (218) | |||||
| Interest receivable | 103 | |||||
| Profit before tax | (11,998) |
| 53 weeks ended 2 January 2009 (restated) | Garden | Gifts Flowers | Entertainment | Ongoing business | Gifts Greetings Direct* | Total Group |
| £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Revenue | 15,905 | 11,634 | 6,069 | 33,608 | 8,939 | 42,547 |
| Segment result | 1,218 | (276) | 637 | 1,579 | (13,206) | (11,627) |
| Interest payable | (411) | |||||
| Interest receivable | 127 | |||||
| Profit before tax | (11,911) |
* Included in the segment result for Greetings Direct is a charge relating to impairment of goodwill of £11,581,000
5 Dividends
| 3 July | 27 June | 2 January | |
| 2009 | 2008 | 2009 | |
| £'000 | £'000 | £'000 | |
| Dividends on equity shares | |||
| Final dividend proposed in March, agreed at AGM in April at nil pence (2008: 3.00p) | - | 747 | 747 |
| - | 747 | 747 |
The value of the interim dividend proposed is £nil (2008:£nil)
6 Earnings/ (loss) per ordinary share
Basic
Basic earnings/(loss) 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.
| 3 July | 27 June | 2 January | |
| 2009 | 2008 | 2009 | |
| (restated) | (restated) | ||
| £'000 | £'000 | £'000 | |
| Profit/ (loss) attributable to equity holders of the Company | 2,517 | (12,134) | (12,213) |
| Weighted average number of ordinary shares in issues (thousands) | 24,868 | 24,868 | 24,868 |
| Basic Earnings/ (loss) per share (pence per share) | 10.12p | (48.79)p | (49.11)p |
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.
| 3 July 2009 | 27 June 2008 | 2 January 2009 | |
| £'000 | (restated) £'000 | (restated) £'000 | |
| Profit/ (loss) attributable to equity holders of the Company | 2,517 | (12,134) | (12,213) |
| Impairment of goodwill | - | 11,581 | 11,581 |
| (Profit)/ loss attributable to Greetings Direct (after tax) | (834) | 1,045 | 1,725 |
| Restructuring costs | - | - | 125 |
| Earnings before one off items | 1,683 | 492 | 1,218 |
| Weighted average number of ordinary shares in issues (thousands) | 24,868 | 24,868 | 24,868 |
| Adjusted earnings per share (pence per share) | 6.77p | 1.98p | 4.90p |
Diluted
Diluted earnings/(loss) per share is calculated adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Share awards represent the only dilutive potential ordinary shares.
The calculation is performed for the share 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.
| 3 July | 27 June | 2 January | |
| 2009 | 2008 | 2009 | |
| (restated) | (restated) | ||
| £'000 | £'000 | £'000 | |
| Profit/ (loss) attributable to equity holders of the Company | 2,517 | (12,134) | (12,213) |
| Weighted average number of ordinary shares in issue (thousands) | 24,868 | 24,868 | 24,868 |
| Adjustment for share options (thousands) | 55 | 66 | - |
| Weighted average number of ordinary shares for diluted earnings per share (thousands) | 24,923 | 24,934 | 24,868 |
| Diluted earnings/ (loss) per share (pence per share) | 10.10p | (48.66)p | (49.11)p |
7 Related party transactions
Mr S S Cook, the Groups Chief Executive, acquired 12.48% of the share capital of the Company on 16 April 2009. The shares were acquired through a company controlled by Mr Cook called Silenus Investments Limited, from Channel Hotels and Properties Limited. This transaction was financed by a loan for which the shares are held as security against the loan.
All other material related party transactions were consistent to those disclosed in the 2008 Annual Report and Accounts.
8 Goodwill
During the 26 weeks ended 27 June 2008, the Directors announced their intention to close down immediately the USA division of Greetings Direct and start a managed closure of the UK and Australian operations. The decision was made primarily due to the continuing deterioration of the performance of key metrics such as customer recruitment and retention in both geographies and the disappointing response rates to the test mailing in the USA.
A full impairment of the carrying value of goodwill and intangible assets related to Greetings Direct of £11,581,000 was made during the 26 weeks ended 27 June 2008.
Full disclosure in respect of this impairment was included in the Annual Report and Accounts for the 53 weeks ended 2 January 2009.
9 Long term incentive plan share awards
On 24 April 2009, the Group issued 704,510 share awards under the long term incentive plan to Executive Directors and senior managers of the Group. The awards will vest on 24 April 2012 providing vesting conditions are met.
10 Prior year adjustment
As a result of the Group's adoption of IAS 38 (amended) Intangible assets, the Directors have reviewed the accounting policy in respect of catalogue expenditure. As a result of this amendment the Directors believe that it is no longer appropriate for them to continue to capitalise expenditure relating to the production of catalogues and recognise this expenditure only on despatch of the catalogue.
The Group has now adopted an accounting policy for such costs which it believes is in line with IAS 38 (amended) and will recognise all costs related to catalogues when such items are available to the Group.
The effect of this change was to reduce prior year reserves for the 26 weeks ended 27 June 2008 by £324,000 and for the 53 weeks ended 2 January 2009 by £211,000. The taxation impact of the prior year adjustment is to reduce the deferred tax charge by £40,000 at 2 January 2009. Overall this reduced net assets by £324,000 at 27 June 2008 and £171,000 at 2 January 2009.
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
31 July 2009 31 July 2009