Final Results
Ideal Shopping Direct PLC
07 March 2006
Ideal Shopping Direct Plc
7 March 2006
2005 Preliminary RESULTS
Ideal Shopping Direct Plc, Britain's leading independent multi-channel TV home
shopping business, today reports preliminary figures for 2005.
HIGHLIGHTS
2005 2004 Growth
• Turnover £79.2m £60.4m 31%
• Operating Profit £7.0m £4.1m 71%
• Profit before taxation £7.4m £4.1m 80%
• Earnings per share (basic) 17.6p 9.4p 87%
• Full year dividends declared 3.0p 1.0p 200%
• Cash (net of borrowings) £15.4m £10.3m 49%
• Strong turnover growth, benefiting from a full year Freeview
contribution
• Sales up 15% year-on-year on a like-for-like basis
• Operating margin up to 8.9% from 6.8%
• Full year pre-tax profits up 80% at £7.4m
• Company remains strongly cash generative
• Final dividend 2.0p (last year 1.0p) making full year total 3.0p
(2004:1.0p)
• Fourth TV shopping channel - Jewellery Vault - launched on July 1st
2005
• Continuing investment in management and business infrastructure
• Voted "AIM Company of the Year" at PLC Awards 2005
Jim Hodkinson, Chairman, commented:
"These results reflect a year of healthy progress for Ideal Shopping Direct.
Organic sales growth remained strong, despite a softening of the retail market
generally, and the well documented growth in digital TV and in on-line retailing
confirms our positioning in the most dynamic sectors of retailing. The focus on
all elements of our business performance remains at a very high level, and these
factors give the Board every confidence that we will be able to make further
good progress during 2006."
Enquiries:
Ideal Shopping Direct Plc Tel: 08700 780704
Jim Hodkinson, Chairman
Reputation Inc Tel: 020 7758 2800
Tom Wyatt
Chairman's Statement
In last year's annual report to shareholders I was delighted to be able to
report a record profit and cash performance as the business began to leverage
the operational gearing of the television shopping model. It is equally
gratifying to be able to confirm our progress with another strong set of results
for 2005.
We have enjoyed a full year's sales contribution from the Freeview platform
(which launched in April 2004) and have added new revenue streams to the
business, but have also delivered organic growth in like-for-like operations of
c.15%, despite the well publicised difficulties of the retail market as a
whole. These factors moved turnover up 31% on 2004 (which was 42% up in turn on
2003). We have invested significant amounts in the operational infrastructure of
the business to give it the capability to scale up, but have still delivered
enhanced operating margins by growing revenues so rapidly. This resulted in
record operating profits of £7.0m, up 71%, and profit before tax of £7.4m, up
80%. Cashflow was also healthy and net cash balances at the end of the year were
over £15m.
We declared a maiden dividend last year of 1p, and the Board now propose a final
dividend of 2p to add to the interim dividend of 1p for 2005.
The profile of the Ideal Shopping Direct Board and senior management team has
changed significantly over the last fifteen months. Key appointments in
logistics, buying and other functions have been made to create a strong
executive team under the leadership of Andrew Fryatt, who became Chief Executive
Officer in September 2005. A new Finance Director, Mike Camp, joined Ideal in
September. Mike's background in Booker and RAC Consumer combines experience of
the fmcg supply chain and large scale consumer service management.
These changes have allowed the founder directors, Paul Wright and Val Kaye, to
step back from day to day executive responsibility. Val became a non executive
director in May of last year, and Paul becomes non-executive deputy chairman
with effect from today. The Company is hugely indebted to them for their
contribution, and their continuing presence on the Board will ensure that the
business retains the flow of new ideas that has characterised its development
over recent years.
Ideal's total workforce has grown to over 500 in the course of the last year.
Their energy and commitment is a key resource and management have actively
invested in developing and retaining their skills. On behalf of the Board I
would like to thank the whole team: these excellent results are a testament to
their efforts.
The well documented growth in digital TV and in on-line retailing confirms our
positioning in the most dynamic sectors of retailing. The management team is
maintaining a high focus on continuing organic growth from range and service
enhancement, on effective operations and infrastructure development, and on the
development and trial of new business streams. The external picture remains a
mixed one however our performance in the current year is in line with our
internal expectations and our positioning, capability and plans give the Board
every confidence that we will be able to make further good progress during 2006.
Jim Hodkinson
Chairman
2005 Annual Review
PERFORMANCE OVERVIEW
Turnover for the year of £79.2 million was up 31% on 2004. As reported at the
interims, 14% of this growth (£8.3m) was the result of sales from our Freeview
channel up to the anniversary of launch in April. Additionally, our new
Jewellery Vault channel contributed £1.5m of sales since its launch in July.
Like for like sales growth was therefore of the order of 15%.
Aside from the dilutive effect of the Freeview royalty, margin was affected by
two other factors: the launch of Jewellery Vault, whose business model has a
lower average margin; and the high levels of growth in the footwear and
technology categories, which are at lower margins. Overall reported margin
therefore fell by 1.36% points against 2004. However, despite significant
investment in elements of our cost base, strong productivity gains and the
operational gearing of Ideal's core business model meant that costs fell
significantly as a percentage of sales so that net operating margin increased
from 6.8% to 8.9%. Overall cash generation was healthy and net cash balances
grew by £5.1m.
MARKET DEVELOPMENTS
The TV shopping market continues to outperform High Street retailing, and is
estimated to have grown at around 15% over the last 12 months. Although there
is some evidence that this slowed in the second half, we anticipate that growth
will continue, partly fuelled by the ongoing increase in digital penetration as
the analogue signal is progressively switched off by 2012, and partly by
increasing usage amongst the existing digital household base.
The growth in digital households, now at 68% of the total, continues to be
driven by Freeview, with 10 million set top boxes or integrated digital TVs in
the market, of which 3.6 million are second boxes. Sky still retains a lead in
number of households, but the gap is closing fast.
In terms of its significance for TV shopping, there are 36 shopping channels on
Digital satellite, but only 4 on Freeview, including Ideal World.
The future of broadcasting across the world is evolving, and convergence between
TV and the internet will become increasingly important over the next few years.
Ideal Shopping Direct already streams its channels onto the internet, and will
develop this avenue further in 2006.
TRADING
Our main channel, Ideal World, achieved a 25% increase, led by strong growth in
Fashion & Footwear and Leisure & Technology. Sales via our call centres and the
automated ordering system were supported by the expansion of our web proposition
in the year, which is the preferred route now for an increasing number of our
customers.
Create and Craft, our digital satellite niche craft and hobby channel, saw
growth of 65% in the year. Again, web-based ordering has become increasingly
important here, and this was helped by the launch of the Create and Craft Club,
which encourages online sales via a discount, in return for an annual
subscription, as well as delivering a bi-monthly online interactive magazine
which features video projects.
Ideal Vitality, which focuses on the health, beauty & fitness market on digital
satellite, grew by 62%. Both Ideal Vitality and Create and Craft benefit from
sharing overheads with Ideal World, and thus make a very positive contribution
to overall profit.
Our fourth channel, Jewellery Vault, which sells jewellery via a falling-price
auction model, launched in July 2005 on Sky channel 638 for eight hours a day.
Although it too benefits in part from shared overheads, the TV shopping model
depends on achieving critical mass to reach profitability. Whilst we fully
expect to achieve this over the next few months, the 2005 investment resulted in
a £0.5m reduction in overall profit before tax.
Underlying product margin for the year was affected by stronger than expected
growth in Footwear and Technology, which command lower than average margins. We
have progressively strengthened our buying team over the last year and
anticipate that this will improve our ranging, merchandising and sourcing in our
target categories.
DEVELOPMENT
In such a fast moving market, the pursuit of business development opportunities
remains a key component of our strategy. 2005 saw the launch of the Create and
Craft Club, which includes an interactive online subscription magazine,
delivered via broadband and combining video and internet functionality. In
addition, we launched Jewellery Vault in July 2005.
Current projects being researched include an interactive online general
merchandise catalogue, similar to a traditional mail order catalogue, but with a
business model that limits the product sales risk and which utilises video
adverts, and also a second online club concept. In addition, we are in
discussion with a number of well known High Street brands, who are interested in
having some presence on our TV shopping channels.
EMPLOYEES
The growth in the business has seen our employee numbers rise to over 500.
Retaining, developing and motivating them is key to future success and in 2005
important steps were taken to achieve this. A defined contribution pension plan
and SAYE option scheme were introduced last year as a part of a wider benefits
package, and core skills training programmes have been enhanced. These
initiatives have contributed to a 40% reduction in staff turnover compared with
2004.
INVESTMENT
The Company invested £1.75m in new and replacement fixed assets during the
course of the year, including £0.9m in a major new computer systems project and
£0.17m in site development. The first phase of the systems project went live in
January 2006.
OPERATING COSTS
The operating cost to sales ratio decreased to 33.3% (2004: 36.7%) as the
business continued to exploit the operational gearing of the television shopping
business model. This is despite carrying a full year of the cost of operating on
the Freeview platform, six months of Jewellery Vault channel costs and continued
investment in people, infrastructure and new developments. Substantial
productivity gains were achieved in call centre and warehousing operations
whilst also shortening our call queues and delivery times. We anticipate further
gains from the investment being made in management and systems.
TAXATION
The overall tax charge is £2.3m (2004: £1.3m). The Company's actual corporation
tax liability is mitigated by the utilisation of tax losses brought forward from
previous years, however these losses have now been exhausted and it is therefore
anticipated that tax payments will commence in the course of 2006.
CASH
The business model for the new Jewellery Vault channel requires an increased
stockholding to provide the variety necessary for a fast moving auction show
format. Other stocks have increased by c.£0.4m (10%) to support increased
turnover. Supplier payment days outstanding have fallen from 64 to 50,
reflecting changes in mix and short term fluctuations in payment patterns. Net
cash inflow from operating activities was £6.9m (2004: £9.2m) and net cash
balances rose by £5.1m. Surplus cash balances have mostly been invested in
short-term bank deposits to maintain liquidity at minimum risk.
EARNINGS AND DIVIDENDS
Basic earnings per share increased by 87% and fully diluted earnings per share
by 86%. Continued growth and cash generation has encouraged the Board to
recommend a final dividend of 2p per share to add to the interim dividend of 1p,
compared to the single dividend of 1p for 2004. Subject to approval by
shareholders at the Company's Annual General Meeting on 4 May 2006, the dividend
will be paid on 11 May 2006 to shareholders on the Register as at 10 March 2006.
ACCOUNTING POLICIES
The adoption of FRS 21 has resulted in a change in accounting policy in respect
of proposed equity dividends, as discussed in notes 1 and 3 below.
The Company anticipates implementing FRS 20 "Share Based Payments" in its 2006
Financial Statements. The standard requires that the estimated fair value of
share option grants be expensed through the Profit and Loss account in the
period from grant to exercise. As the Company has historically used share
options as a part of executive incentivisation, the change in treatment may lead
to the recognition of additional operating expenses.
The Company also expects to implement International Financial Reporting
Standards ("IFRS") in its Financial Statements for 2007. Planning for this
transition, and the collation of comparative figures, is underway.
Andrew Fryatt
Chief Executive
Mike Camp
Finance Director
Consolidated Profit and Loss Account
For the Year Ended 31 December 2005
Note 2005 2005 2004 2004
restated restated
£'000 £'000 £'000 £'000
Turnover 79,191 60,382
Cost of sales (45,822) (34,113)
Gross profit 33,369 26,269
Distribution costs (2,670) (1,867)
Administrative expenses (23,684) (20,293)
Net operating expenses (26,354) (22,160)
Operating profit 7,015 4,109
Net interest 389 (4)
Profit on ordinary activities
before taxation 7,404 4,105
Tax on profit on ordinary activities 2 (2,250) (1,349)
Retained profit transferred
to reserves 5,154 2,756
Basic earnings per share 5 17.6p 9.4p
Diluted earnings per share 5 17.3p 9.3p
Consolidated Balance Sheet
For the Year Ended 31 December 2005
2005 2005 2004 2004
restated restated
£'000 £'000 £'000 £'000
Fixed assets
Tangible assets 8,794 7,908
Current assets
Stocks 5,254 3,829
Debtors 2,208 1,354
Cash 19,557 14,517
27,019 19,700
Creditors: amounts falling due
within one year (17,295) (13,649)
Net current assets 9,724 6,051
Total assets less current liabilities 18,518 13,959
Creditors: amounts falling due
after more than one year (3,294) (3,367)
Provisions for liabilities and charges (757) (794)
14,467 9,798
Capital and reserves
Called up share capital 887 882
Share premium 180 84
Profit and loss account 13,400 8,832
Shareholders' funds 14,467 9,798
Consolidated Cash Flow Statement
For the Year Ended 31 December 2005
Note 2005 2004
£'000 £'000
Net cash inflow from operating activities 6,913 9,225
Returns on investments and servicing of finance
Interest received 506 236
Interest paid - (103)
Finance lease interest paid (117) (137)
Net cash inflow/(outflow) from returns on investments and
servicing of finance 389 (4)
Capital expenditure
Purchase of tangible fixed assets (897) (231)
Sale of tangible fixed assets 5 -
Net cash outflow from capital expenditure (892) (231)
Equity dividends paid 4 (586) -
Financing
Issue of shares 101 21
Receipts from borrowings - 212
Repayment of borrowings (339) (235)
Capital element of finance lease payments (546) (818)
Net cash outflow from financing (784) (820)
Increase in cash 5,040 8,170
Notes
1 BASIS OF PREPARATION
The financial information set out above in respect of 31 December 2005 does not
constitute statutory accounts as defined in Section 240 of the Companies Act
1985. The financial information contained in this announcement has been
extracted from the 2005 financial statements upon which the auditors opinion is
unqualified and does not include any statement under Section 237 of the
Companies Act 1985.
The preliminary announcement has been prepared in accordance with applicable
accounting standards and under the historical cost convention.
The principal accounting policies of the Group are set out in the Group's 2004
annual report and financial statements. The policies in this preliminary
announcement have remained unchanged from the 2004 financial statements, with
the exception of the policy relating to the treatment of dividends which has
been changed in accordance with the provisions of FRS 21. Under the new
standard, if the company declares dividends to shareholders after the balance
sheet date the company does not recognise those dividends as a liability at the
balance sheet date. Previously where dividends were proposed after the balance
sheet date but before authorisation of the financial statements they were
recorded as balance sheet liabilities. The provisions of FRS 21 also require
that dividends recognised in the year are disclosed as a movement on reserves,
and not on the face of the consolidated profit and loss account. This change
results in a restatement of the 2004 treatment of dividends declared.
2 TAXATION ON PROFIT ON ORDINARY ACTIVITIES
2005 2004
£'000 £'000
Corporation tax at 30% (2004: 30%) 1,694 45
Total current tax 1,694 45
Deferred tax:
Origination and reversal of timing differences 556 1,304
Adjustments in respect of prior year - -
Total deferred tax 556 1,304
Tax on profit on ordinary activities 2,250 1,349
The deferred tax charge of £556,000 represents release of the deferred tax asset
established in respect of trading losses in prior years under FRS 19 and other
timing differences.
3 PRIOR YEAR ADJUSTMENT
As disclosed in note 1, FRS21 was adopted in the year. Under the previous
accounting policy the maiden dividend of £292,000 (1p per ordinary share), which
was proposed after the 2004 balance sheet date, was treated as a liability at
that date. Under FRS 21 this dividend is not treated as an appropriation of
profit in 2004 or as a liability in the 2004 balance sheet. The comparative
figures in these financial statements have been restated accordingly.
In the current period dividends of £588,000 have been proposed after the balance
sheet date. Under the previous accounting policy these would have been shown as
a liability and deducted from the profit for the year. Under the new accounting
policy these are not accrued and are disclosed only in note 4.
4 DIVIDENDS
2005 2004
restated
Dividends on ordinary shares £'000 £'000
Paid during the year
- 2004 final 292
- 2005 interim 294
__________ __________
586 -
============= =============
Proposed after the year-end (not recognised as a liability) 588 292
============= =============
The proposed dividend is subject to approval by shareholders at the Annual
General Meeting.
5 EARNINGS PER SHARE
The calculation of the basic earnings per share is based on the earnings
attributable to ordinary shareholders divided by the weighted average number of
shares in issue during the year.
The calculation of diluted earnings per share is based on the basic earnings per
share adjusted to allow for the issue of shares on the assumed conversion of
dilutive options.
Reconciliation of the earnings and weighted average number of shares used in the
calculations are set out below:
2005 Earnings Weighted average Per share
number of amount
£ Shares Pence
Earnings attributable to ordinary shareholders 5,154,000 29,315,129 17.6
Dilutive effect of securities:
Options - 535,381 (0.3)
Diluted earnings per share 5,154,000 29,850,510 17.3
2004 Earnings Weighted average Per share
number of amount
£ Shares Pence
Earnings attributable to ordinary shareholders 2,756,000 29,203,449 9.4
Dilutive effect of securities:
Options - 379,884 (0.1)
Diluted earnings per share 2,756,000 29,583,333 9.3
6 REPORT and Accounts
Copies of Company's annual report and accounts will be posted to the
shareholders shortly.
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