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Released: 30/01/2009
com:20090130:Rnsd5053M
.
RNS Number : 5053M
Jessops plc
30 January 2009
30 January 2009
Jessops plc Preliminary Results
Jessops plc, the UK's largest photographic retailer,
today reports on its results for the year to 30 September 2008
Highlights
Financial Highlights
* Like for like sales down 6.5% (2007: down 8.6%)
* Gross Profit Margin increased to 32.0% (2007: 30.8%)
* Cash generated before working capital movements of £0.1m (2007: outflow
£18.1m)
* Loss before non-recurring items and tax £19.1m (2007: loss £9.3m)
* Stock tightly managed down to £26.1m (2007: £38.0m)
* Net liabilities £15.3m (2007: net assets £32.4m)
* Net debt £57.4m (2007: £46.9m)
* Extension of banking facility to 31 December 2011
* Like for like sales for 8 weeks ended 25 January up 3.8%
Operational Highlights
* Store opening at Westfield development, West London
* Investment in two new store formats and refurbishment of our flagship London
Oxford Street store
* Strengthened Developing & Printing offer including new partnership with CeWe
* Re-launch of online D&P website under www.jpics.com banner including new
photobook service
David Adams, Executive Chairman, said:
"In a difficult and uncertain retail environment we focussed on improving
margins and on strengthening our relationships with key suppliers. We
significantly reduced stock levels during the period with further reductions
since the year-end. We were pleased to renew our banking agreement.
It is not clear when economic conditions will improve but the combination of our
strong market position, solid relationships with suppliers and continuing cost
reductions should ensure that Jessops is in the best position operationally to
deal with the very difficult economic conditions in which we are operating."
For further information please contact:
Jessops plc Tel: 0116 232 6000
David Adams, Executive Chairman
Brunswick Tel: 020 7404 5959
Jonathan Glass
Robert Gardener
Claire Gore
Chairman's Statement
Overview
Like for like sales for the year ended 30 September 2008 were down 6.5% year on
year (2007: 8.6%) in what has been a very challenging year for the business
against difficult economic conditions particularly during the last six months.
The total digital camera market for the year to September 2008 was up 7.9% in
volume but flat year on year in value terms. This represents a sharp reversal
during the six months to 30 September 2008 as in the six months ended 31 March
2008 the market was up 10% in volume and 5.8% in value. This is the first time
for many years that the digital camera market as a whole has seen such a
slowdown. In spite of the stores we closed last year our share of the total
digital camera market by value at 15.9% was only marginally down when compared
to 18.7% last year.
The compact camera market was up 7.3% in volume but down 5% in value and the
DSLR market was up 16.1% in volume and 19.3% in value.
We specialise in the retailing of higher end cameras and the average price of a
camera sold by Jessops continues to be above the market average at £228.98
(2007: £206.45) compared to the market average of £132.95 (2007: £143.31). In
the last six months of the year we reacted to market demands by including
cameras retailing at under £100 and this segment now represents 43% by value of
all cameras sold in the market. It is the growth of this sub sector that has
continued to drive down the average price of a camera.
We are making progress upgrading the quality of our estate and as I set out
below we have started a programme of store refurbishment. On 30 October 2008 we
opened a new store in the prestigious Westfield development in White City, West
London. This store showcases the latest developments in camera retailing and is
the blueprint for any future new store openings or major refurbishments. Its
performance to date has been very encouraging.
On 26 September 2008 we signed an extension to the banking facility agreed on 30
August 2007. This extends the facility until 31 December 2011 and more details
are set out below.
Current Trading and Outlook
These are the most difficult and uncertain retail trading conditions that we
have seen in the photographic market for a long time.
Our recent trading results reflect these difficult conditions and in the 17
weeks ended 25 January 2009 like for like sales were down 4.1% (17 weeks ended
27 January 2008: down 4.6%).
Our like for like sales for the 8 weeks ended 25 January 2009 were, however, up
3.8% (2008: 8 weeks ended 27 January 2008: down 1.4%) but this achieved was at
the expense of margin and our gross margin for the 13 weeks to 28 December 2008
was down 4.2% points year on year to 27.4%. It is highly likely that had we not
decided to increase our promotional stance during this period like for like
sales would have continued to decline.
We are managing our stocks tightly and on 28 December 2008 stocks were £24.4
million compared to £26.7 million as at 30 September 2008 and £30.7 million on
30 December 2007.
As set out in Note One to the Accounts, which contains an Emphasis of Matter as
did the Accounts for the year ended 30 September 2007, it is highly likely that
our long term debt will be re-classified as short term debt during the course of
this year. In order to avoid any uncertainty during the coming year we are
actively engaging with our advisers and HSBC Bank plc to put the business on a
more stable footing for the future. It is highly likely that this exercise will
involve a fundamental restructuring of our debt.
We occupy a strong position in the market place and have solid relationships
with our suppliers. We continue to make whatever changes are necessary across
the business to reduce our cost base and improve our delivery to our customers.
It is not clear when economic conditions will improve but the combination of our
strong market position, solid relationships with suppliers and continuing cost
reductions should ensure that Jessops is in the best position operationally to
deal with the very difficult economic conditions in which we are operating.
Financial Performance
Total revenue fell to £250.1 million from £325.5 million last year and there was
a loss before non-recurring items and tax of £19.1 million (2007: £9.3 million).
In the period from July 2007 to October 2007 81 stores were closed. The
increase in the loss before non-recurring items and taxation was principally
caused by an increase in finance expense to £15.6 million (2008: 7.1 million) as
the financing costs incurred for the re-financing in 2007 were fully expensed.
The total pre tax charge for non-recurring items, excluding the impairment of
goodwill, was £3.8 million (2007: £30.2 million). This relates primarily to an
increase in the provisions against the costs of disposing of the stores that
remain from the closure programme undertaken in 2007.
We have re-assessed the future cashflows of the business and, due primarily to
the continued decrease in like for like sales compounded by the difficult
economic outlook, they are now not expected to recover the carrying value of the
goodwill attaching to the business. Therefore we have recognised a charge of
£26.9 million (2007:£30.3 million) to impair the goodwill to £20.8 million.
The total charge to non-recurring items before taxation in the year was
therefore £30.7 million (2007: £60.5 million).
The total loss after tax for the year is £50.2 million (2007: £63.5 million).
We continued to focus on working capital and stock at the year end was further
reduced to £26.1 million from £38.0 million last year with the average stock
holding per store on a like for like basis reduced by 29% year on year (2007:
17%).
The net bank debt at the year end was £57.4 million (2007: £46.9 million).
Net liabilities at 30 September 2008 were £15.3 million (2007: £32.4 million).
The Directors are not recommending a final dividend for the year (2007: nil per
share).
Banking Facility
On 26 September 2008 we signed an extension to the banking facility agreed on 30
August 2007, which extends the facility until 31 December 2011
Under the terms of the extension we have a committed facility of £52.0 million
and a revolving overdraft facility to provide working capital during the course
of the year.
As part of this extension the £7 million deferred financing fee due on 31
December 2008 has been reduced to £5 million and is now due on 31 December 2011.
As part consideration for this reduction and deferral of the financing fee,
warrants over a further 5% of the issued share capital were granted to HSBC Bank
plc on 26 September 2008. HSBC Bank plc now holds warrants over 15% of the
issued share capital.
Business Review
The operational focus in the year has been on six key areas: Brands, Customer
Service, Store Development, Developing & Printing and Costs. We are in the
business of selling branded photographic equipment and are working closely with
our key suppliers to ensure we have good ranges and presentation. We believe
that this is key to securing our position as the leading service provider in the
market. We continued to invest in our service proposition with increased
training, both in store and on line. Again, significant work has been undertaken
with our leading suppliers to ensure our store colleagues have the best
available product training.
One of our key financial focuses during the year was to increase the gross
margin. Despite the difficult market conditions this was achieved and the gross
margin for the year increased to 32.0% from 30.8% last year (2007 before
non-recurring items), primarily due to a reduction in discounting.
As set out in our interim statement we committed funds to upgrading the quality
of our estate and during the course of the year we invested in two new formats
and in our flagship New Oxford Street store as follows:
* Six "Heartland" stores, a concept which modernises our stores with greater
focus on branded product and developing and printing ("D&P"). We have been
supported by Canon, Sony and CeWe Colour Labs ("CeWe"), who have upgraded their
in-store point of sale to provide more focus and support for their products.
This has worked well and we are in discussions with our other main suppliers to
provide similarly enhanced point of sale. We also rolled out the key parts of
the concept to the top 100 stores in time for Christmas trading.
* Twelve "Lite" stores where we have significantly reduced the range and
therefore the stock held. This has allowed for greater clarity for our
customers. We will be extending this concept across a further 25 stores early in
2009.
* At our flagship London store in New Oxford Street we have commenced a major
refurbishment. The first phase, comprising a new D&P area and PhotoAcademy, was
completed before Christmas and the second phase is commencing in early 2009.
We continue to invest in our on-line business and during the year we upgraded
our web technology to provide enhanced functionality and greater capacity on the
www.jessops.com site. This has improved our ability to communicate with our
customers and allowed us to launch more web exclusive offerings over the
Christmas trading period and beyond.
D&P remains a key focus of the business and in the year as a whole we printed 99
million digital images, an increase of 13% over last year's 88 million, adjusted
for closed stores. During the year we have significantly improved the
operational efficiency of our D&P business by closing our central lab, which was
becoming increasingly more inefficient and falling behind the latest
technological developments. To replace the central lab we signed an agreement
with CeWe the leading European photographic developer and printer, under which
they will provide all our non store based printing and developing. This
consolidates for the first time all of our out-sourced printing and will provide
a more robust and higher quality service.
We have re-launched our on-line photo printing operation under the www.jpics.com
domain name. This includes a new photobook service, which we believe to be the
leading offering in the UK market place. Our photobook offering is available
both in store and online and customers can make their own printed books from
their photos. It is based on CeWe's market-leading offer in continental Europe
and should provide a growing source of income and profit over the coming years.
The new service was launched in August 2008 and from a base of zero we sold over
6,000 photobooks over Christmas 2008.
We have taken significant steps to reduce our overhead costs further and as set
out in our interim statement, in May we reduced our head count across the estate
by 230 as we restructured the in-store operations, which should produce an
annualised saving of over £2.5 million. We continue to review the staffing
levels in our stores and at Head Office and will make further changes where
necessary in order to achieve the joint objectives of reducing costs and
improving the focus on customers.
The retailing environment for our products remains challenging but we continue
to receive support from our suppliers who are introducing attractive product
with increased functionality at ever more attractive prices.
People
This has been another year of more change for everyone in the business and I
would like to thank our colleagues for the way they have responded to the
unprecedented economic challenges we have faced during the year.
Recognition
In December we were delighted once again to receive Practical Photography
Magazine and Digital Photo Magazine's award for "Best Photo Retailer of the
Year" for 2008; the 13th year in succession that we have received this award. I
am particularly pleased to have won the award again this year given the
challenges facing the business and it is great testimony to our colleagues'
determination to provide the best service for our customers.
For the year ended 30 September 2008
Results before non-recurring items for the year Results before non-recurring items for the year
ended Non recurring items in the year ended 30 ended Non recurring items in the year ended 30
30 September 2008 September 2008 30 September 2007 September 2007
(see note 3) Total year ended (see note 3) Total year ended
30 September 2008 30 September 2007
£000 £000 £000 £000 £000 £000
Revenue 250,136 - 250,136 320,754 4,731 325,485
Cost of sales (170,047) - (170,047) (221,954) (21,308) (243,262)
Gross profit 80,089 - 80,089 98,800 (16,577) 82,223
Operating expenses (85,439) (3,821) (89,260) (102,323) (13,582) (115,905)
Impairment of goodwill - (26,900) (26,900) - (30,300) (30,300)
Operating loss (5,350) (30,721) (36,071) (3,523) (60,459) (63,982)
Finance expense (15,557) - (15,557) (7,094) - (7,094)
Finance income 1,795 - 1,795 1,333 - 1,333
Lossbefore taxation
(19,112) (30,721) (49,833) (9,284) (60,459) (69,743)
Taxation (398) - (398) 1,479 4,803 6,282
Lossfor the year
(19,510) (30,721) (50,231) (7,805) (55,656) (63,461)
Loss per ordinary share - basic
(48.8)p (61.7)p
Loss per ordinary share - diluted
(48.8)p (61.7)p
All loss is attributable to equity shareholders.
Consolidated Statement of Recognised Income and Expense
For the year ended 30 September 2008
Year ended Year ended 30 September
30 September 2007
2008
£000 £000
Actuarial gain / (loss) recognised in the pension scheme 3,021 (419)
Deferred tax on actuarial (gain) / loss in the pension (846) 126
scheme
Impact of tax rate changes on deferred tax asset - (162)
Foreign exchange translation differences 16 (18)
Net income and expense recognised directly in equity 2,191 (473)
Lossfor year (50,231) (63,461)
Total recognised income and expense relating to the year (48,040) (63,934)
All recognised income and expense is attributable to equity shareholders.
Consolidated Balance Sheet
At 30 September 2008
At At
30 September 2008 30 September 2007
(as restated)
£000 £000
Non current assets
Goodwill 20,788 47,688
Intangible assets 6,209 7,982
Property, plant and equipment 28,718 36,115
Deferred tax assets 1,036 2,208
56,751 93,993
Current assets
Inventories 26,143 37,967
Trade and other receivables 11,245 13,453
Cash and cash equivalents - 13,079
37,388 64,499
Current liabilities
Bank overdrafts and borrowings (8,206) (348)
Obligations under finance leases (1,414) (1,356)
Trade and other payables (36,644) (53,231)
Provisions (2,857) (3,235)
Current tax liabilities (442) (557)
(49,563) (58,727)
Net current (liabilities) / assets (12,175) 5,772
Non current liabilities
Borrowings (54,861) (57,086)
Obligations under finance leases (1,313) (2,388)
Retirement benefits obligations (3,708) (7,886)
(59,882) (67,360)
Net (liabilities)/assets (15,306) 32,405
Equity
Issued capital 2,571 2,571
Share premium 89,161 89,161
Retained earnings (107,038) (59,311)
Translation reserve - (16)
Total equity attributable to equity shareholders of (15,306) 32,405
the parent
Consolidated Cash Flow Statement
For the year ended 30 September 2008
Year ended Year ended
30 September 2008 30 September 2007
(as restated - See note 8)
£000 £000
Cash flows from operating activities
Loss before taxation (49,833) (69,743)
Adjusted for:
Finance income (1,795) (1,333)
Financing costs 15,557 7,094
Depreciation and amortisation 10,076 13,774
Impairment of goodwill 26,900 30,300
Employee related share-based payments 225 246
Exchange difference 14 (18)
Loss on disposal of property, plant and equipment 130 2,567
Pension contributions in excess of charge (1,157) (1,001)
Operating cash flows before movement in working capital
117 (18,114)
Decrease in inventories 11,824 24,136
Decrease / (Increase) in receivables 2,208 (2,769)
Decrease in payables and provisions (16,833) (4,978)
Cash absorbed by operations (2,684) (1,725)
Taxes (paid) / received (187) 5,335
Net cash from operating activities (2,871) 3,610
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment - 1,262
Acquisition of property plant and equipment (1,103) (5,704)
Acquisition of intangible assets (300) (923)
Acquisition of business assets - (200)
Net cash from investing activities (1,403) (5,565)
Cash flows from financing activities
Proceeds from new bank loan - 60,000
Repayment of borrowing (348) (27,500)
Repayment of finance lease liabilities (1,018) (2,476)
Payment of finance expenses (12,859) (5,792)
Redemption of preference shares - (1,291)
Purchase of own shares - (115)
Dividends paid - (1,543)
Net cash from financing activities (14,225) 21,283
Net (decrease) / increase in cash and cash equivalents
(18,499) 19,328
Cash and cash equivalents at the beginning of the period
13,079 (6,249)
Cash and cash equivalents at the end of the period
(5,420) 13,079
Notes to the Financial Statements
1. Accounting Policies
Jessops plc is a Company incorporated in England and Wales.
Basis of Preparation
The financial statements are being prepared on a going concern basis which the
Directors believe to be appropriate for the reasons set out below.
The Company and the Group meet their day to day working capital requirements and
medium term funding requirements through banking facilities. The facilities in
place at the year end were established by
renegotiating the prior facilities as at 26 September 2008. As at the year end
the terms of the facilities, including covenants, were met and hence the debt is
shown as due in part in greater than one year from the balance sheet date.
The facilities include an overdraft which is available on a seasonal basis and
varies between £1 million and £8 million in total. In addition to the total
facility limit, the facilities include certain covenant tests. The failure of a
covenant test renders the entire facilities repayable on demand at the option of
the lender.
In the immediate future the Directors expect that the Group will breach its
covenants under its existing banking facilities and so the entire bank debt will
be repayable on demand at the option of the lender.
The Directors have prepared trading and cash flow forecasts for a period in
excess of one year from the date of approval of these financial statements which
project that the total facility limit is not exceeded over the duration of the
forecasts. The forecasts prepared make assumptions in respect of future trading
conditions, and in particular the trend in Like-for-like revenue not being
significantly worse than achieved in the first 16 weeks of the current financial
year, achieving operational improvements, cost reductions and cash outflow
deferral in respect of property lease payments. In addition to this the nature
of the Group's business is such that there can be variation in the timing of
cash inflows as trading patterns develop, in particular the quantum and timing
of Summer and Christmas trading activity. The forecasts
take into account the aforementioned factors to an extent which the Directors
consider to be reasonable, based on the information that is available to them at
the time of approval of these financial statements.
In discussions with the Group the existing lenders have indicated that,
notwithstanding the expected covenant breaches referred to above, it is their
current intention (a) not to seek early repayment of the bank loans and (b) to
continue to make available the undrawn element of the facilities. However, the
existing lenders have also indicated that they will not increase the total
borrowing facilities made available to the Group.
In the event that the current intentions of the lenders changes in respect of
the existing undrawn facilities or repayment of those facilities, or in the
event that additional funds are required in excess of the existing facilities as
a result of the group not substantially achieving its forecasts, the Directors
would have to supplement, renew or replace those facilities with facilities that
are appropriate to the Group's ongoing requirements. The potential source and
cost of such facilities is a matter which the Directors are currently
considering although they regard the likelihood of securing new or revised
facilities to be low
These conditions indicate the existence of a material uncertainty which may cast
significant doubt on the company's and the group's ability to continue as a
going concern and therefore the company/group may be unable to continue to
realise assets and discharge liabilities in the normal course of business. These
financial statements do not include any adjustments that would result from the
going concern basis of preparation being inappropriate.
The financial information set out above does not constitute the company's
statutory accounts for the years ended 30 September 2008 or 2007 but is derived
from those accounts. Statutory accounts for 2007 have been delivered to the
registrar of companies, and those for 2008 will be delivered in due course. The
auditors have reported on those accounts; Their reports, which were unqualified,
include in respect of each year a reference to the disclosures in the financial
statements concerning the company and group's ability to continue as a going
concern, to which the auditors drew attention by way of emphasis without
qualifying their report. Their reports did not contain a statement under section
237(2) or (3) of the Companies Act 1985 Notes to the Financial Statements
continued
2. Non-recurring Items
In 2008 the Group incurred non-recurring cost of £30.7 million before tax
relating to goodwill impairment of £26.9 million, a cost of £0.6 million in
achieving reduction in staffing levels at stores and in head office, an increase
of £3.1 million in the provision against disposal of the Group's vacant
properties, a release of other restructuring accruals of £0.3 million and a
charge for other items of £0.5 million.
In 2007 the Directors undertook a detailed Strategic Review of the business
which involved the closure of 81 stores and the rationalisation of the Head
Office Support Centre, together with a detailed program to reduce stock holdings
within the business. Further to this, the Directors performed a detailed review
of the balance sheet which resulted in certain adjustments being booked.
An analysis of the non-recurring items incurred in the year to 30 September 2007
is given below.
2007 Revenue Cost of sales Operating expenses Impairment of goodwill Total
£000 £000 £000 £000 £000
Store closures - - (9,509) - (9,509)
Head office reorganisation - - (1,288) - (1,288)
Cost of restructuring and reorganisation - - (10,797) - (10,797)
Stock clearance 4,731 (18,846) - - (14,115)
Net restructuring costs 4,731 (18,846) (10,797) - (24,912)
Professional fees - - (1,285) - (1,285)
Total cost of corporate restructuring 4,731 (18,846) (12,082) - (26,197)
Impairment of goodwill - - - (30,300) (30,300)
Balance sheet review - (2,462) (1,500) - (3,962)
Total non-recurring items before tax 4,731 (21,308) (13,582) (30,300) (60,459)
The balance sheet review related to changes in accounting estimates relating to
the carrying amounts of certain assets and liabilities.
Notes to the Financial Statements continued
3. Financial Income and Expense
2008 2007
£000 £000
Finance expenses:
Bank borrowings 13,666 5,491
Other interest 217 197
Interest on pension scheme liabilities 1,674 1,406
Finance expense 15,557 7,094
Finance income:
Expected return on pension scheme assets (1,631) (1,242)
Other interest (78) (91)
Net gain on derecognition of financial liability (see
note 19) (86) -
Finance income (1,795) (1,333)
13,762 5,761
In accordance with IAS 39 'Financial Instruments', the finance costs associated
with the HSBC facilities form part of the overall effective interest rate.
Finance expenses includes the fair value charge in respect of warrants of
£76,000 (2007; £1,093,000).
In the cashflow statement presented in the prior year the payment of finance
expenses was classified as an operating cashflow. In the current year all
payments of finance expense have been classified as financing. In the opinion of
the Directors this is most appropriate. The comparatives have been restated
accordingly.
Notes to the Financial Statements continued
4.
More to follow, for following part double-click [nRn2d5053M]