Interim Results
Ideal Shopping Direct PLC
02 March 2005
Ideal Shopping Direct Plc ("The company")
2nd March 2005
2004 Preliminary Figures
Ideal Shopping Direct Plc, Britain's leading independent multi-channel TV home
shopping business, today reports preliminary figures for 2004.
2004 2003
• Turnover £60.4m £42.7m Increase by 42%
• Gross Margin % 43.5% 39.9% Up by 3.6 points
• Profit before taxation £4.105m £0.123m Increase by £3.982m
• Earnings per share 9.3p 1.3p Increase by 8.0p
• Dividend 1.0 p Nil Increase by 1.0p
Jim Hodkinson, Chairman, commented:
"These results show the exciting potential in this business and reflect our
strong market position. We have put measures in hand to generate further growth
and to enhance the efficiency and profitability of our business model. We
continue to strengthen our senior management team with the appointment to the
Board of Andrew Fryatt as Chief Operating Officer and key appointments in the
critical areas of Head of Buying and Head of Logistics. The current year has
started well with performance being in line with our internal budgets. The focus
on all elements of our business performance remains at a very robust level. I am
confident that we will be able to make further good progress during 2005."
Enquiries:
Ideal Shopping Direct Plc Tel: 08700 780704
Jim Hodkinson, Chairman
ReputationInc Tel: 020 7758 2800
Tom Wyatt
Chairman's Statement
INTRODUCTION
I am pleased to present my first annual report to shareholders as Chairman of
Ideal Shopping Direct Plc and delighted to be able to tell you that pre-tax
profits for the year ended 31 December 2004 were a record £4.1 million. This
compares with the reported profit of £0.123 million in 2003. This profit
performance has also had a strong impact on our balance sheet, which shows a
much improved net cash position at the year-end.
It has been an exciting year for the company in which we began to see real
benefits from many of the necessary investments and initiatives put in place
during 2003. In particular, the reorganisation of our buying, warehousing and
distribution facilities prepared the way for the significantly higher level of
turnover, which we have achieved since the launch last April of Ideal World on
Freeview.
Other improvements have been put in process, not least the planning for a
significant upgrade of the company's IT and management information systems which
will be implemented this year. And while this will involve extra costs in the
short term, our current momentum encourages me to expect that the business will
be able to make further good progress during 2005.
The Board has decided, in view of the improved trading picture and the company's
strong cash position, that it should declare a maiden dividend for the year of
1.0p.
TRADING REVIEW
Turnover was £60.4 million - an increase of 41.6% when compared to the £42.7
million achieved last year. The percentage gross profit achieved was 43.5%
compared to 39.9% for the prior year. Total operating costs increased from £17.1
million to £22.2 million - an increase of 29.5% reflecting the increase in costs
from Freeview and increased staffing levels to fulfil the increase in order
levels.
Operating profit was £4.1 million, compared with a small loss of £0.113 million
in 2003. Profit before tax for the year was also £4.1 million, against 2003's
£0.123 million. Diluted earnings per share increased from 1.3p in 2003 to 9.3p
in 2004.
These figures show the very significant improvement in our results achieved in
the last year, but only begin to tell the story of the major changes which have
been made throughout the business over the last eighteen months.
Ideal Shopping Direct has a strong and well established position in the TV
shopping market, a loyal and growing customer base, an executive management team
with long experience of the home shopping industry and, with the rebuilding of
our new Peterborough headquarters "Ideal Home House" after the 2001 fire, state
of the art broadcasting facilities with plenty of capacity for development.
In order to capitalise on these advantages and maximise the company's potential,
we have made a series of fundamental changes in the way the company operates and
organises itself. These have included
• continuing to refine and develop our processes in the critical areas of
buying, warehouse and distribution;
• innovation and investment in marketing channels, not least with the launch
of our flagship channel, Ideal World, on Freeview, but also in exciting new
web-based developments for our niche channels, Create and Craft, and
Vitality.
These changes have required the implementation of a series of new initiatives
which have challenged and stimulated our senior management, and have received
the committed involvement of all our staff, at every level of the business. Our
long serving employees have embraced the changes enthusiastically and have given
us fantastic support through this process and the new management we have
recruited to bring additional experience and expertise in key functions have
performed well.
We now have a team which has already shown its quality and has the capability to
grow with our ambitious plans for expansion. This gives us the platform to
expand the business with confidence.
DIVIDENDS
The Board is pleased to recommend a maiden dividend of 1.0p per share (2003:
nil). Subject to approval by shareholders at the Company's Annual General
Meeting on 4 May 2005, the maiden dividend will be paid on 11 May 2005 to
shareholders on the Register as at 9 March 2005.
BOARD CHANGES
I joined the Board on 1 April 2004 as Non-executive Chairman, when Paul Wright
relinquished this role to concentrate on his role as Chief Executive. The
second new Board member is Andrew Fryatt, who joined on 8 November 2004 as Chief
Operating Officer. Andrew has a background in retail, including senior roles at
Woolworths, Tandy, Carphone Warehouse and T-Mobile, and will be focusing on
ensuring that our infrastructure, processes and procedures support our
continuing growth.
STAFF
On behalf of the Board, I would like to thank senior managers, managers and
employees throughout the company for their continued commitment and hard work,
which has been a major contribution to the successful performance for the year.
FUTURE PROSPECTS
Ideal Shopping Direct is a business that has grown and will continue to thrive
on innovation. 2005 will see a number of new initiatives launched, using both
our TV and web-based capabilities. But the core of the business still has a
tremendous opportunity for expansion, as our audience reach increases.
Television shopping is now estimated to be an £800 million per annum business,
and like other internet based "new channel" retailing activities, is estimated
to be growing at an annual rate significantly in excess of consumer spending
generally.
We have a core customer base which is loyal and makes repeat purchases, with a
broad and slightly above-average income mix. Most are married homeowners, many
have older or grown-up children, and are interested in well marketed clothing
and jewellery, health and beauty products, items for the home, for leisure, for
recreation and craft.
In short, we already have a direct link with an estimated 14 million households
with digital TV installation. Independent industry observers expect the 2008
market will be 60% larger than 2003. We are well established on all three major
delivery channels, and particularly well placed on Freeview which is currently
growing at a very fast rate and much faster than satellite or cable.
We are therefore exceptionally well placed to continue to hold and expand our
established position in this exciting growth market. We currently have an
estimated market share of approximately 7.5%, and while significantly smaller
than our major competitor, we have the specialist marketing approach and
flexibility to compete effectively. As many of the new entrants into this field
are discovering, there is no substitute for experience and good management in
what is a complex and very fluid market.
I am confident that our investment in new systems, strong management, and
enhanced processes and procedures will enable us to make even better use of the
resources we have, so that we can grow sales and margin whilst controlling
overheads.
We will continue to focus, improve, and expand upon our channels to market and
remain confident of another successful year for growth and development of Ideal
Shopping Direct plc. The current year has started well with performance being
in line with our internal expectations. The focus on all elements of our
business performance remains at a very robust level.
Jim Hodkinson
Chairman
2 March 2005
Chief Executive's Statement
2004 was the year that we realised the benefits of reaching critical mass, a key
landmark in the TV shopping business. The record sales, margin and profit are
testimony to our ability to utilise an infrastructure that now supports three TV
channels, Ideal World broadcasting on Sky, NTL and Freeview with Create and
Craft and Ideal Vitality broadcasting on Sky only, and three rapidly growing
transactional websites.
TELEVISION ShOPPING
Ideal World:
Sky Digital Satellite Channel 634
NTL Digital Cable Channel 855
Freeview Channel 22
Ideal World remains the core of our TV shopping activities and has shown very
significant further growth during 2004. Total turnover rose by 41.6% in the
year. Sales of Ideal World have now virtually doubled in the last two years.
The channel turnover has received a significant boost in viewers from 23 April
2004 when we started transmitting the channel on Freeview to an estimated three
million new households. From April 2004 to December 2004 sales of Freeview
boxes have accelerated and it is estimated there are now five million sold
providing further opportunity for growth. The sales generated from this new
route to market have exceeded the Board's cautious expectations, delivering
significant additional sales and gross margin. To transmit Ideal World on
Freeview the company incurs additional costs but given the existing fixed costs
of programming, the level of additional sales generated is already producing a
contribution after deduction of the additional platform costs.
Sales through existing Sky and NTL transmissions have grown at a slower rate but
we have nevertheless continued to improve and develop a range of new marketing
initiatives, which underpin and strengthen our market position.
Create and Craft:
Sky Digital Satellite Channel 664
Create and Craft was our first niche channel, a new and complementary activity
which works on a different business model and benefits from our ability to use
existing broadcasting assets during downtime to produce tested pre-recorded
material for later broadcast. We had identified a niche shopping audience for
craft products sold through Ideal World, and launched Create and Craft as a 24
hour dedicated craft channel in April 2003.
This niche channel has continued to grow. This performance reflects our
improving understanding of what sells well in this format, but has also
benefited from our innovative approach to marketing its offer. We have also
grown our business dramatically using the worldwide web to transmit Create and
Craft on the Internet and by providing customers with access to a wider
catalogue of current product offers and an additional vehicle to place orders.
Our investment in the launch of the channel on an interactive sales focused web
site has produced encouraging results, with web sales growing at a higher rate
than via the Create and Craft television channel. Both routes to market are
complementary: the television channel directs customers to the web site for
further information and detail on products, and the website encourages viewers
to see the products displayed and demonstrated on the television channel.
Ideal Vitality:
Sky Digital Satellite Channel 661
Ideal Vitality is our second niche channel and is focused on selling health and
beauty products. It operates on the same business model as Create and Craft:
products which have been tried and tested on Ideal World are marketed to an
identified niche audience, using pre-recorded material produced at low cost in
our own broadcasting facilities. Ideal Vitality also has its own transactional
website in the same way as Create and Craft.
Our start-up costs for Ideal Vitality were very low because the concept was
initially developed as a turnkey operation for Goldshield Plc. However, this
arrangement was terminated on short notice at the end of 2003 and, from the
beginning of the 2004 financial year, the Company took over the channel and
relaunched it as Ideal Vitality. Total sales in its first full year of operation
have been encouraging but were slower than expected in the first half as we
learned what appealed well to its customers and recruited a dedicated team to
focus on the development and growth of this channel. With a strengthened team
now running this channel, we are confident that we can significantly expand its
sales base during this financial year.
CONCLUSION
The TV shopping market is evolving and growing rapidly. We anticipate a further
period of sustained growth over the next 3-5 years. However, with the advance
of technology and the increasing importance of the Internet, the future of
broadcasting will undoubtedly change and new and exciting opportunities emerge
for retailing and new retailing models.
From 2000 when we launched Ideal World, we saw this as a significant first step
for us along the road of becoming a true multi-channel retailing enterprise of
its time.
The last four years have been fairly traumatic and challenging and we are
pleased with the unwavering dedication and commitment of all who comprise the
enterprise which is Ideal Shopping to enable us to reach critical mass and
demonstrate the true potential of our business model.
The recent arrival of Andrew Fryatt to fulfil the role of Chief Operating
Officer will allow me to more fully focus on the future and a whole raft of
exciting new growth opportunities.
Now with the foundations firmly laid and we believe with a strong management
team in place, we look forward with real optimism to the exciting prospects
ahead. There is undoubtedly much more potential to grow the existing business
and many other new opportunities which will be explored.
P C Wright
Chief Executive
2 March 2005
Finance Director's Report
PERFORMANCE
This report and financial statements are for the year ended 31 December 2004.
The financial results reflect the Board's continued focus on improving margin
whilst increasing its sales growth and strong cash management.
Sales grew in total by 41.6% to £60.4m (2003: £42.7m)
The gross margin achieved was 43.5% (2003: 39.9%).
The company achieved an operating profit after interest but before taxation of
£4.1m (2003: £0.1m) giving rise to diluted earnings per share of 9.3p compared
to 2003 of 1.3p.
The distribution and administrative costs to sales ratio decreased to 36.7%
(2003: 40.1%) reflecting an improvement in the operational gearing of the
Company.
Taxation
The overall tax charge is £1.349m (2003: £0.252m). The Company's actual
corporation tax liability is eliminated by the utilisation of tax losses brought
forward from previous years. The tax charge in the financial statements arises
due to the reduction in the deferred tax asset as a result of the utilisation of
the losses.
It is anticipated that remaining brought forward losses will be realised in 2005
and a level of tax will be payable for 2005 and onwards.
Interest
The net interest charge during the year decreased from £301,000 to £4,000 mainly
due to the company setting off its mortgage against its bank balances.
Capital expenditure
During the year the company invested £350,000 in the replacement and upgrading
of its fixed assets.
CASH FLOW AND WORKING CAPITAL
Net cash inflow from operating activities was £9.2m (2003: £1.2m) primarily
reflecting the increase in trading and the continued tight cash management.
The Company improved its stock turnover in the year to 8.9 compared to 5.8 times
in 2003, calculated by dividing cost of sales by average stock held.
Treasury and Risk Management
The principal risks to the company arise from exchange rate and interest rate
fluctuations. No transactions of a speculative nature are entered into. The
company finances its operations through a mixture of retained profits and medium
and long-term asset backed finance. The debt instruments used for fixed asset
purchase are all at fixed rates of interest. Cash deposits during the year were
placed at fixed rates of interest with varying maturity periods. The most
significant exposure to foreign exchange rate fluctuations relates to the
purchase of goods in foreign currencies.
The Company's policy is to hedge substantially all the risks of such currency
fluctuations by using forward contracts. There has been no change since the year
end to the major financial risks faced by the Company or the Company's approach
to the management of those risks.
Mike Creedon
Finance Director
2 March 2005
Consolidated Profit and Loss Account
For the Year Ended 31 December 2004
As restated
2004 2004 2003 2003
£'000 £'000 £'000 £'000
Turnover 60,382 42,655
Cost of sales (34,113) (25,654)
Gross profit 26,269 17,001
Distribution costs (1,867) (1,564)
Administrative expenses (20,293) (15,550)
Net operating expenses (22,160) (17,114)
Operating profit/(loss) 4,109 (113)
Exceptional item - 537
Net interest (4) (301)
Profit on ordinary activities
before taxation 4,105 123
Tax on profit on ordinary activities (1,349) 252
Profit for the financial year 2,756 375
Dividends (292) -
Retained profit transferred
to reserves 2,464 375
Basic earnings per share 9.4p 1.3p
Diluted earnings per share 9.3p 1.3p
Consolidated Balance Sheet
At 31 December 2004
2004 2004 2003 2003
£'000 £'000 £'000 £'000
Fixed assets
Tangible assets 7,908 8,884
Current assets
Stocks 3,829 4,410
Debtors: amounts falling due
within one year 1,354 1,249
Debtors: amounts falling due
after more than one year - 1,582
Cash 14,517 6,347
19,700 13,588
Creditors: amounts falling due
within one year (13,941) (10,597)
Net current assets 5,759 2,991
Total assets less current liabilities 13,667 11,875
Creditors: amounts falling due
after more than one year (3,367) (3,863)
Provisions for liabilities and charges (794) (991)
9,506 7,021
Capital and reserves
Called up share capital 882 881
Share premium 84 64
Special reserve - 5,709
Profit and loss account 8,540 367
Shareholders' funds 9,506 7,021
Consolidated Cash Flow Statement
For the Year Ended 31 December 2004
2004 2003
£'000 £'000
Net cash inflow from operating activities 9,225 1,225
Returns on investments and servicing of finance
Interest received 236 110
Interest paid (103) (207)
Finance lease interest paid (137) (204)
Net cash outflow from returns on investments and
servicing of finance (4) (301)
Capital expenditure
Purchase of tangible fixed assets (231) (703)
Insurance proceeds in respect of tangible fixed assets - 537
Net cash outflow from capital expenditure (231) (166)
Financing
Issue of shares 21 70
Receipts from borrowings 212 200
Repayment of borrowings (235) (263)
Capital element of finance lease payments (818) (659)
Net cash outflow from financing (820) (652)
Increase in cash 8,170 106
Notes
1 BASIS OF PREPARATION
The financial information set out above in respect of 31 December 2004 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 2004 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
2003 annual report and financial statements. The policies in this
preliminary announcement have remained unchanged from the 2003 financial
statements, with the exception of the policy relating to the presentation
of advertiser sales and certain costs as detailed below.
The treatment of advertiser sales has been amended to correctly reflect the
role of the company as agent and not principal. Sales and cost of sales
have been reduced by £2,114,000 (2003: £1,475,000) to reflect advertiser
sales as net, not gross, transactions. There is no profit effect of this
amendment.
Certain elements of the cost of sales, administration and distribution
costs of the group have been reclassified in order to give a more realistic
view of the transactional costs associated with the sales of the business.
The treatment of cost of sales has been amended to include credit card
charges and sales commissions. Cost of sales has been increased by
£715,000 (2003: £453,000) in respect of credit card charges and £16,000
(2003: £23,000) for sales commission. Equally administration costs have
been reduced. Distribution costs have been adjusted to only include
specific costs associated with the distribution of sales and remove any
overhead element previously included. Distribution costs have been reduced
by £926,000 (2003: £800,000) with administration costs increasing by the
same amount. There is no profit effect of these amendments.
2 TAXATION ON PROFIT ON ORDINARY ACTIVITIES
The tax charge/(credit) represents:
2004 2003
£'000 £'000
Corporation tax at 30% (2003: 30%) 45 21
Total current tax 45 21
Deferred tax:
Origination of timing differences 1,304 40
Adjustments in respect of prior year - (313)
Total deferred tax 1,304 (273)
Tax on profit on ordinary activities 1,349 (252)
The deferred tax charge of £1,304,000 represents partial release of the deferred
tax asset established in respect of trading losses in prior years under FRS 19.
3 DIVIDENDS
2004 2003
£'000 £'000
Proposed dividend for the year ended 31 December 2004 of
1p (2003: nil) per share 292 -
The proposed dividend is subject to approval by shareholders at the Annual
General Meeting.
4 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:
2004
Weighted
average Per share
Earnings 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
2003
Weighted
average Per share
Earnings number of amount
£ Shares Pence
Earnings attributable to ordinary shareholders 375,000 29,200,570 1.3
Dilutive effect of securities:
Options - - -
Diluted earnings per share 375,000 29,200,570 1.3
5 REPORT and Accounts
Copies of Company's annual report and accounts will be posted to the
shareholders shortly.
This information is provided by RNS
The company news service from the London Stock Exchange
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