Interim Results
Ideal Shopping Direct PLC
04 September 2006
4 SEPTEMBER 2006
IDEAL SHOPPING DIRECT PLC
2006 INTERIM RESULTS AND RENEWAL OF FREEVIEW CONTRACT
Ideal Shopping Direct Plc ("Ideal"), Britain's leading independent TV shopping
business, today reports interim figures for 2006 and confirms the renewal of its
carriage agreement with National Grid Wireless ("NGW") for the Freeview digital
TV platform.
HIGHLIGHTS
2006 2005 Growth
• Like-for-like turnover £40.7m £37.0m 10.1%
• Like-for-like profit before taxation £4.0m £3.7m 8.3%
• Profit before taxation £2.5m £3.6m (30.0)%
• Basic Earnings per share 6.0p 8.5p (29.7)%
• Interim dividend 1.5p 1.0p 50.0%
• Cash (net of borrowings) £12.9m £13.4m (3.7)%
• Strong core business sales growth
• Profit impacted by one off costs of £1.3m in the period and £0.2m
due to the implementation of FRS 20 (2005: £0.1m)
• Underperforming Jewellery Vault channel closed in July
• Completion of first acquisition, Superstore TV Ltd, in May
• Freeview contract successfully renegotiated and extended
• Interim dividend increased by 50%
FREEVIEW
Ideal's contract with NGW for the Freeview digital TV platform, which ran until
2014, provided for a price review effective October 2008. Ideal have now agreed
a revised contract with NGW to secure Ideal's position on Freeview until 2018.
The revised fee from January 2007 will increase with the RPI. In the short term
the impact of this change means that profits in 2007 may be below those for
2006, but this renegotiation will result in very significant savings compared to
expectations from 2009 onwards.
Jim Hodkinson, Chairman, commented:
"The Freeview platform remains the biggest engine of Ideal's growth, and with
the number of Freeview households expected to exceed 12m by 2012, I am delighted
that we have been able to agree a revised contract that now extends to 2018.
Our interim results show robust organic sales growth. We continue to be an
innovative and fast paced company with a track record of developing and
launching new propositions. Whilst we were disappointed that Jewellery Vault did
not meet our expectations, necessitating its prompt closure, we remain committed
to investing in the development of new profit streams, both organically and by
acquisition, as evidenced by our first acquisition, Superstore TV Ltd."
Enquiries:
Ideal Shopping Direct plc: Jim Hodkinson, Chairman Tel: 08700 780704
Andrew Fryatt, CEO
Reputation Inc: Tom Wyatt Tel: 020 7758 2800
IDEAL SHOPPING DIRECT PLC
2006 INTERIM RESULTS AND RENEWAL OF FREEVIEW CONTRACT
PERFORMANCE
Sales for the 26 weeks to July 2nd 2006 were £42.3 million, an increase of 14.3%
compared to the first half of 2005. On a like-for-like basis, excluding
Jewellery Vault, Superstore TV and the two additional days in the 26 week
accounting period, sales were up 10.1%.
Our principal channel, Ideal World, achieved continuing strong growth in
turnover, led by the Fashion and Homewares categories. Create and Craft, our
specialist craft and hobby channel, together with the related website, saw
further strong growth helped by the Create and Craft Club, which encourages
online sales via a discount. Ideal Vitality, our niche Health, Beauty and
Fitness channel had a difficult six months under an increasing regulatory
burden, and turnover was down year on year.
Excluding Jewellery Vault, core business gross margins were down 1.2% on the
first half of last year, due to a combination of the sales mix and the growth of
sales both on the Freeview platform and online, which incur sales commissions.
The online sales commission arrangement will terminate with the implementation
our new core systems platform, which is under test.
Over the last year Ideal has invested significantly in upgrading the capacity
and capability of the business in the areas of logistics, buying, e-commerce,
direct marketing, compliance and business development. This has been necessary
both to service a rapidly growing business and to meet our strategic ambitions
for continued growth. The annualisation of these investments has seen continuing
core operating costs (excluding FRS 20 costs, Superstore and iChild) increase by
8.4% over 2005.
Like for like operating profit is up by £0.2m to £3.7m, and on a similar basis
profit before tax is up 8.3% to £4.0m.
The Jewellery Vault channel, which sold jewellery via a falling-price auction
model, launched in July 2005. In its first six months of trading it incurred an
operating loss of approximately £0.5m. The channel's performance did not improve
in the first half of this year and in an increasingly crowded market it did not
achieve the critical mass required to reach profitability. We therefore decided
to act promptly to stem continuing losses, closing the channel with effect from
July 16th. In the period under review it incurred losses of £0.8m and additional
closure costs of £0.4m on sales of £1.2m.
After the losses incurred on Jewellery Vault, £0.1m of other non recurring costs
and £0.2m of costs resulting from the implementation of FRS 20, reported profit
before tax was £2.5m (2005: £3.6m).
The implementation of FRS 20 ("Share Based Payments") is discussed in the "Prior
year adjustment" note to the Consolidated profit and loss accounts below. 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.
Net cash balances were £12.9m after investing £1.6m in the acquisition of
Superstore TV Ltd and a further £0.6m in working capital finance for that
business. Excluding these cashflows, net cash inflow from operating activities
for the half was £0.6m and capital expenditure was £0.5m. With brought forward
trading losses now exhausted, Ideal will start making Corporation Tax payments
in the second half of 2006.
The continuing progress of the business has encouraged the Board to recommend an
interim dividend of 1.5p per ordinary share (2005: 1.0p), to be paid on 20th
October 2006 to shareholders on the register on 22nd September 2006.
SUPERSTORE
Ideal acquired Superstore, a consumer products sourcing and wholesaling
business, with effect from 31st May this year. In the five weeks post
acquisition it contributed £0.1m of turnover and a small operating loss. The
process of securing the synergy opportunities from Superstore's sourcing and
buying capability in the Far East is underway with expected margin improvements
in 2007, in parallel with Superstore's development of its wholesale craft
proposition to multiple retailers.
FREEVIEW
A renewed contract for the broadcast of Ideal World on Freeview will come into
effect from January 1st 2007. The terms of the agreement are contractually
confidential, but Ideal can confirm that:
• The previous pricing structure, under which Ideal paid both a commission
on sales and a fixed annual fee, has been simplified to a fixed fee which
rises with the RPI
• The contract extends to 2018, contingent on the renewal of NGW's Ofcom
licence for Freeview in 2014.
The new fee will be higher than that paid in 2006, but significantly below
estimates of what could have been payable at the review in 2008. In the short
term the impact of this change means that profits in 2007 may be below those for
2006. However, this renegotiation has achieved certainty of availability to the
rapidly growing Freeview audience and will result in very significant savings
compared to expectations from 2009 onwards. The Ofcom reported DTT (Freeview)
audience has grown from 3.5m households in the first quarter of 2004 to 7.1m
households in the first quarter of 2006, and is expected to exceed 12m
households by the time the analogue signal is switched off in 2012.
DEVELOPMENT
We believe that considerable growth opportunities exist to enhance the core
business proposition, for example by developing own label ranges and by
improving the overall service delivery to customers. Well publicised trials with
Next brought high profile branded products to Ideal World, and further tests are
to be undertaken with N Brown products.
We are accelerating the development of our on-line business by investing in our
e-commerce and business development capabilities. We are particularly pleased by
the continuing growth in subscriptions to the Create and Craft Club, which was
supported by the launch of a CD-based version of the on-line magazine in July.
We are committed to developing and trialling new online revenue streams, in
particular where our broadcast capabilities can be utilised to add video
content.
We have also added a wholesale craft business with the acquisition of Superstore
at the beginning of June, and plan to develop wholesale propositions for both
multiple and independent craft retailers to service this rapidly growing market.
In addition to our organic development plans, we recognise that acquisition may
be the quickest way to enter new segments and are actively reviewing
opportunities.
OUTLOOK
Despite the unusually hot weather and the distractions of the World Cup in July,
Ideal's core business has continued to show healthy like-for-like growth of 7.5%
in the first 8 weeks of the second half. We anticipate that Freeview and on-line
sales will continue to be the key drivers of growth for the rest of the year,
and we believe that we can continue to improve our service proposition without
significant additions to costs.
Superstore TV, acquired at the end of May, is in the early stages of its
integration and development, and we do not therefore expect it to make a
contribution to earnings this year.
Ideal operates in a dynamic segment of the retail market and the Board remain
confident about its opportunities and prospects.
Enquiries:
Ideal Shopping Direct plc: Tel: 08700 780704
Jim Hodkinson, Chairman
Andrew Fryatt, CEO
Reputation Inc: Tel: 020 7758 2800
Tom Wyatt
IDEAL SHOPPING DIRECT PLC
2006 INTERIM RESULTS AND RENEWAL OF FREEVIEW CONTRACT
Consolidated Profit and Loss Accounts
26 weeks to 2nd Six months to 30 Year to 31
July 2006 June 2005 December 2005
£000 £000 £000
(Restated) (Restated)
(Unaudited) (Unaudited) (Audited)
Turnover 42,272 36,977 79,191
Cost of Sales (25,008) (21,114) (45,822)
Gross Profit 17,264 15,863 33,369
Administration and Distribution costs (14,577) (12,471) (26,569)
Profit before exceptional items 2,687 3,392 6,800
Exceptional item (Note 2) (430) 0 0
Operating profit 2,257 3,392 6,800
Net Interest 253 193 389
Profit on ordinary activities before tax 2,510 3,585 7,189
Tax on profit on ordinary activities (752) (1,098) (2,250)
Retained profit transferred to reserves 1,758 2,487 4,939
Basic earnings per share (Note 3) 6.0 8.5 16.8
Diluted earnings per share (Note 3) 5.9 8.3 16.5
There were no recognised gains or losses other than the profits of the 26 weeks
ended 2nd July 2006
Prior year adjustment
During the period the company adopted FRS 20. Under the new standard share
options are expensed during the vesting period, and this has resulted in a
restatement of comparative figures. In the current period, £154,008 has been
expensed. The comparative figures for the period ended 30 June 2005 was £74,972;
and for the period ended 31 December 2005, £214,577. Opening reserves in the
comparative year have been reduced by £28,988.
IDEAL SHOPPING DIRECT PLC
2006 INTERIM RESULTS AND RENEWAL OF FREEVIEW CONTRACT
Consolidated Balance Sheets
2nd July 2006 30th June 2005 31st December 2005
£000 £000 £000
(Restated) (Restated)
(Unaudited) (Unaudited) (Audited)
Fixed assets
Tangible assets 8,979 7,784 8,794
Intangible assets 1,627
10,606 7,784 8,794
Current assets
Stock 5,359 6,051 5,254
Debtors: amounts falling due within one year 2,454 1,184 2,208
Current asset investment - Treasury Deposit 10,000
Cash 16,631 7,078 19,557
24,444 24,313 27,019
Creditors: amounts falling due within one year (15,668) (16,454) (17,295)
Net current assets 8,776 7,859 9,724
Total assets less current liabilities 19,382 15,643 18,518
Creditors: amounts falling due after more than (2,844) (3,038) (3,294)
one year
Provisions for liabilities and charges (734) (773) (757)
Net Assets 15,804 11,832 14,467
Capital & Reserves
Called up share capital 888 883 887
Share premium account 191 139 180
Share option reserve 398 104 244
Profit & loss account 14,327 10,706 13,156
Shareholders' funds (Note 4) 15,804 11,832 14,467
IDEAL SHOPPING DIRECT PLC
2006 INTERIM RESULTS AND RENEWAL OF FREEVIEW CONTRACT
Consolidated Cash Flow Statements
26 weeks to 2nd Six months to 30 Year to 31
July 2006 June 2005 December 2005
£000 £000 £000
(Unaudited) (Unaudited) (Audited)
Net Cash flow from operating activities (Note 5) 40 3,495 6,913
Returns on Investments and Servicing of Finance
Interest received 308 245 506
Interest paid (15) (22)
Finance lease interest paid (40) (30) (117)
Net cash inflow/(outflow) from returns on 253 193 389
investments and servicing on finance
Capital Expenditure
Purchase of tangible fixed assets (549) (372) (897)
Sale of tangible fixed assets 5
Net cash outflow from capital expenditure (549) (372) (892)
Acquisitions & Disposals
Purchase of subsidiary undertaking (597)
Repayment of acquired company loans (1,050)
Net cash outflow from acquisitions and disposals (1,647) 0 0
Financing
Issue of shares 13 56 101
Repayment of borrowings (167) (169) (339)
Capital element of finance lease payments (282) (350) (546)
Net Cash outflow from financing (436) (463) (784)
Equity Dividend paid (588) (292) (586)
Management of liquid resources
Purchase of short term deposits (10,000)
(Decrease)/Increase in Cash (2,927) (7,439) 5,040
IDEAL SHOPPING DIRECT PLC
2006 INTERIM RESULTS AND RENEWAL OF FREEVIEW CONTRACT
Notes to the interim financial information
Note 1 Basis of preparation
The interim financial information has been prepared on the basis of the
accounting policies set out in the Company's 2005 statutory financial
statements, except for the changes resulting from the adoption of FRS20 ("share
based payments"), as disclosed above in the "Prior Year Adjustment" note to the
Consolidated Profit and Loss Accounts.
The financial information set out in these statements in respect of the year to
31 December 2005 does not constitute the Company's financial statements for that
year. The statutory financial statements for the year ended 31 December 2005
have been delivered to the Registrar of Companies and the auditors' report
thereon was unqualified and did not contain statements under section 240 of the
Companies Act 1985. The financial statements for the 26 weeks ended 2 July 2006
and the six months ended 30 June 2005 are unaudited.
Note 2 Exceptional item
Separately disclosed within operating profit is the cost of closure of the
Jewellery Vault channel of £430,000. The decision to close this channel was
announced in June, and broadcasting ceased on July 16th.
Note 3 Earnings per ordinary share
The calculation of earnings per share is based on the profits attributable to
ordinary shareholders divided by the weighted average number of shares in issue
during the period. The weighted average number of shares is increased by
outstanding share options in order to calculate diluted earnings per share.
26 weeks ended 30 June 2006 Earnings attributable to Weighted average Earnings per
ordinary shareholders £ number of shares share (pence)
Basic 1,758,000 29,423,846 6.0
Dilutive effect of securities: options 543,830 (0.1)
Diluted 1,758,000 29,967,675 5.9
Six months ended 30 June 2005 Earnings attributable to Weighted average Earnings per
ordinary shareholders £ number of shares share (pence)
Basic 2,487,000 29,276,043 8.5
Dilutive effect of securities: options 667,103 (0.2)
Diluted 2,487,000 29,943,146 8.3
Year ended 31 December 2005 Earnings attributable to Weighted average Earnings per
ordinary shareholders £ number of shares share (pence)
Basic 4,939,000 29,315,129 16.8
Dilutive effect of securities: options 535,381 (0.3)
Diluted 4,939,000 29,850,510 16.5
Note 4
Reconciliation of movements in Shareholders' funds
26 weeks to 2nd Six months to 30 Year to 31 December
July 2006 June 2005 2005
£000 £000 £000
Profit for the period 1,758 2,487 4,939
Equity dividends paid (588) (292) (586)
1,170 2,195 4,353
Issue of shares in the period 13 56 101
Net increase in shareholders' funds 1,183 2,251 4,454
Shareholders' funds at start of period 14,467 9,506 9,506
Current period FRS20 adjustment 154
Prior year adjustment - FRS20 75 215
Prior year adjustment - FRS21 292
Shareholders' funds at end of period 15,804 11,832 14,467
Note 5
Net cash inflow from operating activities
26 weeks to 2nd Six months to 30 Year to 31 December
July 2006 June 2005 2005
£000 £000 £000
Operating profit 2,257 3,392 6,800
Depreciation 376 496 861
(Increase)/decrease in stocks 109 (2,222) (1,425)
(Increase)/decrease in debtors 475 (108) (1,132)
Increase/(decrease) in creditors (3,331) 1,862 1,594
Transfer to share option reserve 154 75 215
Net cash inflow from operating activities 40 3,495 6,913
Note 6
Reconciliation of net cash flow to movement in net funds
26 weeks to 2nd Six months to 30 Year to 31 December
July 2006 June 2005 2005
£000 £000 £000
(Decrease)/increase in cash in the period (2,927) (7,439) 5,040
Cash outflow/(inflow) from financing 167 169 339
Cash outflow from finance leases 282 350 546
Cash outflow from Treasury Deposits 10,000
Change in net funds resulting from cash (2,478) 3,080 5,925
flows
Inception of finance leases (855)
Movement in net funds in the period (2,478) 3,080 5,070
Net funds at start of period 15,394 10,324 10,324
Net funds at end of period 12,916 13,404 15,394
Note 7
Analysis of changes in net funds
At 1 January 2006 Cash flow At 30 June 2006
£000 £000 £000
Cash in hand and at bank 19,557 (2,927) 16,630
Debt (2,879) 167 (2,712)
Finance leases (1,284) 282 (1,002)
15,394 (2,478) 12,916
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