RNS Number:1680M
Premier Direct Group PLC
16 November 2006
PREMIER DIRECT GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JULY 2006
Premier Direct Group Plc ('the Group' or 'PDG'), the leading nationwide
shopping-at-work provider based in Newcastle, announces its preliminary results
for the year ended 31 July 2006.
OVERVIEW
2006 2005
#'000 #'000
Turnover 23,128 42,441
Proforma* turnover 20,976 23,073
Operating profit before exceptional costs 541 5,814
Exceptional costs (4,187) (1,128)
Operating (loss)/profit after exceptional costs (3,646) 4,686
(Loss) / profit before taxation (4,130) 4,399
* Proforma turnover represents like-for-like turnover adjusted
for the model change implemented in 2005/6 and excluding trade
sales.
* Acquisition of Oriflame - completed in May 06 and now successfully
integrated.
* Loss per share 14.0p (2005: Earnings per share (restated) 14.9p).
* No final dividend is proposed for 2006 (2005: 3.0p (restated))
* Current trading is encouraging.
Commenting, Graham Wilson, Chairman, said:
"The second half of the year has been particularly difficult for the Group as
operational problems affecting our underlying business performance were
identified and addressed. A root and branch review of the business was
undertaken and a number of management and operational changes were made which
the Board believes were necessary to rebuild firm foundations for the Group's
future growth. The difficulties encountered and the remedial actions taken have
resulted in substantial exceptional costs being incurred during the financial
year under review.
Since the year end, the operational changes have stabilised the business,
reversed the decline in distributor earnings and established a stable platform
on which to build future profitable growth".
Press enquiries
Eric McClenaghan PDG, c/o Biddicks 020 7448 1000
Jonathan Marren KBC Peel Hunt, Brokers 020 7418 8900
Zoe Biddick Biddicks, Financial PR 020 7448 1000
CHAIRMAN'S STATEMENT
Introduction
Premier Direct Group Plc ("PDG" or "the Group"), the leading nationwide
shopping-at-work provider today announces its results for the year ended 31 July
2006.
The second half of the year has been particularly difficult for the Group as
operational problems affecting our underlying business performance were
identified and addressed. A root and branch review of the business was
undertaken and a number of management and operational changes were made which
the Board believes were necessary to rebuild firm foundations for the Group's
future growth. The difficulties encountered and the remedial actions taken have
resulted in substantial exceptional costs being incurred during the financial
year under review.
Since the year end, the operational changes, which are explained in detail
below, have stabilised the business, reversed the decline in distributor
earnings and established a stable platform on which to build future profitable
growth.
Operating Review
The Group experienced a number of operating difficulties in the second half of
the year, the full extent of which did not become apparent until the final
quarter of the year.
From February 2006 onwards, the average selling price of stock fell, which,
along with other factors had an adverse impact on distributor earnings in
particular territory overlaps. The reduced earnings levels and subsequent loss
of distributors was a result of the following factors:
* Territory overlaps arising from acquisitions;
* Difficulties with our returns function, resulting in backlogs and poor
quality reworking of stock for sale through our distributor network;
* A high level of tired stock;
* Sub optimal mix of products; and
* Tough retail market conditions.
As a result of these factors, there was a substantial reduction in our
distributor network leading to a significant adverse effect on our results for
the second half of the year. The Board decided to undertake a very thorough
review of the business and identified actions required to improve the Group's
future performance:
* Rationalising territory maps from three down to one, thereby greatly
improving stock utilisation;
* Restructuring warehouse and returns functions to improve efficiency;
* Changing the structure and focus of our recruitment team;
* Recruiting more discerningly in individual locations thereby reducing
competition for calls;
* Disposing of the older tired stock outside the distributor network,
thereby improving distributors' earnings in the coming year;
* Implementing a new more focused buying strategy; and
* Testing and implementing a range of new marketing initiatives.
Warehousing and logistics
As previously reported, we reviewed the effectiveness of the outsourcing of our
product returns and repackaging operations in autumn 2004. The outsourced
operation failed to deliver either the anticipated high quality of output or the
expected cost reductions and was therefore brought back in house during October
2005. This operation had not been effectively run for some time and it took
several months into 2006 for the returns function to reach the level of
performance required for the smooth running of the business.
Purchasing and stock allocation
The task facing the stock allocation team has been significantly simplified as a
result of the territory realignment. Also during the latter part of the year our
purchasing teams and systems were strengthened to enable the delivery of a
stronger product flow. The Board expects better buying and a single territory
structure to substantially improve our distributor earnings, their recruitment
and retention in the coming year.
The Group continues to benefit from sourcing relationships in the Far East with
DS-MAX and others, which will continue to provide the business with a
competitive advantage in the UK in terms of product range and cost.
As a result of the reduction in distributor numbers in the second half of the
year, PDG experienced a much larger volume of tired stock. The Board has decided
to clear this stock by a bulk disposal resulting in a substantial stock write
down in the 2006 results. This will refresh our product range, improve future
distributor earnings and reduce working capital.
Sales and marketing
Following the growth in distributor numbers in the first half of 2005/06,
territory overlaps arising from the various acquisitions made by PDG became the
single largest issue facing the business in the third quarter of 2005/06. Each
of the businesses acquired operated a different territory map. This adversely
affected stock utilisation across the country and resulted in the Group having
to buy a greater range of lines to service our distributor network. The Group
struggled to provide the level of earnings distributors had previously
experienced. This led the Board to implement a single territory map covering all
the brands operated by the Group. This was launched in August 2006 and has met
with the overwhelming approval of the distributors who have already seen an
improvement in their sales.
The Board also identified the need to operate a more discerning recruitment
policy, both in terms of the individual distributor and each geographical
territory. The Board imposed limits on our distributor network and on our
distributor density in any one area to match the perceived capacity of the
particular area. One consequence of this is that we no longer intending to use
all existing 12 brands but will instead focus on the more established and
recognised trading styles. As part of this decision we have reviewed the
carrying value of goodwill attributed to the brands and impaired goodwill
relating to the brands no longer being utilised.
Our sales recruitment structure has also been reduced and realigned to match our
revised growth plans, with some exceptional costs incurred in the implementation
of this strategy.
As a new initiative we have begun trialling certain new marketing plans to
further increase the attractiveness of our product offering. These include
redesigning our marketing material, packaging of products and the introduction
of special offers. Initial trials have proved encouraging.
Directors, staff and distributors
During the financial year there have been a number of changes to the Board.
Firstly in November 2005, Barry Moat stepped down as Chief Executive and was
replaced by Eric McClenaghan our then Managing Director. The Board was also
strengthened by the appointments of Eric Blakie and Paul Southworth as
Non-Executive Directors.
During 2006, Andrew Dean, Finance Director, and Chris Teasdale, Operations
Director both left the Group and Rick Crane, Group Sales Director, stepped down
from the Plc Board to take up the role of sales director in the Oriflame
business. The Board took the opportunity to streamline the Group's management
structure and Board of Directors. The Group formed two operational boards, the
first to manage the PDG shopping-at-work business and the second to manage the
Oriflame cosmetics business acquired in May 2006. A number of key appointments
have been made to fill the positions on the operational boards. Following the
restructuring, the Plc Board now comprises the Chairman, Chief Executive,
Finance Director and two Non-Executive directors.
In September 2006 the Board appointed Graeme Allison as Finance Director for the
Group.
The year under review saw the number of distributors initially increase to over
700. However, following the difficulties experienced in the second half of the
year the distributor network has settled at a core number in the region of 500
active distributors. The Group is currently focusing on retaining quality
distributors and recruiting at a slower rate than initially planned in 2005.
The Directors are very grateful to all our staff for their efforts in
integrating the Oriflame business and their help in seeing the Group through a
difficult period.
The acquisition of Oriflame UK Limited
On 8 May 2006, PDG announced the acquisition of Oriflame Cosmetics operations in
the UK ('Oriflame'). Oriflame's high-quality natural skin care products are
exclusively marketed to customers through an extensive network of independent,
self-employed sales people, known as sales consultants. Products are typically
offered through catalogue distribution, at in-home demonstrations, or simply
shared among friends and family.
Oriflame is a globally successful group but had experienced a number of years of
declining trade in the UK due primarily to difficulties in retaining and
recruiting new consultants. PDG has substantial recruitment skills in this area
and the Board believes these skills will be fundamental in turning the Oriflame
business around. In particular, PDG has a number of members of staff and
directors with many years experience in cosmetic sales and rapid recruitment of
self-employed sales distributors and the Board believe these skills, which were
so successful in growing PDG over recent years, can be successfully applied to
Oriflame.
The operations of Oriflame have already been restructured to eliminate the
ongoing losses and Oriflame has contributed profitably (#419,000 gross profit)
to the results for the year.
The Board would like to take this opportunity to offer a warm welcome to all the
staff and sales consultants of Oriflame.
Financial Review
Profit and loss account
Effect of model change
The Group changed the way in which it trades with its distributors in the second
half of the year ended 31 July 2005. This change impacted the way in which
turnover is reported in two ways:
* Turnover is now the value of goods sold to distributors (previously it
was the value to the end customer) and is therefore lower for the same value
of goods despatched. This is offset by a reduction in commission paid.
* At implementation, the model change caused a one off acceleration of
turnover by bringing forward the point of recognition.
To enable like for like comparison of turnover in the periods under review to be
made, the directors have presented pro-forma turnover figures below.
Year ended Year ended
31 July 31 July
2006 2005
#'000 #'000
Turnover as reported 23,128 42,441
Deduct the turnover of Oriflame (523) -
Deduct the turnover of trade sales (1,629) (3,337)
Deduct the reduction of sales
value on the selling to
distributors rather than to the
end consumer - (9,889)
Deduct the one-off acceleration on
the implementation of model change - (6,142)
-----------------------
Proforma turnover 20,976 23,073
=======================
Note: the above analysis is unaudited and provided for illustrative purposes
only.
Turnover for the year fell to #23.1 million from an actual reported turnover of
#42.4 million in 2005. Proforma turnover fell from #23.1 million to #21.0
million, a like for like fall of 9.1%. This fall was a result of reducing
distributor numbers and reduced average sales per distributor during the year.
Pre tax losses for the year were #4.1 million after exceptional costs of #4.2
million (2005: profit #4.4 million). The operating profit for the year was #0.54
million before the exceptional costs (2005: #5.8 million). The operating loss
was #3.6 million after exceptional costs (2005: profit #4.7 million).
Gross margins for the year have fallen to 24.0% (2005: 26.7%). However due to
the model change it is difficult to form a like for like comparison of the gross
margin in the periods under review. For this reason the directors have presented
pro-forma gross profit figures below to allow comparison of the underlying
margin trend.
Year ended Year ended
31 July 31 July
2006 2005
#'000 #'000
Gross profit 5,553 11,329
Deduct the gross profit of Oriflame (419) -
Add back the gross loss /
(profit) on trade sales 612 (430)
Add back the exceptional stock
provision 2,096 346
Deduct the one-off acceleration
of gross profit on implementation
of model change - (2,457)
---------------------
Proforma gross profit 7,842 8,788
---------------------
Proforma gross profit margin 37.4% 38.1%
=====================
Note: the above analysis is unaudited and provided for illustrative purposes
only.
The proforma gross profit margin has fallen slightly to 37.4 % (2005:38.1%), due
to the discounting of product during the second half of 2005/6.
Administrative expenses have increased by 34.8% to #9.2 million (2005: #6.7
million), primarily as a result of the inclusion of exceptional restructuring
costs. These costs are principally represented by goodwill impairment (#1.25m),
termination costs (#0.3m) and further bad debts (#0.2m). In addition, as
previously reported at the interim stage there was an exceptional bad debt
expense of #0.25 million and aborted deal costs of #0.10 million. The total of
these costs is #2.10 million
Net interest costs amounted to #0.5 million (2005: #0.3 million) reflecting
higher levels of borrowing taken on to fund increased working capital.
The tax credit for the year was #1.2 million (2005: charge #1.4 million), which
arose due to the loss in the year. This loss will be relieved against profits in
the previous year. The loss for the financial year was #2.9 million (2005:
profit #3.0 million).
The Board is not proposing the payment of a final dividend (2005: 3.0 pence
(restated)). An interim dividend was paid of 1.6 pence per share in June 2006
(2005: 1.4 pence (restated)), therefore the total dividend was 1.6 pence (2005:
4.4 pence (restated)) for the year. It is the intention of the Board to resume
dividend payments as soon as future profitability allows.
Cash flow and banking facilities
Group net debt increased from #4.5 million at the beginning of the year to #6.6
million at 31 July 2006. This increase arose due to a number of factors
including the loss for the year and the payment of dividends and corporation tax
during the year.
Our banking partners have been supportive of the business during difficult times
and revised facilities sufficient for our medium term needs were agreed during
August 2006.
Balance sheet
At 31 July 2006 the Group's balance sheet demonstrates net assets at #4.3
million (2005: #8.0 million) against borrowings of #6.6 million (2005: #4.5
million).
Outlook
The Board is pleased to report that the remedial actions taken during the last
few months are proving to be effective and have been well received by our
distributors. In the important pre Christmas sales period, our distributors are
enjoying much improved levels of sales compared to both last year and historic
levels. The overhead costs of the Group have been reduced and the benefits of
this will be further evident in the results for 2006/07. Oriflame continues to
trade in line with the Board's expectations.
Following a very difficult second half of 2005/06, the Board is cautiously
optimistic about the future prospects for Premier Direct Group Plc.
Graham Wilson
Non-Executive Chairman
16 November 2006
Consolidated profit and loss account
for the year ended 31 July 2006
Note 2006 2005
#000 #000
Turnover
Continuing operations 22,605 41,586
Acquisitions 523 855
-------------------------
23,128 42,441
Cost of sales (17,575) (31,112)
-------------------------
Gross profit 5,553 11,329
Administrative expenses (9,246) (6,743)
Other operating income 47 100
-------------------------
Operating (loss) / profit
Continuing operations (3,832) 4,634
Acquisitions 186 52
-------------------------
(3,646) 4,686
Operating profit before exceptional 541 5,814
costs
Exceptional cost of sales 2 (2,096) (346)
Exceptional administrative expenses 2 (2,091) (782)
-------------------------
Operating (loss) / profit (3,646) 4,686
-------------------------
Profit on sale of fixed assets 13 -
Interest payable and similar charges (497) (287)
-------------------------
(Loss) / profit on ordinary activities
before taxation (4,130) 4,399
Tax on (loss)/ profit on ordinary
activities 1,241 (1,390)
-------------------------
(Loss) / profit for the financial year (2,889) 3,009
-------------------------
(Loss) / earnings per share (2005 3
restated) (14.0p) 14.9p
-------------------------
Diluted (loss) / earnings per share 3
(2005 restated) (14.0p) 14.6p
-------------------------
The Group had no recognised gains or losses other than those included in the
profit and loss account in the current and previous year.
Consolidated balance sheet
at 31 July 2006
Note As restated
(Note 5)
2006 2005
#000 #000 #000 #000
Fixed assets
Intangible assets 5,871 5,339
Tangible assets 1,458 1,396
------- -------
7,329 6,735
Current assets
Stocks 4,443 5,343
Debtors 7,313 9,427
Cash at bank and in hand 261 -
------- -------
12,017 14,770
Creditors: amounts falling due 5 (10,405) (12,475)
-------- --------
within one year
Net current assets 1,612 2,295
------- -------
Total assets less current liabilities 8,941 9,030
Creditors: amounts falling due 6
after more than one year (4,669) (1.052)
-------- -------
Net assets 4,272 7,978
-------- -------
Capital and reserves
Called up share capital 207 204
Share premium account 3,596 3,463
Profit and loss account 469 4,311
------- -------
Shareholders' funds 4,272 7,978
------- -------
Consolidated cash flow statement
for the year ended 31 July 2006
Note 2006 2005
#000 #000
Reconciliation of operating (loss)/
profit to net cash flow from operating
activities
Operating (loss)/profit (3,646) 4,686
Depreciation charges 257 254
Amortisation and impairment of goodwill 1,634 321
Decrease in stocks 928 1,926
Decrease/(increase) in debtors 3,455 (6,987)
Decrease/(increase) in creditors (1,702) 1,078
----------------------
Net cash inflow from operating
activities 926 1,278
----------------------
Cash flow statement
Cash flow from operating activities 926 1,278
Returns on investments and servicing (394) (221)
of finance
Taxation (1,484) (812)
Capital expenditure (306) (227)
Acquisitions 57 (582)
Dividends paid on shares classified in
shareholders' funds 4 (953) (848)
----------------------
Cash outflow before financing (2,154) (1,412)
Financing 2,212 (824)
----------------------
Increase / (decrease) in cash in the
year 58 (2,236)
----------------------
Reconciliation of net cash flow to movement
in net debt
Increase / (decrease) in cash in the 58 (2,236)
year
Cash (inflow)/outflow from decrease in
debt and lease financing (2,125) 798
----------------------
Change in net debt resulting from cash (2,067) (1,438)
flows
Non-cash changes (25) (190)
----------------------
Movement in net debt in the year (2,092) (1,628)
Net debt at the start of the year (4,539) (2,911)
----------------------
Net debt at the end of the year (6,631) (4,539)
----------------------
Notes
1. Basis of preparation
The financial information contained in the preliminary announcement does not
constitute statutory accounts within the meaning of section 240 of the Companies
Act 1985. The financial information for the year ended 31 July 2005 has been
extracted from the statutory accounts for that year which has been filed with
the Registrar of Companies and which contain an unqualified audit report.
The financial information for the year ended 31 July 2006 has been extracted
from the statutory accounts for that year which contain an unqualified audit
report. These accounts will be filed with the Registrar of Companies after the
Annual General Meeting, which is to be held on 15 December 2006.
The statutory accounts have been prepared in accordance with applicable
accounting standards and under the historical cost accounting rules.
2. Exceptional operating costs
2006 2006 2005 2005
Cost of sales #000 #000 #000 #000
Stock net realisable value provision,
arising from the change in business
model - 346
Stock net realisable value provision
- trade disposal 2,096 -
------ -----
2,096 346
Administrative expenses
Bad debt provision 415 230
Costs associated with introduction of 552
new trading business model with
distributors and restructuring,
principally termination costs,
professional costs and warehousing
and labour costs
-
Goodwill impairment 1,247 -
Termination costs 293 -
Aborted deal costs 136 -
------- ------
2,091 782
------ ------
4,187 1,128
------ ------
The tax effect of the above is to reduce the current year UK corporation tax
charge by #1,234,000 (2005: #338,000).
3. (Loss)/earnings per share
(Loss)/earnings per share is calculated by dividing the loss after taxation for
the year of #2,889,000 (2005: profit #3,009,000) by the weighted average number
of shares, 20,608,043 (2005: 20,223,375), in issue during the year.
The diluted (loss)/earnings per share is calculated by dividing the loss after
taxation of #2,889,000 (2005: profit #3,009,000) by the weighted average number
of shares adjusted to allow for the issue of shares on the assumed conversion of
dilutive options. The adjusted weighted average number of ordinary shares
arising from these calculations in 2006 is 20,698,226 (2005: 20,591,950). In
2006, as the impact of the dilutive options would be to reduce the loss per
share, they are not treated as dilutive. The diluted loss per share is therefore
unchanged from the basic loss per share.
On 14 December 2005 the company's ordinary shares of 5p each were subdivided
into five ordinary shares of 1 pence each. The weighted average number of shares
in both 2005 and 2006 have been adjusted as if the subdivision had occurred at
the beginning of 2005. The earnings per share and diluted earnings per share for
2005 have therefore been restated.
4. Dividends
The aggregate amount of dividends comprises:
As restated
(note 8)
2006 2005
#000 #000
Final dividends paid in respect of prior year but
not recognised as liabilities in that year
(pence per share 3.0p/2.8p) 611 564
Interim dividends paid in respect of the current
year (pence per share 1.6p/1.4p) 342 284
----- ------
Aggregate amount of dividends paid in the
financial year 953 848
----- ------
No final dividend is proposed in respect of 2006. In 2005 a final dividend of
#611,000 was proposed but, following the adoption of FRS 21 'Events after the
balance sheet date' this is not recognised as a creditor at 31 July 2005 as it
was not approved before the year end.
The pence per share numbers have been restated as if the sub-division of 5p
ordinary shares into 1p ordinary shares, which occurred on 14 December 2005, had
occurred at the beginning of 2005.
5. Creditors: amounts falling due within one year
As restated
(note 8)
Group Group
2006 2005
#000 #000
Bank overdraft 2,412 2,209
Bank loan 2,564 1,192
Deferred consideration 608 26
Obligations under finance leases and hire
purchase contracts 60 86
Trade creditors 3,770 4,952
Corporation tax - 1,894
Other taxes and social security 139 1,304
Other creditors 11 456
Accruals and deferred income 841 356
-------- --------
10,405 12,475
-------- --------
The Group's banking partners have been supportive of the business during
difficult times and revised facilities sufficient for its medium term needs were
agreed during August 2006.
6. Creditors: amounts falling due after more than one year
Group Group
2006 2005
#000 #000
Bank loan 1,812 947
Deferred consideration 1,497 -
Obligations under finance leases and hire
purchase contracts 44 105
Accruals and deferred income 1,316 -
------- -------
4,669 1,052
------- -------
7. Acquisitions
On 8 May 2006, the Group completed the acquisition of Oriflame UK Limited. The
acquisition has been accounted for using the acquisition method of accounting
and goodwill arising has been capitalised and will be amortised over a period of
20 years, its expected useful economic life.
Book and
fair value
#000
Current assets
Stock 28
Debtors 511
Cash 178
----------
Total assets 717
----------
Liabilities
Trade creditors (557)
Tax and social security (100)
-----------
Total liabilities (657)
-----------
Net assets 60
Goodwill 2,166
-----------
Purchase consideration and costs 2,226
-----------
of acquisition
Satisfied by:
Deferred consideration 2,105
Costs of acquisition 121
-----------
2,226
-----------
8. Prior year adjustment
The Group has applied Financial Reporting Standard 21 'Events after the balance
sheet date' and under this FRS dividends which have been declared after the
balance sheet date are no longer recognised as a liability unless they are
appropriately authorised and no longer at the discretion of the company.
Adjustments to figures previously published have been made as follows:
Group
2005
#000
Creditors: Amounts falling due within one
year
As previously stated 13,086
Less: proposed dividend no longer recognised (611)
------
As restated 12,475
------
Shareholders' funds
As previously stated 7,367
Add: proposed dividend no longer recognised 611
------
As restated 7,978
------
Dividends are no longer disclosed on the face of the profit and loss account but
are charged directly to profit and loss account reserves.
9. Annual report
The Annual Report and the financial statements for the year ended 31 July 2006
will be posted to shareholders. Further copies of this announcement will be
available from the company's registered office at Simonside East Industrial
Park, Newcastle Road, South Shields, and Tyne & Wear, NE34 9AA for a period of
not less than 14 days from the date of this announcement.
KBC Peel Hunt Lt, 111 Old Broad Street, London, EC2N 1PH, is the Nominated
Adviser to the company.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR ZGMMMRKVGVZM
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