Iq-ai Ltd Regulatory News (IQAI)

14 January 2011

Flying Brands Limited

Trading update for the three months to 31 December 2010

Flying Brands is today issuing a trading update for the final quarter of the Company's 2010 financial year.

For the ongoing business as a whole, sales for the period were £6.4m, compared to £5.7m for last year. Like-for-like sales for the period were £5.0m, compared to £5.7m for last year.

The extreme weather conditions in December coincided with the dispatch of some of our most important catalogue mailings of the period. Fulfillment of our Christmas orders was severely disrupted by the worst of the severe weather conditions. In addition our products, being mainly perishable goods and particularly our highly seasonal Christmas flowers, suffered more than other products from delays in delivery, with the result that our level of refunds and replacements was six times higher than the levels of previous years and for which we had budgeted.

As a result our sales for this important trading period were considerably below management expectations and our profits for the year will be materially below market expectations.

Trading

Flying Flowers' sales were £3.3m (2009: £3.6m). We estimate that we lost £0.5m of sales as a result of the adverse weather conditions. We believe that without these exceptional circumstances Flying Flowers' sales would have been ahead of last year. However, we had anticipated, as a result of the broadening of our product range and the introduction of a Christmas gift range for our Gardening Direct customers, that our sales in Flying Flowers would be substantially ahead of last year. Early sales to Gardening Direct customers were encouraging but the eventual outcome was behind management expectations. We will review the timing and range of products offered for next year.

Sales in Flowers Direct for the period were £1.1m. We estimate that we lost around £0.1m of sales in Flowers Direct as a result of the bad weather but overall the sales performance of this brand during the period was significantly below our expectations.

Overall sales in the Gifts Division for the period were £4.5m compared to £3.6m last year. Web sales were £1.7m (2009: £0.9m) and accounted for 37.6% of all sales (2009: 23.8%). Flying Flowers' web sales for the period increased from £0.9m to £1.0m, a growth of 17%.

Sales in the Garden Division for the three months were £1.5m (2009: £1.5m). Like-for-like sales for this division for the period were £1.2m (2009: £1.5m). Some of this reduction was due to the timing of Autumn dispatches in Gardening Direct and some of it was due to delays in shipping Garden Bird Supplies' products during the bad weather, which sales will be carried forward into this year. Sales in Garden Bird Supplies during the period were marginally ahead of last year at £0.9m.

Web sales in the Garden Division rose to £0.7m (2009: £0.4m) and accounted for 44.0% of all Garden Division sales (2009: 26.4%).

Sales in Listen2 at £0.5m (2009: £0.6m) were in line with management expectations.

Overall, Group revenue for the period, including sales from Greetings Direct of £0.1m, were £6.6m (2009: £6.8m, including £0.9m of sales in Benham which we sold before the commencement of this trading period).

Financing, Cash Position and Dividend

Our financial position at the year-end remained healthy. Gross cash was £2.1m (2009: £4.2m) with bank loan of £2.8m (2009: £2.3m). The reduction in profits for our final quarter means that we may breach one of our banking covenants when these come to be tested upon production of our year-end accounts. Accordingly, we have decided to bring forward the repayment of part of our debt in order to give us more headroom going forward. Our bank has agreed to waive the breach of covenant should it in fact occur and to our revised repayment schedule.

We returned to the payment of dividends in 2010 and our plans for the payment of a final dividend for 2010 remain unchanged.

Outlook

Looking forward, we expect significant cost inflation in our businesses in 2011, particularly in the areas of paper prices and postage but we continue to believe that our value-for-money products make us well placed to do well at a time of pressure on consumers' disposable income. We are also encouraged by the continued growth in our Web sales, both as a percentage of overall sales and in absolute terms.

We are constantly looking to strengthen our web marketing capabilities and the experience at Christmas means that we are also seeking to supplement our product range with non-perishable products. We have made a good start in this direction by broadening the product range in our Gifts Division and by diversifying into gardening hardware with our acquisition of Garden Centre Online.

In further pursuit of these two objectives we have agreed terms for the purchase of an increased stake in Dealtastic Holdings Limited ("DHL") from Jonathan Ruff, the chief executive of DHL, and related parties of Mr. Ruff. On completion of the purchase we will own 80% of the shares of DHL and Mr. Ruff and related parties will own the remaining 20%. DHL will in turn acquire the 50% of dealtastic.co.uk and promomachine.co.uk that it does not already own and will also acquire the staff of Click Marketing, which will significantly enhance our web development and digital marketing capabilities.

We have signed detailed heads of terms for this acquisition, which are subject to formal contract. We anticipate that these formalities will be concluded in the course of the next 10 days. The price payable for the shares in DHL will be entirely dependent on the performance of that company in the 12 months ending 31 December 2011 and the maximum consideration payable to Mr. Ruff and related parties will be £1.1m. In order for that level of consideration to be payable the profits of DHL during that period would have to exceed £0.76m. The consideration for such acquisition will be satisfied by the issue of ordinary units in Flying Brands at a price of £0.75 a unit.

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, Flowers Direct and Drake Algar  making the company one of the UK'sleading 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; Garden Centre Online an internet retailer of garden hardware products)

·; 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.